Learning Technologies Group plc
ANNUAL
REPORT
2017
learning
technologies
group
For the year ended 31 December 2017 Leading the learning
revolution at work
Our aim is to be the global leader in technology-driven workplace
learning – a high-growth, fragmented market.
To achieve this, we will continue our strong organic growth and
augment it with further acquisitions.
What we do
Learning Technologies Group plc (LTG) is a disruptor in the
high-growth e-learning market.
We provide leading, end-to-end workplace digital
learning solutions.
We also create, implement and maintain integrated
e-learning strategies for our global clients.
As we enter the digital age, corporate and public sector
clients demand data-driven solutions from providers
with scale and experience of complex projects on tight
timelines. We believe LTG is the only player to provide
such a broad range of capabilities.
A significant proportion of our business is focused on
attractive, regulated sectors such as financial services,
defence and pharmaceuticals.
We have a track record of expanding our capabilities
through targeted investment in research and
development and strategic acquisitions.
Listed on AIM, LTG is headquartered in London with
offices in Europe, the United States, Asia-Pacific and
Latin America.
Content & Services
Platforms
A learning
technologies firm
focused on working
with international
organisations
to help them
transform their
approach to
learning.
A Governance, Risk
and Compliance
(GRC) training
consultancy,
specialising in the
financial services
sector.
A BAFTA award-
winning applied
games studio,
designing games
to use the power
of gaming to
engage, educate
and communicate
in the areas of
learning, health,
engagement
and training.
A global provider
of on-premise
and SaaS-
based learning,
knowledge and
performance
management
solutions with a
particular focus on
highly regulated
industries.
A SaaS-based
authoring tool that
offers clients a
flexible and cost-
effective solution
for creating,
hosting, updating
and tracking their
own multi-device
learning content.
An expert in
e-learning
standards,
providing the
technology
that drives and
connects learning
software.
LTG owns a 27% equity stake in Watershed, a developer of the next
generation learning analytics platform, creating and utilising ‘big
data’ to develop pioneering learning content and systems.
Table of contents
1. Chairman’s Statement
29. Consolidated Statement of Comprehensive Income
7. Strategic Report for the year ended
31 December 2017
16. Directors’ Report for the year ended
31 December 2017
20. Corporate Governance Report
22. Report of the Audit Committee
23. Report of the Remuneration Committee
24. Directors’ Responsibilities Statement in respect
of the Annual Report and the Financial Statements
30. Consolidated Statement of Financial Position
31. Consolidated Statement of Changes in Equity
32. Consolidated Statement of Cash Flows
33. Notes to the Consolidated Financial Statements
for the year ended 31 December 2017
70. Company Statement of Financial Position
71. Company Statement of Changes in Equity
72. Notes to the Company Financial Statements for
the year ended 31 December 2017
25. Independent Auditor’s Report to the Members
of Learning Technologies Group plc
77. Company Information
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CHAIRMAN’S STATEMENT
Learning Technologies Group plc (“LTG”), a market-leader
in the fast-growing workplace e-learning market, has made
excellent progress during 2017. The Group offers end-to-end
learning solutions ranging from strategic consultancy, through
a range of content and platform solutions, to analytical insights
that enable corporate and government clients to meet their
performance objectives.
In addition to the acquisition in March 2017 and strong
subsequent performance of NetDimensions Holdings Limited
(‘NetDimensions’), LTG’s other businesses delivered robust
results with strong organic revenue growth and improved
adjusted EBIT margins.
As a result, revenues increased by 84% to £52.1 million
(2016: £28.3 million), adjusted EBIT by 102% to £14.0 million
(2016: £7.0 million) and adjusted diluted EPS by 74% to 2.064
pence (2016: 1.184 pence). Adjusted EBIT margins have
improved from 24.6% in 2016 to 27.0% in 2017 and we expect
sustainable adjusted EBIT margins in the mid-to-high twenties
in future periods. Statutory profit before tax for the year was
£0.7 million compared with a loss before tax of £1.2 million
for 2016, after accounting for acquisition-related deferred
consideration as deemed remuneration.
The acquisition of NetDimensions, successful development
of new learning technology solutions, and expansion into
new geographical markets has seen the Group increase
its recurring revenues from software licences and support
contracts to 39% (2016: 27%). Recurring revenues relate to
contracts that are ordinarily renewed on a regular basis (e.g.
annual or multi-year software licences and support contracts).
Over the same period revenues generated outside of the UK
have risen from 36% in 2016 to 46% in 2017.
Market opportunity
In an increasingly fast-moving global service-based economy,
organisations are becoming more aware of the significant
impact that incremental improvements in staff performance
can have on their businesses, particularly in efficiency,
customer service and profitability.
The global corporate training market is estimated to be
worth $200-$300 billion and includes many product and
service offerings, ranging from traditional formats such as
classroom training through various types of learning content
and delivery platforms. LTG is focused on the digital learning
segment of this market, which is estimated to be worth $90-
$110 billion in 2017 and growing at not less than 10% per
annum. Organisations are now looking to more precisely
measure which learning interventions are most effective,
using adaptive models which draw data from multiple
sources to establish returns on e-learning investment, by
identifying and increasing the opportunities and ‘touchpoints’
at which they can understand, intervene and improve the
performance of their employees and other stakeholders in
their ‘extended enterprises’, such as suppliers, partners and
customers. Learners are also becoming more demanding in
requiring immediate support contextualised to their precise
requirements at any time, in any location and on any device.
The e-learning industry is highly fragmented, comprising a
multitude of small operators with each offering a limited range
of services. There are few providers that are able to offer
clients truly comprehensive services, which meet their evolving
requirements for data-driven solutions, and have the scale
and in-depth experience to service large corporations and
government organisations. We believe LTG is the only player to
provide such a broad service offering.
The market opportunity for LTG is to build the leading
end-to-end workplace digital learning solutions provider,
which partners its global clients through the creation,
implementation and maintenance of their integrated
e-learning strategies.
Dividend and Annual General Meeting
In light of the results for 2017 and to demonstrate our
confidence in the prospects for the Group in 2018, the Board
is recommending an increased final dividend of 0.21 pence
per share (2016: 0.14 pence per share), giving a total dividend
for the year of 0.30 pence per share (2016: 0.21 pence
per share), representing a 42.9% annual increase. This final
dividend is subject to shareholder approval at the forthcoming
Annual General Meeting to be held on 24 May 2018.
If approved, the final dividend will be paid on 6 July 2018 to all
shareholders on the register at 8 June 2018.
Current trading and outlook
The Group has enjoyed a strong start to 2018 and is trading
ahead of management’s expectations. We expect the current
financial year to benefit from our record order book, increased
sales resulting from our compelling blended learning
capability and continuing strong margins. LTG has substantially
diversified its geographical reach and recurring revenue base
in the past year and has developed a broad client portfolio,
across both corporate and government sectors. Management
is also actively pursuing acquisition opportunities in line with its
strategic objectives.
The Board is therefore confident in the Group’s prospects and
expects to report enhanced progress during 2018.
Andrew Brode
Chairman
16 March 2018
Strategic progress
On 20 March 2017, LTG declared its all-cash offer for
NetDimensions, the integrated enterprise learning
management software platform provider, unconditional in
all respects. NetDimensions is a leading global enterprise
solutions provider, headquartered in Hong Kong, with
operations in the US, Europe and APAC. The business is
a strategic fit with LTG and is complementary to its other
companies, which allows LTG to offer a full suite of services to
its customers. The company has approximately 70% recurring
revenues through its SaaS and on-premise licence solutions,
reseller programs and support services, and has a particular
focus on highly regulated industries where compliance and
operational requirements are especially complex.
At the time of the offer, LTG set out an ambitious integration
plan to realise substantial synergies and improve working
practices to increase efficiencies, and the Board is pleased
to report that the integration of NetDimensions into the Group
was successfully completed on time, on budget and realised
synergies ahead of expectations.
When LTG came to AIM in November 2013, the Board set
the ambitious target of achieving run-rate revenues of £50
million and EBITDA margins of 20% by the end of 2018. I am
delighted that the Board was able to announce that it had
achieved these objectives more than one year ahead of
plan. In October the Board announced LTG’s new strategic
objectives: to double run-rate revenues to £100 million and
for run-rate adjusted EBIT to exceed £25 million by the end of
2020. The Board will seek to meet these objectives through
a combination of strong organic growth as well as strategic
acquisitions that complement the current business. It is
the intention of the Board to finance any acquisitions and
research and development through the use of internally
generated operating cash flows and prudent debt financing,
and to minimise dilution for shareholders, notwithstanding that
the Company may use its equity to accelerate growth ahead
of these 2020 goals.
People
The Group has enjoyed another transformational year with
the Group delivering strong organic revenue growth and
improved margins, whilst at the same time delivering great
customer service and truly leading the learning revolution in
the workplace. This could not have been achieved without the
skill, passion and dedication of all our staff across the globe.
On behalf of the Board, I would like to thank them for their
efforts during the year.
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CASE STUDIES - CONTENT & SERVICES
Anglo American
Cutting-edge Learning & Development
Tate
A meticulous VR reimagining of
Amedeo Modigliani’s last Parisian studio
The result:
• Explored all of the influencing factors
that contributed to on-site incidents
and has become a core element
of Anglo American’s incident
investigation training programme.
• Has now also become a key part
of Anglo American’s leadership
programme looking at the role of
leaders in helping to create a safety
culture.
• Video has been shared with both the
South Africa Chamber of Mines and
the International Council of Mining
& Minerals, receiving very positive
feedback from members.
The solution:
• Flew a small crew from the UK to South
Africa to film at a real working mine
– something almost unheard of in
Learning & Development.
• Portrayed, through video, the fictional
story of an investigation into a mine
fatality, which followed the site
manager’s moving journey of reflection.
The challenge:
Health and safety is critically important
in the mining industry, where lives are
literally on the line. LEO’s consultative
approach saw Anglo American choose
a strategically-designed blended
learning solution comprising several
learning formats. This included a
broadcast-length interactive drama
video, which probed safety issues,
while increasing empathy. The goal
was to help achieve an ambitious
target of ‘zero harm’ among 87,000
staff worldwide.
A leading investment bank
Guiding global teams through regulatory upheaval
The challenge:
The organisation needed to bring over 100,000 employees
in 70 countries up to speed with MiFID II (Markets in Financial
Instruments Directive), a major new set of legislation for EU
The solution:
• Eukleia’s effective strategy and innovative in-house
technology delivered to challenging timelines, without
compromising quality.
financial markets. Their entire global workforce needed to be
• Eukleia’s learning consultants designed a bespoke
trained to a strict deadline ahead of the regulation coming
‘stranded’ course, targeting content to each business area.
into force.
• Content was successfully translated into seven languages.
• The client has commissioned a variety of new courses with
Eukleia for 2018.
The challenge:
To create a museum first by integrating
an HTC VIVE VR experience into the
Modigliani exhibition at Tate Modern.
This allows audiences to learn more
about the artist by digitally recreating
the room where he lived and worked in
the final months of his life.
The solution:
• Modigliani’s studio was reimagined
in VR to provide a unique insight into
where he painted his final works,
including his final self portrait.
• 60+ objects and artworks were
authentically recreated using
extensive art historical research, and
the art itself for reference.
• The project launched in November
2017 to acclaim from visitors and
press, all pointing to an enhanced
feeling of empathy and an
appropriate use of technology.
“A stunning virtual reality recreation of
Modigliani’s last studio” - The Times
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CASE STUDIES - PLATFORMS
Rentokil Initial
Engaging digital training for 30,000 employees worldwide
The challenge:
• Rentokil needed to create engaging digital training content
for 30,000 employees worldwide, with different language
requirements.
• Rentokil needed an authoring tool powerful enough to help
them train over 1,800 local service teams in 70 countries.
• Content needed to be mobile-friendly for a workforce that’s
always on the go.
The solution:
• Created over 55 hours of online training courses globally
using gomo.
• Trained customers, added value to contracts and
upskilled staff in 22 languages through gomo’s translation
capabilities, including non-Roman languages and
languages which are not written from left-to-right.
• Transformed courses, including compliance and product
knowledge, into fully responsive learning available
on multiple device types (desktop, laptop, tablet or
smartphone).
The result:
• Reached more learners quickly – global induction course
taken by almost 12,000 colleagues in two months.
Moody’s Analytics
Supporting business expansion through a
modern learning management system
The challenge:
NetDimensions has been supplying course management,
hosting and distribution solutions to Moody’s Analytics since
2016. The company implemented NetDimensions Talent
Suite to meet its strategic goals of growth into new markets
The solution:
• Following successful implementation in EMEA, Moody’s
Analytics extended its partnership with NetDimensions for an
additional 36 months to support business expansion globally.
• Consolidated three legacy platforms into a new, unified
(supported by NetDimensions’ multi-language capabilities).
NetDimensions instance with modern interface.
In 2018, Moody’s Analytics sought to further expand their use
of the e-learning platform in order to meet growth targets.
• Achieved the migration in excellent time with positive feedback.
GamEffective
One platform for all training needs
The challenge:
• GamEffective, a gamified microlearning platform and
Gartner Cool Vendor in Human Capital Management,
wanted to expand their market by supporting a wider
variety of content types.
The solution:
• After integrating Rustici’s SCORM Engine, GamEffective
was able to save on high development costs and add
e-learning standards support in just three weeks.
The result:
• Clients can now use just one platform for all of their training
needs, whether proprietary GamEffective content or
e-learning standards-based courses (including SCORM, xAPI
and AICC).
• By saving time and resources, GamEffective’s developers
were able to get to market faster and focus development
efforts on their core product and growth.
A global wholesale distributor
Making learning a measurable business metric through
advanced analytics and data mapping
The challenge:
After investing in new ERP technology, the
company had a wealth of data on their
specific business challenges. They tasked
their Learning & Development team with
mapping learning competencies against
critical business KPIs. Watershed, of
which LTG owns a 27% equity stake, was
chosen to provide a solution that would
meet the company’s ambitious learning
measurement goals.
The solution:
• Watershed worked collaboratively with
the client to define data collection
strategies and metrics to track.
• Successfully delivered a dashboard with
innovative features and functionality
that provided graphical representations
of data.
• Key learning competencies, such as
financial acumen and inventory, are
now linked to specific KPIs and are
visible via a single dashboard.
The result:
• Insights derived from Watershed
dashboards helped managers
increase financial acumen scores
by nearly 13%.
• Better cost control and asset
management contributed to a
decade-high operating margin
of 6.7%.
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STRATEGIC REPORT
For the year ended 31 December 2017
Financial results
In the year ended 31 December 2017, the Group generated
revenue of £52.1 million (2016: £28.3 million), delivering an
84% year-on-year increase. Excluding the acquisition of
NetDimensions and adjusting revenues as if all businesses
that were part of the Group in 2016 reported on a full year
basis, organic revenue growth in 2017 was 36%. On a constant
currency basis, organic revenue growth was 35% and after
excluding the impact of the Civil Service Learning (‘CSL’)
project organic revenue growth was 20%.
Adjusted EBIT increased by 102% to £14.0 million (2016: £7.0
million). The Group measures adjusted EBIT to provide a
better understanding of the underlying operating business
performance. Adjusted EBIT is defined as the Group profit or
loss before tax, excluding share-based payment charges,
acquisition-related deferred consideration and earn-outs,
finance expenses, the Group’s share of profits or losses
in associates and joint ventures and other specific items.
Integration, amortisation of acquired intangibles, acquisition-
related deferred consideration and earn-outs are primarily
driven by acquisition activity rather than by the underlying
performance of the business – therefore they are excluded
from adjusted EBIT to provide a more accurate reflection of
the business performance. The share-based payment charge
is calculated based on a set of circumstances that existed at
the point of issue of the share option. The expense is therefore
not seen as a reliable indicator of the underlying performance
of the business and is excluded from adjusted EBIT. On a
constant currency basis there would only have been a trivial
impact on adjusted EBIT in 2017.
The implementation of operational best practice across the
Group, increased economies of scale and a change in the
revenue mix of the Group towards higher margin recurring
licence sales, contributed towards a significant improvement
in adjusted EBIT margins in the year to 27.0% (2016: 24.6%).
These improved margins were achieved despite the post-
acquisition loss incurred by NetDimensions in the second
quarter, prior to the benefits of the integration programme
being realised during the second half of the year.
On a like-for-like basis, as if the businesses that LTG owned
at the end of 2017 had been owned at the end of 2016, the
order book is substantially ahead of the prior year, bolstered
by the increased proportion of multi-year licence sales
and strong sales performance in Q4 2017. The order book is
defined as the value of contracts won but not yet delivered.
The amortisation charge for acquisition-related intangible
assets was £7.8 million (2016: £3.2 million) and is discussed
further in Note 12. The amortisation charge for internally
generated development costs was £0.6 million (2016: £0.4
million) and relates to the development of the NetDimensions
Talent Platform; ‘gomo’, the Group’s award-winning multi-
device authoring tool; various software tools used within the
Eukleia business, including an internally generated library of
governance, risk and compliance (‘GRC’) materials used to
service clients; and internally developed software in Rustici
including SCORM and xAPI tools. The share-based payment
charge increased marginally from £0.6 million in 2016 to £0.7
million in 2017. Further details are provided in Note 24.
Integration costs of £1.2 million (2016: £0.1 million) relate to
various restructuring charges, including redundancy costs, an
onerous lease charge and senior management travel during
the integration of NetDimensions. The Group successfully
completed this ambitious programme between April and July,
as a result of which annualised cost synergies of more than
£5.7 million have been realised.
•
Statutory profit before tax was £0.7 million, compared with
a loss before tax of £1.2 million, and unadjusted operating
profit was £2.6 million, compared to an unadjusted operating
loss of £0.1 million in 2016. These are stated after acquisition-
related deferred consideration and earn-out charges of
£1.9 million (2016: £3.2 million) relating to the acquisition of
Rustici and reflect the strong incremental revenue growth of
the business post-acquisition. Costs of acquisitions in 2017
were £0.9 million (2016: £0.1 million) and a net credit related
to contingent consideration on the acquisition of Preloaded,
was £11,000 (2016: charge of £57,000). Interest charges on
the debt facility were £0.6 million (2016: £0.4 million) and net
foreign exchange losses were £0.2 million (2016: £0.3 million).
Adjusted profit before tax (see Note 9) increased by 109% to
£13.4 million in 2017 (2016: £6.4 million).
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Net cash generated from operating activities was £10.8 million
(2016: £2.0 million), equivalent to an adjusted operating cash
flow conversion rate of 95% (2016: 100%). Adjusted operating
cash flow conversion is defined by net operating cashflows
after adjusting for acquisition-related deferred consideration
and earn-out payments, transaction costs, interest and tax
paid and the movement of deferred upfront investment
outflows relating to the CSL project as a proportion of adjusted
EBIT. Operating cash flows in 2017 include receipts from the
CSL project whereas the upfront investment outflows were
paid in 2016. Debtor days were 57 days (2016: 54 days), and
combined debtor and WIP days were 22 days (2016: 29
days), reflecting the Group’s implementation of accelerated
invoicing and effective credit control.
Corporation tax payments were £0.7 million (2016: £0.6
million). Cash outflows from investing activities were £47.5
million (2016: £15.7 million) and comprised the acquisition
of NetDimensions for £53.6 million (£45.7 million net of cash
acquired) and investment in internally generated IP and
property, plant and equipment. Cash inflows from financing
activities were £47.6 million (2016: £11.6 million) and include
net proceeds from a share placing (£45.4 million) and
net debt finance raised of £1.8 million pertaining to the
NetDimensions acquisition, proceeds from the exercise of
employee share options (£1.7 million) and dividend payments
which increased to £1.3 million from £0.7 million in 2016.
Acquisition of NetDimensions
On 20 March 2017, LTG declared its all-cash offer for
NetDimensions, the integrated enterprise learning
management software platform provider, unconditional
in all respects. Of the total consideration of £53.6 million
for NetDimensions, as at 31 December 2017, £53.5 million
had been paid to shareholders in NetDimensions who
had accepted the offer, with the balance held in trust by
NetDimensions Holdings Limited. With effect from July 2017, the
non-controlling shareholders’ interests in NetDimensions have
been acquired by LTG. There are no deferred consideration
obligations.
The offer was financed by way of a placing of 124 million
LTG shares issued at 37.5 pence per share and a new debt
finance facility, details of which are set out in Note 21.
Transaction costs charged to the income statement totalled
£0.9 million. Goodwill on acquisition has been calculated
at £21.9 million with acquisition-related intangibles of £34.3
million represented mainly by customer relationships and the
acquired IP. NetDimensions delivered revenue of £12.9 million
and £3.5 million profit before tax to the Group for the following
nine months. Further details are provided in Note 11.
The income tax credit of £1.2 million in 2017 (2016: charge of
£133,000) is stated after adjusting for the effect of the release
of deferred tax on the amortisation of acquired intangibles
and a deferred tax asset related to the anticipated vesting of
share options. Further details are provided in Note 8.
Based on the average number of shares in issue, weighted
average number of shares outstanding and adjusted
operating profit during the year, adjusted diluted EPS
increased by 74.3% to 2.064 pence (2016: 1.184 pence). On a
statutory basis, basic earnings per share (‘EPS’) increased from
a loss of 0.317 pence in 2016 to a profit of 0.379 pence in 2017.
Further details are provided in Note 9.
The Group has a strong balance sheet, with shareholders’
equity at 31 December 2017 of £76.8 million, equivalent to
13.4 pence per share (2016: shareholders’ equity of £30.7
million, equivalent to 7.3 pence per share).
At the time of the acquisition of NetDimensions, LTG entered
into a new debt facility with Silicon Valley Bank (‘SVB’) for
£30 million. The facility comprises a £10.0 million term loan
repayable in quarterly instalments of £0.5 million, a £10.0
million revolving credit facility, and a £10.0 million accordion
facility all available for five years. The new SVB debt facility
replaced LTG’s previous $20 million debt facility with Barclays
Bank PLC. The term loan and majority of the revolving
credit facility were drawn down in USD. The facility is subject
to various financial covenants and interest is charged at
between 160 and 210 basis points above LIBOR, based on the
covenant results. See Note 21 for further details.
Net USD cash receipts to the business have operated as a
partial internal hedge against movements in the exchange
rates between Sterling and the USD. Management regularly
review the foreign exchange exposure of the Group. Further
details are provided in Note 29.
The gross cash position at 31 December 2017 was £15.7 million
(2016: £5.3 million). The Group’s net cash at 31 December
2017 was £1.0 million (2016: net debt of £8.5 million). Net cash
is defined by gross cash less borrowings.
2015201620170.7561.1842.064Adjusted dEPS(pence) 9
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STRATEGIC REPORT (CONTINUED)
For the year ended 31 December 2017
LTG undertook an ambitious integration programme during
the second quarter of the year, resulting in substantial and
sustainable cost savings. Amongst the measures taken,
NetDimensions Interactive, the company’s US-based
e-learning content operation, was merged with LEO Learning
Inc., NetDimensions’ customer support teams have been
relocated to the geographical territories that they serve,
hosting services have been migrated to a more flexible
environment managed out of our Nashville office, and we are
investing in our core technology team to continue to be at the
forefront of innovation in the learning technology sector. We
appointed a new Global Head of Sales in April who has been
instrumental in achieving retention rates of almost 100% since
acquisition, as well as an impressive new contract win rate.
LTG is also investing in the development of the NetDimensions’
reseller network, as well as leveraging Group central services
such as marketing, HR and IT support.
Our strategy
LTG’s aim is to create a group of market-leading businesses
providing complementary services in the fast-growing learning
technologies sector to form an international business of a size
and scale that is able to meet the demanding expectations
of corporate and government customers. This strategy is being
delivered through a mixture of ‘best in class’ acquisitions that
will help us create a comprehensive e-learning solution for our
customers, strategic partnerships to deliver ‘blended’ learning
solutions combining digital and more traditional forms of
learning, as well as through targeted investment in internally
generated intellectual property and the extension of best
working practices to deliver strong organic growth.
We continue to pursue our strategy of helping organisations
adopt learning at a strategic level. ‘Moving learning to the
heart of business strategy’ is achieved through our end-to-end
service offering, which enables us to partner with global clients
throughout the creation, implementation and maintenance
of their learning strategies. We deliver transformational results
through learning innovation and the effective use of learning.
Each of our Group businesses brings a range of capabilities or
sector specialisms that allow us to build on this strategic vision.
The Group’s offering comprises two principal divisions: Content
& Services and Platforms.
Content & Services
The Content & Services division comprises strategic consulting,
content creation, and platform development services. In
2017 it accounted for £30.5 million, or 59% of Group revenues
(2016: £19.4 million / 69%).
LEO Learning (‘LEO’) is the Group’s strategic consultancy
that works with clients to understand their requirements,
build strategic roadmaps and then help them implement
the delivery. Born out of the merger of Epic and LINE
Communications in 2014, LEO now has offices in London,
Brighton and Sheffield in the UK, New York and Bloomington,
Indiana, in the US, and through its Brazilian joint venture, in Rio
de Janeiro and São Paulo.
Over the years LEO has developed sector expertise,
particularly in areas such as automotive, retail and luxury
brands. Through its Eukleia business LTG has also acquired
a specialist expertise in governance, risk and compliance
services, particularly in the financial services sector, which are
delivered from its offices in London and New York.
Our expert learning practitioners work with clients to realise
their strategic objectives, generate unique and compelling
content, develop and support tailored delivery platforms and
implement analytic tools that enable clients to quantify the
impact of learning on their businesses and further refine and
develop their strategic plans.
Learning content can take a number of forms, such as face-
to-face training and traditional mediums, but is increasingly
delivered through mediums such as PCs, tablets and mobile
phones. Content is becoming more interactive and can
include videos and animation, branching scenarios, games,
and virtual and augmented reality as part of the ‘blended
offering’.
Preloaded, the Group’s BAFTA award-winning agency, is at
the forefront of the ’gamification’ of learning content, or more
particularly, ‘play with purpose’. In 2017 the company received
accolades for its virtual reality learning experiences at the
Science Museum and the Modigliani exhibition currently
running at Tate Modern. In early 2018 it partnered with the BBC
and Google to produce the ‘BBC Earth: Life in VR’ experience
to coincide with the launch of Google’s DayDream View
headset.
OUR STRATEGIC AMBITION:
LEADING THE LEARNING REVOLUTION AT WORK
Our strategy is to provide a market-leading, seamless
digital learning solution to meet the demanding
expectations of large corporate and government
customers.
Our aim is to build LTG as an international leader in
e-learning solutions. We intend to expand our offering
organically, through strategic partnerships and via
acquisitions.
A strong partner network enables the business to
deliver expertise beyond internal capability, placing
the customer at the forefront of every solution.
LTG’s acquisition strategy places emphasis on
broadening geographical reach (particularly
in the United States), with a particular focus on
developing presence in highly regulated sectors (e.g.
pharmaceutical, energy and aviation).
A focus on research and development will enable
innovation through creative design and the latest
technologies, as LTG continues to place digital at the
heart of comprehensive blended learning.
We continue to develop, evolve and innovate our
portfolio of brands in a highly fragmented, fast-
growing e-learning sector to ensure that LTG remains
differentiated from its competitors.
LTG’s comprehensive service offering
ACTION
ADVISORY
CREATION
• Learning transformation
• Corporate initiatives
• Culture change
• Driving the business case
for change
• Blended learning consultancy
• Tactical
• Strategic
• Operational
• Learning strategy
• Performance improvement
• Learning architectures
• Business analytics
• Defining success
ANALYTICS
• Learner and business
data
• Analytics
• Measurement
• Impact evaluation
• Multi-device learning
• Bespoke
• Generic
• Video and animation
• Games and gamification
• Virtual Reality (VR)
• Augmented Reality (AR)
• Face-to-face training
• Performance support
• Knowledge management
DELIVERY
• Multi-device delivery
• PC, tablet, smartphone
• Platforms
• Learning Management
System (LMS)
• Learning Record Store (LRS)
• Portals
• Authoring (gomo)
• Translation and localisation
• Support
LTG’s global network
UK
London
Brighton
Sheffield
USA
Atlanta, GA
Bloomington, IN
Nashville, TN
New York, NY
Brazil
Rio de Janeiro
São Paulo
Germany
Frankfurt
Hong Kong
Wan Chai
11
plc Annual Report 2017
plc Annual Report 2017 12
EBIT in 2017 by £0.7 million to £51.4 million and £13.4 million,
respectively, as revenues that were previously recognised at
the commencement of licence periods are now recognised
over the licence term of typically one to three years. The
underlying performance of the business, including project
delivery and cash generation, is unaffected by these
accounting adjustments.
Key Performance Indicators
The Key Performance Indicators (‘KPIs’) are sales, profit and
cash flow. The sales of the business are tracked through the
Order Book (unworked contracted sales). Profitability of the
business, with its relatively low fixed-cost base, is managed
primarily via the review of revenue, with secondary measures
of consultant utilisation and monthly project margin reviews.
Working capital is reviewed by measures of debtor days and
combined debtor and WIP days.
STRATEGIC REPORT (CONTINUED)
For the year ended 31 December 2017
During 2016 LEO, in partnership with KPMG LLP, completed
the roll-out of a new core-curriculum to the entire UK Civil
Service (‘CSL’). This involved the development of 15 core-
curriculum areas, ranging from leadership and management
to EU practices, and including ‘blended’ course design
encompassing face-to-face training and e-learning content.
The content was designed, built and launched in less than a
year as part of a three-year contract to deliver learning to over
400,000 civil servants. LTG benefited from substantial revenues
in 2017, as the courses were launched and adopted faster
than management’s expectations. As a result of the revenue
sharing structure of the partnership, and the accelerated
revenue generation during the year, the Board anticipates that
revenues will continue for the first half of 2018 and then drop
significantly in the second half of 2018 and 2019, the last year
of the current contract.
As part of the Group’s services offering LEO is one of the world’s
leading Moodle platform developers. Moodle is an open-
source Learning Management System (‘LMS’) platform used
by organisations throughout the world and LEO helps clients
build new Moodle systems and provides ongoing support
and service desk assistance to clients around the world, with
particular success in the US.
The majority of Content & Services projects are delivered on a
non-recurring, fixed-price basis. Through its well-tried systems
and processes LTG constantly monitors the delivery of projects
to ensure that they are delivered on time, to budget, and
that they meet or exceed clients’ expectations. As a result,
the Group achieves consistent gross margins and sees a high
level of repeat business.
Platforms
The Platforms division comprises on-premise and SaaS
licences, as well as hosting, support and maintenance
services for those software licences. In 2017 it accounted
for £21.6 million or 41% of Group revenues, up from £8.9
million (31%) in 2016 aided by strong organic growth and
the acquisition of NetDimensions. The Platforms division
contributes a substantial portion of the Group’s recurring
revenues.
Compelling e-learning content needs a platform through
which it can be delivered to learners and LTG is building a
comprehensive range of delivery solutions. Learning and
talent management platforms can perform a variety of
functions that enable companies and governments to
direct or empower learners to understand their learning
requirements, tailored to the employees and their employers’
requirements, and then manage them along their ‘learning
journey’, from recruitment and onboarding through continuous
performance improvement during their career. Learners can
record their learning history through a Learning Record Store
(‘LRS’).
The acquisition of NetDimensions in March 2017 brought to the
Group a leading global proprietary Learning Management
System (‘LMS’) to complement LEO’s Moodle service offering,
enabling LTG to offer clients a full suite of delivery options.
The NetDimensions platform allows clients to deliver learning
to their own employees and extended enterprise, and is
particularly suitable to high-consequence industries, such as
the pharmaceutical and automotive industries.
Post-acquisition, NetDimensions showed considerable success
in renewing contracts, and the Board were particularly
pleased with the level of conquest sales. The Group is intent
on investing in the platform and has set out a comprehensive
development roadmap. Key successes in 2017 were the
integration of the gomo and Watershed applications into the
NetDimensions system offering.
LTG has developed its own cloud-based multi-device
authoring tool, gomo, which enables clients to create their
own e-learning content and to collaborate and publish rich
and compelling learning content to a variety of platforms
(including PCs, tablets and smartphones) in real-time. Gomo
has won a series of significant contracts during 2017 and,
through its SaaS-based annual licences is achieving retention
rates in excess of 90%, and grew sales by 67% during the year.
In order for LMSs to communicate with a multitude of content
from various service providers, the e-learning industry uses an
interoperability standard. This global standard is referred to
as SCORM, and this protocol has underpinned the delivery of
digital learning content for nearly two decades. Rustici, the
acknowledged global leader in SCORM-related solutions,
has developed a series of software products that allow
LMS providers to manage SCORM effectively. Rustici has
consistently exceeded expectations since acquisition.
We believe that the next major disruption in the learning
profession will be the ability to measure and analyse
the effectiveness of learning interventions. By enabling
management to understand quantitatively and objectively
whether a particular learning intervention has had an impact
on performance, businesses and governments will be able to
target resources effectively.
LTG owns a 27.3% stake in Watershed, a start-up SaaS
business that focuses on developing learning analytics that
provide actionable insights to customers who want to adapt
their learning strategy, creating more effective learning
experiences and ultimately generating verifiable business
results. Watershed has made good progress during 2017 in
developing its suite of analytical tools and working alongside
blue-chip clients, delivering compelling insights for a number
of customers. We are encouraged that, although at an early
stage, revenues are growing strongly, with an increasing
retention rate.
Group Services
The Board believes that, by building a comprehensive offering
of scale, and with a worldwide footprint, it can better deliver
the services and solutions that companies and governments
demand and require. LTG has the scale to deliver large
complex projects across numerous geographies, to thousands
of learners in a myriad of languages and through many
delivery platforms.
Although at an early stage, the Group is beginning to see
clients adopt an increasing range of the services and solutions
that LTG offers, and, through its account management
approach, LTG consultants are deepening and broadening
their support of clients from HR and product support
departments through compliance and C-Suite initiatives to
drive performance improvement in the workplace.
The Content & Services and Platforms divisions of the
Group are supported by ‘LTG Central Services’, which
comprises HR, IT, Finance, Legal, Facilities, Bid, Marketing
and Hosting services. Each department has a centre of
excellence, supported by additional regional resources
where appropriate. The provision of LTG Central Services
liberates the MDs of the Group’s businesses to pursue their
sales and delivery strategies without needing to manage the
support functions of their operations, and the economies of
scale and expertise in the centralised functions ensures the
consistent application of best practice, and helps delivers cost
efficiencies.
Adoption of IFRS 15
A new accounting standard, IFRS 15, will be adopted by LTG
with effect from 1 January 2018. Next year the Group will
therefore report its 2018 results under the new accounting
standard. After a detailed review of the Group’s contracts,
management is proposing to make a limited number of
adjustments, as detailed in Note 2. The net effect of these
adjustments is expected to reduce reported revenue and
13
plc Annual Report 2017
plc Annual Report 2017 14
PRINCIPAL RISKS AND UNCERTAINTIES
1: Potential downturn in the market for outsourced
e-learning services
must continue our focus as competition for talented people
intensifies within the learning technologies sector.
In addition to the financial risks discussed in Note 29, the Directors consider that the principal risks and uncertainties facing
the Group, and a summary of the key measures taken to mitigate those risks, are as follows:
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Low <£1m
Medium £1m-£2m
High >£2m
Financial Impact
1: Potential downturn in the market for outsourced
e-learning services
2: Foreign currency risk
3: Compliance with debt finance facility covenants
4: Attracting and retaining talented staff
5: Project overruns
6: Reputational risk
7: Integrating acquisitions
8: Impact of the General Data
Protection Regulation
Trend: , , or
LTG is dependent on the market for outsourced e-learning
services. An economic downturn or instability may cause
customers to delay or cancel e-learning development
projects and/or related services, or to use internal resources
to achieve their business goals.
The Group seeks to mitigate this risk by diversifying exposure
across geographical markets, increasing the number of
market sectors in which the Group operates, diversifying the
type of customers with whom the Group operates, increasing
the range of service offerings that the Group provides and
marketing activities to inform current and prospective
customers about the benefits of outsourced e-learning
services and LTG’s proven ability to fulfil those objectives.
2: Foreign currency risk
The Group is exposed to foreign currency risk on transactions
and balances that are denominated in currencies other
than Pounds Sterling. The currencies giving rise to this risk are
primarily the United States Dollar and Euro.
Foreign currency risk is monitored closely on an ongoing
basis to ensure that the net exposure is at an acceptable
level. The Group maintains a natural hedge whenever
possible, by matching the cash inflows (revenue stream)
and cash outflows used for purposes such as capital and
operational expenditure in the respective currencies. The
Group is a net generator of USD and has partly offset this
exposure by drawing down the majority of its debt finance
facility in USD. The Group does not currently use any foreign
currency derivative hedge products.
3: Compliance with debt finance facility covenants
The Group has entered into a debt financing facility. This
facility is subject to certain financial covenants, which, if
breached, would allow the banks to take action against
the Group, and may ultimately result in the bank using
the security it has over the assets of the Group to repay
the outstanding debt, which would adversely impact
shareholders.
The Group undertakes regular forecasts to monitor ongoing
compliance with financial covenants, reports to the bank
on a monthly basis, and actively manages operational cash
flows. The Board has also agreed a self-imposed limit that net
debt should not exceed 2x LTM EBITDA.
4: Attracting and retaining talented staff
As a people business we recognise that the future success
of our business is dependent on attracting, developing,
motivating, improving and retaining talent. LTG is a market
leader and we will always strive to ensure that all our
operating companies are regarded as excellent employers
within the e-learning industry. We benchmark ourselves
against our peers regularly and are satisfied that we offer
competitive salaries and outstanding personal development
opportunities that are further enhanced by LTG’s ambitious
growth plans. We have been successful in recruiting and
retaining high calibre staff. However, we recognise that we
5: Project overruns
Projects may overrun and/or may fail to meet specified
milestones. The majority of LTG’s service-based projects are
contracted on a fixed-price basis. Project overruns can lead
to loss of margin on projects and overall profitability for the
Group.
The Group seeks to mitigate this risk by operating a formal
bid review process, incorporating appropriate risk premiums
into agreements if appropriate, conducting regular project
reviews to assess whether the revenue recognised on work-
in-progress is a fair representation of actual costs incurred
and estimated costs to completion, and conducting
management meetings with clients to review progress on
projects.
6: Reputational risk
Failings in service provision are almost certainly going
to be caused by human error. LTG has refined its ISO
9001 management processes over the last two decades
and constantly reviews and updates them based on
‘lessons learned’. Furthermore, all projects are reviewed
regularly for performance against customer expectations,
delivery milestones and forecast margins. Extensive work
is undertaken in reviewing customer feedback, and any
complaints are reported to the Board.
7: Integrating acquisitions
LTG aims to grow its businesses organically but also
consolidate the sector through selective acquisitions of high-
quality companies. The challenge is to integrate them into
the Group, which may require merging them with existing
operations, without losing key staff or customers. LTG seeks
to structure purchase terms to incentivise and retain key staff
and ensure that customers receive the ‘first-class customer
experience’ that is already a fundamental aspect of LTG’s
success.
8: Impact of the General Data Protection Regulation
The General Data Protection Regulation (GDPR) is the most
significant revision of data privacy legislation seen in Europe,
introducing fines of up to €20 million or 5% of revenue
(whichever is the greater), and is being introduced with
effect from May 2018.
LTG’s GDPR Officer is running a GDPR compliance
programme to ensure that all businesses are prepared, and
LTG companies are liaising with their clients to ensure that
they are compliant.
In addition to the principal risks and uncertainties above, the
Group faces other risks that include, but are not limited to:
• Increased competition
• Failure to retain customer contracts
• Customer concentration
• Technology leadership
• Counterparty risk
15
plc Annual Report 2017
plc Annual Report 2017 16
STRATEGIC REPORT (CONTINUED)
For the year ended 31 December 2017
Corporate responsibility
LTG takes its responsibilities as a corporate citizen seriously. The
Board’s primary goal is to create shareholder value, but in a
responsible way which serves all stakeholders. Furthermore,
LTG seeks to continually enhance and extend its contribution
to society through the work the Group undertakes with its
clients and in areas where the Group decides to invest and
explore directly.
Governance
The Board considers sound governance as a critical
component of LTG’s success and the highest priority. LTG has
an effective and engaged Board, with a strong non-executive
presence from diverse backgrounds, and well-functioning
governance committees. Through the Group’s compensation
policies and variable components of employee remuneration,
the Remuneration Committee of the Board seeks to ensure
that the company’s values are reinforced in employee
behaviour and that effective risk management is promoted.
More information on our corporate governance can be found
on page 20.
Employees and their development
LTG is dependent upon the qualities and skills of its employees,
and the commitment of its people plays a major role in the
Group’s business success. The Group invests in training and
developing its staff through internally arranged knowledge
sharing events, external courses, and an internal staff portal.
The Group also undertakes regular staff surveys and feeds
back the findings and actions to staff.
Employees’ performance is aligned to the Group’s goals
through an annual performance review process and via
LTG’s incentive programmes. LTG provides employees with
information about its activities through regular briefings
and other media. LTG operates a number of bonus and
sales commission schemes, share option schemes and
a Sharesave scheme operated at the discretion of the
Remuneration Committee.
Diversity and inclusion
LTG’s employment policies are non-discriminatory on
the grounds of age, gender, nationality, ethnic or racial
origin, sexual orientation or marital status. LTG gives due
consideration to all applications and provides training and the
opportunity for career development wherever possible. The
Board does not support discrimination of any form, positive or
negative, and all appointments are based solely on merit.
who are able to balance work and family commitments.
The Group has a Health and Safety at Work policy which is
reviewed regularly by the Board. The Board Executive Director
responsible for health and safety is the COO. The Group is
committed to the health and safety of its employees, clients,
sub-contractors and others who may be affected by the
Group’s work activities. The Group evaluates the risks to health
and safety in the business and manages this through a Health
and Safety Management System. The Group provides the
necessary information, instruction, training and supervision
to ensure that employees are able to discharge their duties
effectively. The Health and Safety Management System used
by the Group ensures compliance with all applicable legal
and regulatory requirements and internal standards, and
seeks continuous improvement to develop health and safety
performance.
Community activities
LTG operates a Corporate Social Responsibility agenda
that encourages employees to be involved in their local
communities. In 2017 the Group supported charitable
activities by staff which raised a total of £4,000 (2016: £4,000)
and made charitable contributions totalling £24,000 during
the year (2016: £35,000).
The Group has, with other leading companies in the industry,
set up an industry-wide charity foundation, Learn Appeal
(www.learnappeal.com), and is an active contributor to its
activities. Learn Appeal has developed the ‘Learn Appeal
Capsule’, a standalone unit that includes a Raspberry Pi 2
computer and SD card. With a content library, LMS and Wi-Fi
with up to 1km range, the device can be used in remote
areas without Internet connectivity to allow up to 250 users to
simultaneously access learning materials.
Environment
LTG’s policy with regard to the environment is to ensure
that we understand, and effectively manage, the actual
and potential environmental impact of our activities. The
Group’s operations are conducted in such a way that
compliance is maintained with legal requirements relating
to the environment in areas where the Group conducts
its business. During the period covered by this report LTG
has not incurred any fines or penalties, and has not been
investigated for any breach of environmental regulations.
Health and Safety
LTG endeavours to ensure that the working environment is
safe and conducive to healthy, safe and content employees
Jonathan Satchell
Chief Executive
16 March 2018
DIRECTORS’ REPORT
For the year ended 31 December 2017
The Directors present their report on the Group, together with
the audited Consolidated Financial Statements for the year
ended 31 December 2017.
Financial instruments and risk management
Disclosures regarding financial instruments are provided within
the Strategic Report and Note 29 to the Financial Statements.
Principal activities
The principal activity of the Group is the provision of e-learning
services, content and delivery platforms. The principal activity
of the Company is that of a parent holding company which
manages the Group’s strategic direction and underlying
subsidiaries.
Capital structure
Details of the Company’s share capital, together with details of
the movements therein, are set out in Note 23 to the Financial
Statements. The Company has one class of ordinary share,
which carries no right to fixed income.
Research and development
The main area of research and development for the Group
has been the continuing development of NetDimensions’ and
gomo’s platforms, Rustici’s interoperability software and xAPI-
enabled analytical software tools, as well as various virtual
reality applications, as covered in the Strategic Report on
pages 7 to 15.
Post-balance sheet events
Details of post-balance sheet events can be found in Note 31
to the Consolidated Financial Statements.
Hiring, continuing employment and training,
career development and promotion of
disabled persons
Information on this is included within the Strategic Report
on pages 7 to 15. The employment policies are non-
discriminatory and are disclosed in the Strategic Report.
Cautionary statement
The review of the business and its future development in
the Strategic Report has been prepared solely to provide
additional information to shareholders to assess the Group’s
strategies, and the potential for these strategies to succeed.
It should not be relied on by any other party for any other
purpose. The review contains forward-looking statements
which are made by the Directors in good faith based on
information available to them up to the time of the approval
of the reports, and should be treated with caution due to the
inherent uncertainties associated with such statements.
Results and dividends
The results of the Group are set out in detail on page 29.
At the time of LTG’s admission to AIM in November 2013, the
Board stated that they would pursue a progressive dividend
policy. On 27 October 2017, the Company paid an interim
dividend of 0.09 pence per share (2016: 0.07 pence per
share). The Directors propose to pay a final dividend of 0.21
pence per share for the year ended 31 December 2017,
equating to a total payout in respect of the year of 0.30
pence per share (2016: 0.21 pence per share).
Subject to shareholder approval at the Annual General
Meeting, the final dividend will be paid on 6 July 2018 to all
shareholders on the register at 8 June 2018.
Business review and future developments
Details of the business activities and acquisitions made during
the year can be found in the Strategic Report on pages 7 to
15 and in Note 11 to the Consolidated Financial Statements,
respectively.
Political donations
The Group made no political donations during the year (2016: nil).
17
plc Annual Report 2017
plc Annual Report 2017 18
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2017
Directors
The Directors of the Company who served during the year were:
Director
Role at 31
December 2017
Date of
(re-) appointment
Retired
Board Committee
Andrew Brode
Harry Hill
Non-executive
Chairman
Non-executive Deputy
Chairman
19/05/2016
19/05/2016
Leslie-Ann Reed†
Non-executive Director
21/05/2015
R
R
A
A
Peter Gordon
Non-executive Director
19/05/2016
04/04/2017
Jonathan Satchell†
Chief Executive
21/05/2015
Neil Elton†
Piers Lea
Group Finance Director
21/05/2015
Chief Strategy Officer
18/05/2017
Dale Solomon
Chief Operating Officer
18/05/2017
Board Committee abbreviations are as follows:
A = Audit Committee; R = Remuneration Committee
Retires by rotation and will offer themselves for re-election at next AGM
†
Board of Directors
Jonathan Satchell
Chief Executive
Neil Elton
Group Finance Director
Piers Lea
Chief Strategy Officer
Dale Solomon
Chief Operating Officer
Jonathan Satchell has worked in
the training industry since 1992. In
1997 he acquired EBC, which he
transformed from a training video
provider to a bespoke e-learning
company. The company was
sold to Futuremedia in 2006. He
became interim MD of Epic Group
Limited (‘Epic’) in 2007 and the
following year he acquired the
Company with Andrew Brode. He
oversaw the transformation of Epic
from a custom content e-learning
company to a global, fast
growing, full service digital learning
company.
Neil Elton is a Chartered Accountant
and was appointed as Group
Finance Director of LTG in
November 2014. An experienced
Finance Director, he has helped
successfully build a number of
fast-growing listed companies. He
joined from Science Group plc,
a Cambridge-based technology
research and development
company, where he was FD from
2010 to 2014. Before that he was
FD at Concateno plc, the European
leader in drugs-of-abuse testing
(2007-2010) and Mecom Group
plc, the European media group
(2005-2007).
Piers Lea founded LINE
Communications Holdings Limited
in 1989, which was acquired by LTG
in April 2014. He has over 30 years’
experience in distance learning
and communications and is widely
considered a thought leader in
the field of e-learning. He sits on
the advisory boards of ELIG
(‘European Learning Industry
Group), and the LPI (‘Learning and
Performance Institute’).
Dale Solomon was appointed
Commercial Director of Epic in
2010. Prior to this, he spent 12 years
as a learning consultant for global
organisations. He was appointed
to the Board of LTG in 2014, and
as COO oversees a number
of the Group’s central service
departments, as well as being
responsible for many aspects of the
Group’s post-acquisition integrations
and change programmes.
In addition to his COO role, he
has acted as MD of LEO from 2015
to 2017, and at NetDimensions
from 2018.
Andrew Brode
Independent Non-executive
Chairman / Remuneration
Committee Chair / Audit
Committee
Andrew Brode is a Chartered
Accountant and a former Chief
Executive of Wolters Kluwer (UK) plc.
In 1990, he led the management
buy-out of the Eclipse Group, which
was sold to Reed Elsevier in 2000.
In 1995, he led the management
buy-in, and is Executive Chairman
of RWS Group plc, Europe’s largest
technical translations group, listed
in the Top 10 of AIM companies.
He is also Non-executive Director
of AIM-quoted GRC International
Group. He acquired Epic together
with Jonathan Satchell in 2008.
Harry Hill
Independent Non-executive
Deputy Chairman / Remuneration
Committee
Harry Hill qualified as a Chartered
Surveyor and spent his Executive
life in various public and private
property businesses, including
Countrywide plc, where he was
CEO for 21 years, and Rightmove
plc, which he helped create, and
of which he was the first Chairman.
He now holds a small portfolio
of Non-executive directorships
in various public and private
companies across a variety of
industries.
Leslie-Ann Reed
Independent Non-executive
Director / Audit Committee Chair
Leslie-Ann Reed is a Chartered
Accountant and was formerly
CFO of the online auctioneer Go
Industry plc from 2010 to 2012.
Prior to this she served as CFO of
the B2B media group Metal Bulletin
plc, and as an adviser to Marwyn
Investment Management. After a
career at Arthur Andersen, she held
senior finance roles at Universal
Pictures, Polygram Music, Warner
Communications Inc. and EMI
Music. Her current directorships
include ZEAL Network SE and Quarto
Group Inc.
19
plc Annual Report 2017
plc Annual Report 2017 20
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2017
CORPORATE GOVERNANCE REPORT
Directors’ interests in shares and contracts
Directors’ interests in the shares of LTG at 31 December 2017
and 31 December 2016 are disclosed in Note 7. Directors’
interests in contracts of significance to which LTG was a party
during the financial year are disclosed in Note 27.
Substantial interests
As at the date of this report, LTG has been advised of the
following significant interests (greater than 3%) in its ordinary
share capital:
Shareholder
Ordinary shares held
% held
Andrew Brode
Jonathan Satchell
Hargreave Hale Investment Managers
Liontrust Asset Management
115,881,671
100,139,995
30,959,256
27,802,300
River and Mercantile Asset Management
20,551,611
BlackRock
19,645,313
20.17
17.43
5.39
4.84
3.58
3.42
Except as referred to above, the Directors are not aware of any person who held an interest of 3% or more of the issued
share capital of the company or could directly or indirectly, jointly or severally, exercise control.
Annual General Meeting
The Annual General Meeting (‘AGM’) will be held at 1pm on 24
May 2018 at DWF LLP, 20 Fenchurch Street, London, EC3M 4AD.
The notice of the AGM contains the full text of the resolutions to
be proposed.
Independent auditors
In accordance with Section 489 of the Companies Act 2006,
a resolution proposing that Crowe Clark Whitehill LLP be re-
appointed will be proposed at the Annual General Meeting.
Provision of information to auditors
Each of the persons who are Directors at the time when this
Directors’ Report is approved has confirmed that:
• So far as that Director is aware, there is no relevant audit
information of which the Company’s auditors are unaware,
and
• That Director has taken all the steps that ought to have
been taken as a Director in order to be aware of any
information needed by the Company’s auditors in
connection with preparing their report and to establish that
the Company’s auditors are aware of that information.
Signed by order of the Board
Neil Elton
Group Finance Director
16 March 2018
The Company is registered in England and Wales and listed
on the Alternative Investment Market of the London Stock
Exchange (‘AIM’).
Statement about applying the principle of the
QCA Guidelines
The Board recognises the value of good governance and
has developed corporate governance practices which are
suitable for the size and nature of the company by reference
to the best practice outlined in the QCA guidelines.
The Company has adopted a share dealing code for
the Board and employees of the Company, which is in
conformity with the requirements of Rule 21 of the AIM Rules for
Companies. The Company takes steps to ensure compliance
by the Board and applicable employees with the terms of
such code.
Board of Directors
The Board is responsible for formulating, reviewing and
approving the Group’s strategy, budgets and corporate
actions. The Board holds Board meetings at least ten times a
year and at other times as and when required.
Board typically meets ten times a year to consider a formal
schedule of matters, including the operating performance of
the business, and to review LTG’s financial plan and business
model. Non-executive Directors are appointed for a three-
year term after which their appointment may be extended by
mutual agreement after due consideration by the Board.
In accordance with the Company’s Articles of Association,
the longest-serving Director must retire at each Annual
General Meeting and each Director must retire in any three-
year period, so that over a three-year period all Directors will
have retired from the Board and been subject to shareholder
re-election. All Directors have access to the advice and
services of the Company Secretary and other independent
professional advisers as required. Non-executive Directors
have access to key members of staff and are entitled
to attend management meetings in order to familiarise
themselves with all aspects of LTG.
It is the responsibility of the Chairman and the Company
Secretary to ensure that Board members receive sufficient and
timely information regarding corporate and business issues to
enable them to discharge their duties.
Biographical details of the Directors are included on page 18.
Relations with shareholders
At 31 December 2017, the Board comprised a Non-executive
Chairman, Chief Executive, Group Finance Director, Chief
Strategy Officer, Chief Operating Officer and two independent
Non-executive Directors. All Directors bring a wide range of
skills and international experience to the Board. The Non-
executive Directors hold meetings without the executive
Directors present. The Chairman is primarily responsible
for the working of the Board of LTG. The Chief Executive is
primarily responsible for the running of the business and
implementation of the Board strategy and policy. The Chief
Executive is assisted in the managing of the business on a
day-to-day basis by the Managing Directors of the operating
businesses, the Group Finance Director and the Executive
team of LTG.
High-level strategic decisions are discussed and taken by the
full Board. Investment decisions (above a de minimis level)
are taken by the full Board. Operational decisions are taken
by the Managing Directors within the framework approved in
the annual financial plan, and within a framework of Board-
approved authorisation levels.
The Board met 12 times during 2017 (2016: 12). The Board
regulations define a framework of high-level authorities that
maps the structure of delegation below Board level, as well as
specifying issues which remain within the Board’s preserve. The
The Directors seek to build on a mutual understanding
of objectives between LTG and its major shareholders by
meeting to discuss long-term issues and to receive feedback,
communicating regularly throughout the year and issuing
trading updates as appropriate. The Board also seeks to
use the Annual General Meeting to communicate with its
shareholders.
Balanced and understandable assessment of position and
prospects
The Board has shown its commitment to presenting balanced
and understandable assessments of LTG’s position and
prospects by providing comprehensive disclosures within
the Financial Report in relation to its activities. The Board
has applied the principles of good governance relating to
Directors’ remuneration, as described below. The Board has
determined that there are no specific issues which need to be
brought to the attention of shareholders.
Remuneration strategy
LTG operates in a competitive market. If LTG is to compete
successfully, it is essential that it attracts, develops and retains
high-quality staff. Remuneration policy has an important part
to play in achieving this objective. LTG aims to offer its staff
a remuneration package which is both competitive in the
relevant employment market, and which reflects individual
21
plc Annual Report 2017
plc Annual Report 2017 22
CORPORATE GOVERNANCE REPORT (CONTINUED)
REPORT OF THE AUDIT COMMITTEE
performance and contribution. For 2017 the remuneration
package comprised salary, pension contributions, bonus or
sales commission schemes, a Sharesave scheme and, where
appropriate, share options.
Board Committees
The Board maintains two standing committees, being the
Audit and Remuneration Committees.
The minutes of all sub-committees are circulated for review
and consideration by all relevant Directors, supplemented by
oral reports from the Committee Chairmen at Board meetings.
Audit Committee
Audit Committee
The Audit Committee is chaired by Leslie-Ann Reed, and
currently comprises Leslie-Ann Reed and Andrew Brode. The
Audit Committee met three times during 2017 (2016: three).
Further details on the Audit Committee are provided in the
Report of the Audit Committee.
Remuneration Committee
The Remuneration Committee is chaired by Andrew Brode,
and also comprises Harry Hill. The Remuneration Committee
met once during 2017 (2016: once). Further details on the
Remuneration Committee are provided in the Report of the
Remuneration Committee.
Meetings of the Board and sub-committees during 2017 were
as follows:
The Audit Committee is chaired by Leslie-Ann Reed, and
currently comprises Leslie-Ann Reed and Andrew Brode. The
Audit Committee has written terms of reference, and provides
a mechanism through which the Board can maintain the
integrity of the Financial Statements of LTG and any formal
announcements relating to LTG’s financial performance;
to review LTG’s internal financial controls and LTG’s internal
control and risk management systems; and to make
recommendations to the Board in relation to the appointment
of the external auditor, their remuneration both for audit and
non-audit work, the nature, scope and results of the audit and
the cost effectiveness and the independence and objectivity
of the auditors. A recommendation regarding the auditors is
put to shareholders for their approval in General Meetings.
Provision is made by the Audit Committee to meet the
auditors at least twice a year.
Board meeting
Audit committee
Remuneration committee
Internal controls
Number of meetings held
in 2017
Andrew Brode
Harry Hill
Jonathan Satchell
Neil Elton
Piers Lea
Dale Solomon
Leslie-Ann Reed
Peter Gordon
*Attendance by invitation
12
11/12
10/12
12/12
11/12
11/12
11/12
11/12
3/3
3
3/3
-
-
3/3*
-
-
3/3
-
1
1/1
1/1
1/1*
-
-
-
-
-
In applying the principle that the Board should maintain a
sound system of internal control to safeguard shareholders’
investment and LTG’s assets, the Directors recognise that they
have overall responsibility for ensuring that LTG maintains
systems to provide them with reasonable assurance regarding
effective and efficient operations, internal control and
compliance with laws and regulations and for reviewing the
effectiveness of that system. However, there are inherent
limitations in any system of control and accordingly even
the most effective system can provide only reasonable and
not absolute assurance against material mis-statement or
loss, and that the system is designed to manage rather than
eliminate the risk of failure to achieve the business objectives.
LTG has established procedures for the running of the Audit
Committee. This includes identification, categorisation and
prioritisation of critical risks within the business and allocation
of responsibility to its Executives and senior managers. The key
features of the internal control system are described below:
Control environment – LTG is committed to high standards
of business conduct and seeks to maintain these standards
across all of its operations. There are also policies in place for
the reporting and resolution of suspected fraudulent activities.
LTG has an appropriate organisational structure for planning,
executing, controlling and monitoring business operations in
order to achieve its objectives.
Risk identification – management is responsible for the
identification and evaluation of key risks applicable to their
areas of business. These risks are assessed on a continual
basis and may be associated with a variety of internal and
external sources, including infringement of IP, sales channels,
investment risk, staff retention, disruption in information
systems, natural catastrophe and regulatory requirements.
Information systems – Group businesses participate in periodic
operational/strategic reviews and annual plans. The Board
actively monitors performance against plans. Forecasts
and operational results are consolidated and presented to
the Board on a regular basis. Through these mechanisms,
performance is continually monitored, risks are identified in a
timely manner, their financial implications assessed, control
procedures are re-evaluated and corrective actions are
agreed and implemented.
Main control procedures – LTG has implemented control
procedures designed to ensure complete and accurate
accounting for financial transactions, and to limit the
exposure to loss of assets and fraud. Measures taken include
segregation of duties and reviews by management.
Monitoring and corrective action – there are clear and
consistent procedures in place for monitoring the system of
internal financial controls.
This process, which operates in accordance with the FRC
guidance, was maintained throughout the financial year, and
has remained in place up to the date of the approval of these
Financial Statements. The Board, via the Audit Committee,
has reviewed the systems and processes in place in meetings
with the Finance Director and LTG’s auditors during 2017. No
internal audit function is operated outside of the systems
and processes in place, as the Board considers that LTG is
too small for a separate function. The Board considers the
internal control system to be adequate for LTG. The auditors
have provided services in relation to the annual audit of the
Group, advice and compliance work in relation to taxation,
transaction services and other advisory work during the year.
The Audit Committee reviews the scope and scale of the non-
audit services undertaken by the auditors in order to ensure
that their independence and objectivity is safeguarded.
23
plc Annual Report 2017
plc Annual Report 2017 24
REPORT OF THE REMUNERATION COMMITTEE
DIRECTORS’ RESPONSIBILITIES STATEMENT IN RESPECT OF
THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
They are further responsible for ensuring that the Strategic
Report and the Directors’ Report and other information
included in the Annual Report and Financial Statements is
prepared in accordance with applicable law in the United
Kingdom.
The maintenance and integrity of the Learning Technologies
Group plc website is the responsibility of the Directors; the work
carried out by the auditors does not involve the consideration
of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred in the
accounts since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation
and dissemination of the accounts and the other information
included in Annual Reports may differ from legislation in other
jurisdictions.
Remuneration Committee
The remuneration package comprises the following elements:
The Committee, which is chaired by Andrew Brode, also
comprises Harry Hill.
The Remuneration Committee monitors the remuneration
policies of LTG to ensure that they are consistent with LTG’s
business objectives. Its terms of reference include the
recommendation and execution of policy on Director and
Executive management remuneration and for reporting
decisions made to the Board. The Committee determines
the individual remuneration package of the executive
management of the Board. In accordance with ‘best
practice’, this responsibility includes pension rights and any
other compensation payments.
The Remuneration Committee recognises that incentivisation
of staff is a key issue for LTG, which depends on the skill of its
people for its success. The Remuneration Committee seeks
to incentivise employees by linking individual remuneration to
individual performance and contribution, and to LTG results.
During the year the Remuneration Committee approved
grants of share options and confirmed a number of KPI-
related bonus schemes for the Group for 2017.
The aim of the Board and the Remuneration Committee is to
maintain a policy that:
• Establishes a remuneration structure that will attract, retain
and motivate Executives, senior managers and other staff
of appropriate calibre;
• Rewards Executives and senior managers according to
both individual and Group performance;
• Establishes an appropriate balance between fixed
and variable elements of total remuneration, with the
performance-related element forming a potentially
significant proportion of the total remuneration package;
• Aligns the interests of Executives and senior managers with
those of shareholders through the use of performance-
related rewards and share options in LTG.
From time to time, the Committee may obtain market data
and information as appropriate when making its comparisons
and decisions, and is sensitive to the wider perspective,
including pay and employment conditions elsewhere in LTG,
especially when undertaking salary/remuneration reviews.
• Basic salary – normally reviewed annually and set to
reflect market conditions, personal performance and
benchmarks in comparable companies. The Chairman
does not receive a basic salary;
• Annual performance-related bonus – Executives,
managers and employees receive annual bonuses
related to specific KPIs or overall Group performance.
The Non-executive Directors do not participate in the
performance-related bonus scheme;
• Benefits – benefits include life assurance and pension
contributions. The Non-executive Directors do not receive
these benefits;
• Share options – share option grants are reviewed regularly.
Full details of each Director’s remuneration package and
their interests in shares and share options, can be found in
Note 7 to the Financial Statements. There are no elements of
remuneration, other than basic earnings, which are treated as
being pensionable.
Service contracts
The Executive Directors have employment contracts that
contain notice periods of six months. Non-executive Directors’
service contracts may be terminated on three months’ notice.
There are no additional financial provisions for termination.
Share option plans
The Company operates three long-term equity incentive
plans:
• EMI share option plan
• Unapproved share option plan
• Sharesave Scheme
Further details are provided in Note 24.
The market price of the shares at 31 December 2017 was 68.0
pence (31 December 2016: 35.5 pence). The highest and
lowest price during the year was 68.0 pence and 34.5 pence,
respectively.
The Directors are responsible for preparing the Strategic
Report, the Directors’ Report, Annual Report and the Group
and parent Company Financial Statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law, the
Directors have elected to prepare the Consolidated Financial
Statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the EU and
applicable law, and the Company Financial Statements
in accordance with United Kingdom Generally Accepted
Accounting Practice including Financial Reporting Standard
102. The Directors must not approve the Financial Statements
unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and Company and of the
profit or loss of the Group for that period. In preparing these
Financial Statements, the Directors are required to:
• Select suitable accounting policies and then apply
them consistently;
• Make judgements and accounting estimates that are
reasonable and prudent;
• State whether applicable accounting standards have
been followed, subject to any material departures
disclosed and explained in the financial statements;
• Prepare the Financial Statements on the going concern
basis unless it is inappropriate to assume that the
Company will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and the Group and enable them to ensure that the Financial
Statements comply with the Companies Act 2006 and, as
regards the Group Financial Statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
25
plc Annual Report 2017
plc Annual Report 2017 26
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
LEARNING TECHNOLOGIES GROUP PLC
Opinion
We have audited the financial statements of Learning
Technologies Group plc (the “Parent Company”) and its
subsidiaries (the “Group”) for the year ended 31 December
2017, which comprise:
• the Group income statement and statement of
comprehensive income for the year ended 31
December 2017;
statements section of our report. We are independent of the
Group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for
our opinion.
• the Group and parent company statements of financial
position as at 31 December 2017;
• the Group statement of cash flows for the year then
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which ISAs (UK) require us to report to you when:
ended;
• the Group and parent company statements of changes
in equity for the year then ended; and
• the notes to the financial statements, including a
summary of significant accounting policies.
The financial reporting framework that has been applied in
the preparation of the Group financial statements applicable
law and International Financial Reporting Standards (IFRSs)
as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the
Parent Company financial statements is in accordance with
applicable law and United Kingdom Accounting Standards,
including Financial Reporting Standard 102 The Financial
Reporting Standard applicable in the UK and Republic of
Ireland (United Kingdom Generally Accepted Accounting
Practice).
In our opinion:
• the financial statements give a true and fair view of the
state of the Group’s and of the Parent Company’s affairs as
at 31 December 2017 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards as adopted by the European Union;
• the Parent Company financial statements have been
properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice
• the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described
in the Auditor’s responsibilities for the audit of the financial
• the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements
is not appropriate; or
• the Directors have not disclosed in the financial
statements any identified material uncertainties that
may cast significant doubt about the Group’s or the
parent company’s ability to continue to adopt the going
concern basis of accounting for a period of at least twelve
months from the date when the financial statements are
authorised for issue.
Overview of our audit approach
Materiality
In planning and performing our audit we applied the concept
of materiality. An item is considered material if it could
reasonably be expected to change the economic decisions
of a user of the financial statements. We used the concept
of materiality to both focus our testing and to evaluate the
impact of misstatements identified.
Based on our professional judgement, we determined overall
materiality for the Group financial statements as a whole to be
£380,000, based on approximately 0.75% of Group revenue.
We use a different level of materiality (‘performance
materiality’) to determine the extent of our testing for the audit
of the financial statements. Performance materiality is set
based on the audit materiality as adjusted for the judgements
made as to the entity risk and our evaluation of the specific
risk of each audit area having regard to the internal control
environment.
Where considered appropriate performance materiality
may be reduced to a lower level, such as, for related party
transactions and Directors’ remuneration.
We agreed with the Audit Committee to report to it all
identified errors in excess of £10,000. Errors below that
threshold would also be reported to it if, in our opinion as
auditor, disclosure was required on qualitative grounds.
Overview of the scope of our audit
The significant components of the UK operations are
accounted for from one central operating location in Brighton,
our audit was conducted from this main operating location,
and all the Group companies accounted for from this location
were within the scope of our audit testing.
The Group also has significant components accounted for out
of Hong Kong, being the NetDimensions group. A member
firm of the Crowe Horwath International network undertook the
audit work in Hong Kong under our direction. Audit instructions
were issued to the component auditors, the instructions
detailed the significant risks to be addressed through the audit
procedures and indicated the information we required to be
reported back to the Group audit team. As part of our audit
we visited Hong Kong to meet with local management and
review component auditor working papers.
The Group also has components based in the United States, a
member firm of the Crowe Horwath International network was
engaged to perform certain agreed upon procedures in line
with our assessment of the significant audit risks and to report
the results through to us.
100% of the Group’s revenue was within scope of audit testing.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
financial statements of the current period and include the
most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall
audit strategy, the allocation of resources in the audit and
directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Key audit matter
Revenue recognition
How the scope of our audit addressed the
key audit matter
The Group enters into a range of client contract types.
The revenue recognition policy varies depending on
the underlying contract and could result in revenue
being recognised at a point in time, over time or as a
percentage complete.
The Group’s revenue recognition policy is described in
Note 2 (n).
We designed procedures to test each different revenue
stream and to consider whether the revenue recognition
policy applied to the revenue stream was appropriate.
Our testing in this area included examining contract
terms, obtaining evidence of delivery of software licence
keys, recalculating deferred revenue and obtaining
evidence to support the percentage complete and the
budgeted margin.
Acquisition of NetDimensions
During the year the Group acquired NetDimensions
(Holdings) Limited for total consideration of £53.6m.
Accounting for business combinations is complex and
requires the recognition of both consideration paid and
acquired assets and liabilities at the acquisition date at
fair values, which can involve significant judgement and
estimates. Further details are disclosed in Note 11 of the
financial statements.
We reviewed the share purchase agreement to
understand the terms of the transaction and we
validated the consideration paid.
We reviewed the calculation of the fair value of the
intangible assets identified and assessed the valuation
assumptions for reasonableness. This included
performing sensitivity analysis on key inputs and
benchmarking the valuation against external sources of
evidence.
We audited the acquisition balance sheet to ensure that
assets and liabilities were appropriately recognised at
fair value.
27
plc Annual Report 2017
plc Annual Report 2017 28
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
LEARNING TECHNOLOGIES GROUP PLC (CONTINUED)
Our audit procedures in relation to these matters were
designed in the context of our audit opinion as a whole. They
were not designed to enable us to express an opinion on
these matters individually and we express no such opinion.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in
the annual report, other than the financial statements and
our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to
determine whether there is a material misstatement in the
financial statements or a material misstatement of the other
information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion based on the work undertaken in the course of
our audit:
• the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
• the Directors’ Report and Strategic Report have
been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report
by exception
In light of the knowledge and understanding of the Group
and the parent company and their environment obtained
in the course of the audit, we have not identified material
misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Responsibilities of the Directors for the
financial statements
As explained more fully in the Directors’ responsibilities
statement set out on page 24, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the Directors determine is necessary to
enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and parent company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either
intend to liquidate the Group or the parent company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.
Matthew Stallabrass
Senior Statutory Auditor
for and on behalf of
Crowe Clark Whitehill LLP
Statutory Auditor
St Bride’s House
10 Salislbury Square
London
EC4Y 8EH
16 March 2018
29
plc Annual Report 2017
plc Annual Report 2017 30
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
Note
4
12
24
5
5
11
13
5
5
5
5
5
8
9
9
9
9
Revenue
Operating expenses (excluding acquisition-related
deferred consideration and earn-outs)
Operating profit (before acquisition-related deferred
consideration and earn-outs)
Acquisition-related deferred consideration and earn-outs
Operating profit/(loss)
Adjusted EBIT
Amortisation of acquired intangibles
Share-based payment costs
Integration costs
Acquisition-related deferred consideration and earn-outs
Operating profit/(loss)
Fair value movement on contingent consideration
Costs of acquisition
Share of losses on associates/joint ventures
Profit/(loss) on disposal of fixed assets
Finance expense:
Charge on contingent consideration
Unwinding onerous lease
Interest on borrowings
Net foreign exchange difference on borrowings
Interest receivable
Profit/(loss) before taxation
Income tax credit/(expense)
Profit/(loss) for the year
Profit/(loss) attributable to owners of the Parent
Profit/(loss) for the year attributable to non-controlling
interests
Earnings per share attributable to owners of the parent:
Basic (pence)
Diluted (pence)
Adjusted earnings per share:
Basic (pence)
Diluted (pence)
Profit/(loss) for the year
Other comprehensive (loss)/income:
Items that may be subsequently reclassified to profit or loss
Exchange differences on translating foreign operations
Total comprehensive (loss)/income for the year
attributable to owners of the parent Company
Attributable to:
The owners of the parent
Non-controlling interest
Year ended 31 Dec 2017
Year ended 31 Dec 2016
Note
31 Dec 2017
31 Dec 2016
£’000
52,056
(47,605)
4,451
(1,853)
2,598
14,047
(7,756)
(675)
(1,165)
(1,853)
2,598
52
(920)
(201)
(36)
(41)
(11)
(605)
(151)
7
692
1,171
1,863
2,013
(150)
1,863
0.379
0.363
2.156
2.064
1,863
(3,564)
(1,701)
(1,510)
(191)
(1,701)
£’000
28,263
(25,194)
3,069
(3,211)
(142)
6,952
(3,205)
(605)
(73)
(3,211)
(142)
-
(99)
(205)
-
(57)
-
(358)
(333)
1
(1,193)
(133)
(1,326)
(1,326)
-
(1,326)
(0.317)
(0.317)
1.286
1.184
(1,326)
1,183
(143)
(143)
-
(143)
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Investments accounted for under the equity method
Other receivables, deposits and prepayments
Current assets
Trade receivables
Other receivables, deposits and prepayments
Amounts recoverable on contracts
Cash and bank balances
Total assets
Current liabilities
Trade and other payables
Borrowings
Corporation tax
Amount owing to related parties
Non-current liabilities
Deferred tax liabilities
Other long-term liabilities
Borrowings
Provisions
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium account
Merger reserve
Reverse acquisition reserve
Share-based payment reserve
Foreign exchange translation reserve
Accumulated profits/(losses)
Total equity attributable to the owners of the parent
10
12
18
13
15
14
15
16
17
19
21
27
18
20
21
22
23
26
26
26
26
26
£’000
842
83,409
1,933
1,689
-
87,873
12,067
2,363
4,242
15,662
34,334
122,207
23,756
1,849
50
20
25,675
6,477
192
12,765
257
19,691
45,366
76,841
2,145
64,208
31,983
(22,933)
1,092
(2,290)
2,636
76,841
£’000
708
39,950
1,717
1,890
1,293
45,558
4,229
1,995
2,642
5,348
14,214
59,772
9,215
3,252
546
45
13,058
3,897
1,426
10,582
99
16,004
29,062
30,710
1,580
17,044
31,983
(22,933)
3,245
1,233
(1,442)
30,710
The Notes on pages 33 to 68 form an integral part of these Consolidated Financial Statements.
The Financial Statements on pages 29 to 68 were approved and authorised for issue by the Board of Directors on 16 March 2018
and signed on its behalf by
Neil Elton
Group Finance Director
16 March 2018
31
plc Annual Report 2017
plc Annual Report 2017 32
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017
Year ended 31 Dec 2017
Year ended 31 Dec 2016
Note
Share
capital
Share
premium
Merger
reserve
Note
Reverse
acquisition
reserve
Share-
based
payments
reserve
Translation
reserve
Retained
earnings
Non-
controlling
interest
Total equity
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
1,506
15,988
28,120
(22,933)
2,273
Balance at
1 January 2016
Loss for the period
Exchange differences
on translating foreign
operations
Total comprehensive
income for the period
-
-
-
-
-
-
-
-
-
Issue of shares
74
1,056
3,863
Share-based payment
charge credited to equity
Deferred tax credit on share
options
Transfer on exercise and
lapse of options
Tax deduction on exercise
of share options recognised
directly in equity
Dividend paid
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Transactions with owners
74
1,056
3,863
-
-
-
-
-
-
-
-
-
-
-
-
-
-
605
648
(281)
-
-
972
50
-
140
(1,326)
1,183
-
1,183
(1,326)
-
-
-
-
-
-
-
-
-
-
281
175
(712)
(256)
-
-
-
-
-
-
-
-
-
-
-
-
25,144
(1,326)
1,183
(143)
4,993
605
648
-
175
(712)
5,709
30,710
1,580
17,044
31,983
(22,933)
3,245
1,233
(1,442)
-
2,013
(150)
1,863
Cash flows from operating activities
Profit/(loss) before taxation
Adjustments for:
Share-based payment charge
Amortisation of intangible assets
Depreciation of plant and equipment
Share of loss of joint venture/investment
Finance expense
Interest on borrowings
Net foreign exchange difference on borrowings
Fair value movement on contingent consideration
Acquisition-related deferred consideration and earn-outs
Payment of acquisition-related deferred consideration and earn-outs
Interest income
Operating cash flows before working capital changes
(Increase)/decrease in trade and other receivables
(Increase) in amount recoverable on contracts
Increase/(decrease) in payables
Interest paid
Interest received
Income tax paid
Net cash flows from operating activities
Balance at
31 December 2016
Profit for the period
Exchange differences
on translating foreign
operations
Total comprehensive
loss for the period
-
-
-
Issue of shares
565
Costs of issuing shares
Share-based payment
charge credited to equity
Tax credit on share options
Transfer on exercise and
lapse of options
Presentational adjustment
regarding deferred tax on
share options
Acquisition of subsidiary
11
Acquisition of non-
controlling interest
Dividends paid
-
-
-
-
-
-
-
-
-
-
48,286
(1,122)
-
-
-
-
-
-
Transactions with owners
565
47,164
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
675
-
(1,462)
(1,366)
-
-
(2,153)
(3,523)
-
(41)
(3,564)
Cash flows used in investing activities
(3,523)
2,013
(191)
(1,701)
Purchase of property, plant and equipment
Sales proceeds from disposal of property, plant and equipment
-
-
-
-
-
-
-
-
-
-
-
-
1,331
1,462
1,366
-
-
-
-
-
-
48,851
(1,122)
675
1,331
-
-
-
859
859
(815)
(668)
(1,483)
(1,279)
2,065
-
191
(1,279)
47,832
Development of intangible assets
Acquisition of subsidiaries, net of cash acquired
Investment in associates/joint ventures
Net cash flows in investing activities
Cash flows from financing activities
Dividends paid
Proceeds from borrowings
Issue of ordinary share capital net of share issue costs
Repayment of bank loans
Contingent consideration payments in the period
Net cash flows from/(used) in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Exchange (losses)/gains on cash
Cash and cash equivalents at end of the year
17
£’000
692
675
8,404
422
201
52
605
151
(52)
1,853
(2,211)
(7)
10,785
2,189
(1,391)
421
12,004
(474)
7
(743)
10,794
(449)
16
(1,384)
(45,704)
-
(47,521)
(1,279)
18,000
47,101
(16,193)
(59)
47,570
10,843
5,348
(529)
15,662
£’000
(1,193)
605
3,605
320
205
57
358
333
-
3,211
-
(1)
7,500
(2,030)
(788)
(1,760)
2,922
(275)
1
(645)
2,003
(422)
-
(796)
(12,389)
(2,095)
(15,702)
(712)
13,909
647
(2,278)
-
11,566
(2,133)
7,305
176
5,348
Balance at
31 December 2017
2,145
64,208
31,983
(22,933)
1,092
(2,290)
2,636
-
76,841
Significant non-cash transactions
During the year, the Group issued 150,588,525 ordinary shares
in the Company. 124,000,000 Placing Shares were admitted
to trading on AIM on 20 March 2017 to fund the acquisition of
NetDimensions (Holdings) Limited. 1,931,911 shares were also
issued in payment of the deferred contingent consideration
to the vendors of Rustici Software LLC and 24,656,614 in
settlement of the exercise of employee share options. Further
details are provided in Note 24.
The notes on pages 33 to 68 form an integral part of these
Consolidated Financial Statements
33
33
plc Annual Report 2017
plc Annual Report 2017
plc Annual Report 2017 34
plc Annual Report 2017 34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2017
1. General information
Learning Technologies Group plc (‘the Company’) and
its subsidiaries (together, ‘the Group’) provide a range of
e-learning services and technologies to corporate and
government clients. The principal activity of the Company
is that of a holding company for the Group, as well as
performing all administrative, corporate finance, strategic and
governance functions of the Group.
The Company is a public limited company, which is listed on
the AIM Market of the London Stock Exchange and domiciled
in England and incorporated and registered in England and
Wales. The address of its registered office is Sherborne House,
5th Floor, 119-121 Cannon Street, London, EC4N 5AT. The
registered number of the Company is 07176993.
2. Summary of significant accounting
policies
The principal accounting policies applied in the preparation
of these Consolidated Financial Statements are set out
below. These policies have been consistently applied unless
otherwise stated.
a) Basis of preparation
The Consolidated Financial Statements of Learning
Technologies Group plc have been prepared in accordance
with International Financial Reporting Standards as adopted
by the European Union (IFRSs as adopted by the EU), issued by
the International Accounting Standards Board (IASB), including
interpretations issued by the International Financial Reporting
Interpretations Committee (IFRIC), and the Companies Act
2006 applicable to companies reporting under IFRS. The
Consolidated Financial Statements have been prepared
under the historical cost convention, as modified for any
financial assets which are stated at fair value through profit
or loss. The Consolidated Financial Statements are presented
in pounds sterling, the functional currency of Learning
Technologies Group plc, and figures have been rounded to
the nearest thousand.
Going concern
At 31 December 2017 the Group had £15.7 million of cash
and good cash conversion. Having undertaken a detailed
budgeting exercise, the Directors have a reasonable
expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future,
and therefore continue to adopt the going concern basis of
accounting in preparing the annual Financial Statements.
Adoption of new and revised International Financial
Reporting Standards
A number of new standards and amendments to standards
and interpretations have been issued but are not yet effective,
and, in some cases, have not yet been adopted by the EU.
IFRS 15, Revenue from Contracts with Customers, will be
adopted from 1 January 2018. Management has gone
through a process of reviewing contracts within each revenue
stream, having regard to the requirements of IFRS 15. If IFRS 15
had been applied to the 2017 results, the Directors estimate
that revenue and adjusted EBIT would have been £0.7 million
lower. This is as a result of the new standard’s application
guidance on contracts with multiple components. Under IFRS
15, the Group’s initial licence fees do not meet the definition
of a distinct performance obligation. Therefore, they will be
combined with the term licence fee and amortised over
the full licence contract. It has also been assessed that the
support and maintenance aspect of on-premise licence
contracts constitutes a separate performance obligation
which should be recognised over time. This will create a
change for the licence revenue which is recognised on
delivery of the software licence to the customer under IAS 18.
IFRS 16 is mandatory from 1 January 2019, with earlier
application permitted if IFRS 15 has also been applied. The
Directors have assessed the recognition of operating leases
within the Group, and estimate that if IFRS 16 had been
applied to the 2017 results, the Group’s property, plant and
equipment would be £3 million higher.
Other than IFRS 15 and IFRS 16 detailed above, the Directors
do not expect that the adoption of these new standards will
have a material impact on the financial statements of the
company in future periods, except that IFRS 9 will impact both
the measurement and disclosures of financial instruments.
(b) Basis of consolidation
A subsidiary is defined as an entity over which the Group
has control. The Group controls an entity when the Group
is exposed to, or has rights to, variable returns from its
involvement with the entity, and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred
to the Group. They are deconsolidated from the date that
control ceases.
The share for share acquisition of Epic Performance
Improvement Limited and its subsidiary companies by Epic
Group Limited on 10 May 1996 was that of a re-organisation
of entities which were under common control. As such, that
combination also falls outside the scope of IFRS 3 ‘Business
Combinations’ (Revised 2008). The Directors have therefore
decided that it is appropriate to reflect the combination using
the merger basis of accounting, in order to give a true and fair
view. No fair value adjustments were made as a result of that
combination.
The basis of consolidation of the acquisition of Epic Group
Limited by the Company in November 2013 is described
below:
The substance of the share for share acquisition of Epic Group
Limited and its subsidiary companies by In-Deed Online plc
on 8 November 2013 was outside the scope of IFRS 3 ‘Business
Combinations’ (Revised 2008) on the basis that the Directors
made a judgement that, prior to the transaction, In-Deed
Online plc was not a business under IFRS 3 Appendix A. The
Directors have therefore decided that it is appropriate to
reflect the combination using the merger basis of accounting
in order to give a true and fair view. No fair value adjustments
were made as a result of that combination.
Business combinations other than noted above are
accounted for under the acquisition method, and merger
relief has been taken on recognising the shares issued on
acquisition, where applicable.
Under the acquisition method, the results of the subsidiaries
acquired or disposed of are included from the date of
acquisition or up to the date of disposal. At the date of
acquisition, the fair values of the subsidiaries’ net assets
are determined and these values are reflected in the
Consolidated Financial Statements. The cost of acquisition is
measured at the aggregate of the fair values at the date of
exchange, of assets given, liabilities incurred or assumed, and
equity instruments issued by the Group in exchange for control
of the acquiree. Any excess of the purchase consideration of
the business combination over the fair value of the identifiable
assets and liabilities acquired is recognised as goodwill.
Goodwill, if any, is not amortised but reviewed for impairment
at least annually. If the consideration is less than the fair value
of assets and liabilities acquired, the difference is recognised
directly in the statement of comprehensive income.
Acquisition-related costs are expensed as incurred.
Intra-group transactions, balances and unrealised gains
on transactions are eliminated; unrealised losses are
also eliminated unless cost cannot be recovered. Where
necessary, adjustments are made to the Financial Statements
of subsidiaries to ensure consistency of accounting policies
with those of the Group.
(c) Joint arrangements and associates
Under IFRS 11 investments in joint arrangements are classified
as either joint operations or joint ventures depending on
the contractual rights and obligations of each investor. The
Company has assessed the nature of its joint arrangements
and determined them to be joint ventures. They are, along
with the Group’s associates, accounted for using the equity
method.
Interests in joint ventures and associates are recognised at
cost less the Group’s share of the post-acquisition profits or
losses and any impairments, where appropriate. When the
Group’s share of losses in a joint venture equals or exceeds its
interests in the joint ventures and associates, the Group does
not recognise further losses, unless it has incurred obligations
or made payments on behalf of joint ventures and associates.
(d) Intangible assets
All intangible assets, except goodwill, are stated at cost less
accumulated amortisation and any accumulated impairment
losses.
Goodwill
Goodwill represents the amount by which the fair value of the
cost of a business combination exceeds the fair value of the
net assets acquired. Goodwill is not amortised and is stated at
cost less any accumulated impairment losses.
The recoverable amount of goodwill is tested for impairment
annually or when events or changes in circumstance indicate
that it might be impaired. Impairment charges are deducted
from the carrying value and recognised immediately in
the income statement. For the purpose of impairment
testing, goodwill is allocated to each of the Group’s cash
generating units expected to benefit from the synergies of
the combination. If the recoverable amount of the cash
generating unit is less than the carrying amount of the unit,
the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit, and then
to the other assets of the unit, pro-rata on the basis of the
carrying amount of each asset in the unit. An impairment loss
recognised for goodwill is not reversed in a subsequent period.
Acquisition-related intangible assets
Net assets acquired as part of a business combination
includes an assessment of the fair value of separately
identifiable acquisition-related intangible assets, in addition
to other assets, liabilities and contingent liabilities purchased.
These are amortised on a straight-line basis over their useful
lives, which are individually assessed.
Branding
2-5 years
Customer contracts and relationships
2-5 years
Research and development expenditure
Research expenditure is recognised as an expense when it is
incurred.
Development expenditure is recognised as an expense,
except that costs incurred on development projects are
capitalised as long-term assets to the extent that such
expenditure is expected to generate future economic
benefits. Development expenditure is capitalised only if it
meets the criteria for capitalisation under IAS 38.
35
plc Annual Report 2017
plc Annual Report 2017 36
(i) Financial assets
(iii) Equity instruments
(i) Impairment
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
Capitalised development expenditure is measured at cost
less accumulated amortisation and impairment losses, if any.
Development expenditure initially recognised as an expense is
not recognised as an asset in subsequent periods.
(f) Financial instruments
Financial instruments are recognised in the statements of
financial position when the Group has become a party to the
contractual provisions of the instruments.
Capitalised development expenditure is amortised on a
straight-line method over a period of between three and five
years when the products or services are ready for sale or use.
In the event that it is no longer probable that the expected
future economic benefits will be recovered, the development
expenditure is written down to its recoverable amount.
(e) Functional and foreign currencies
(i) Functional and presentation currency
The individual Financial Statements of each entity in
the Group are presented in the currency of the primary
economic environment in which the entity operates, which
is the functional currency.
The Consolidated Financial Statements are presented in
Pounds Sterling, which is the Group’s presentation currency.
(ii) Transactions and balances
Transactions in foreign currencies are converted into the
respective functional currencies on initial recognition, using
the exchange rates approximating those ruling at the
transaction dates. Monetary assets and liabilities at the end
of the reporting period are translated at the rates ruling as of
that date. Non-monetary assets and liabilities are translated
using exchange rates that existed when the values were
determined. All exchange differences are recognised in
profit or loss.
Financial assets are derecognised when the contractual rights
to receive cash flows from the financial assets have expired
or have been transferred, and the Group has transferred
substantially all the risks and rewards of ownership.
On initial recognition, financial assets are classified as either
financial assets at fair value through profit or loss, held-to-
maturity investments, loans and receivables financial assets,
or available-for-sale financial assets, as appropriate.
Management determines the classification of its financial
assets at initial recognition.
• Loans and receivables financial assets
Trade receivables and other receivables that have fixed or
determinable payments that are not quoted in an active
market are classified as loans and receivables financial
assets. Loans and receivables financial assets are measured
at amortised cost using the effective interest method, less
any impairment loss. Interest income is recognised by
applying the effective interest rate, except for short-term
receivables when the recognition of interest would be
immaterial. The Group’s loans and receivables financial
assets comprise ‘trade and other receivables’, and cash
and cash equivalents included in the Consolidated
Statement of Financial Position.
(iii) Foreign operations
ii) Financial liabilities
Assets and liabilities of foreign operations are translated to
Pounds Sterling at the rates of exchange ruling at the end
of the reporting period. Revenues and expenses of foreign
operations are translated at the average rate of exchange.
All exchange differences arising from translation are taken
directly to other comprehensive income and accumulated
in equity under the foreign exchange translation reserve. On
the disposal of a foreign operation, the cumulative amount
recognised in other comprehensive income relating to that
particular foreign operation is reclassified from equity to
profit or loss.
Goodwill and fair value adjustments arising from the
acquisition of foreign operations are treated as assets
and liabilities of the foreign operations and are recorded
in the functional currency of the foreign operations, and
translated at the closing rate at the end of the reporting
period. Exchange differences are recognised in other
comprehensive income.
Financial liabilities are recognised when, and only when, the
Group becomes a party to the contractual provisions of the
financial instrument.
All financial liabilities are recognised initially at fair value,
plus directly attributable transaction costs, and subsequently
measured at amortised cost using the effective interest
method, other than those categorised as fair value through
profit or loss.
Fair value through the profit or loss category comprises
financial liabilities that are either held for trading, or
are designated to eliminate or significantly reduce a
measurement or recognition inconsistency that would
otherwise arise. Derivatives are also classified as held for
trading unless they are designated as hedges.
A financial liability is derecognised when the obligation
under the liability is discharged, cancelled or expires. When
an existing financial liability is replaced by another from
the same party on substantially different terms, or the terms
of an existing liability are substantially modified, such an
exchange or modification is treated as a derecognition of
the original liability and the recognition of a new liability,
and the difference in the respective carrying amounts is
recognised in the profit or loss.
(h) Long-term contracts
Contract work in progress is stated at costs incurred, less
those amounts transferred to profit or loss, after deducting
foreseeable losses and payments on account not matched
with revenue.
Amounts recoverable on contracts are included in current
assets and represent revenue recognised in excess of
payments on account.
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from proceeds.
Dividends on ordinary shares are recognised when paid.
Financial instruments are offset when the Group has a legally
enforceable right to offset, and intends to settle either on
a net basis or to realise the asset and settle the liability
simultaneously.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses, if any.
The cost of an item of property, plant and equipment initially
recognised includes its purchase price and any cost that is
directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the
manner intended by management. Subsequent costs are
included in the asset’s carrying amount only when the cost is
incurred and it is probable that the future economic benefits
associated with the asset will flow to the Group and the cost of
the asset can be measured reliably.
Depreciation is calculated under the straight-line method
to write off the depreciable amount of the assets over their
estimated useful lives. The principal annual rates used for this
purpose are:
Computer equipment
33.33%
Furniture and fittings
Office equipment
20%
20%
Leasehold improvements Over the remaining life of the lease
The depreciation method, useful lives and residual values are
reviewed, and adjusted if appropriate, at the end of each
reporting period to ensure that the amounts, method and
periods of depreciation are consistent with previous estimates
and the expected pattern of consumption of the future
economic benefits embodied in the items of the property,
plant and equipment.
(i) Impairment of financial assets
All financial assets (other than those categorised at fair
value through profit or loss), are assessed at the end of
each reporting period as to whether there is any objective
evidence of impairment as a result of one or more events
having an impact on the estimated future cash flows of the
asset.
An impairment loss in respect of loans and receivables
financial assets is recognised in profit or loss, and is
measured as the difference between the asset’s carrying
amount and the present value of estimated future cash
flows, discounted at the financial asset’s original effective
interest rate.
In a subsequent period, if the amount of the impairment
loss decreases, and the decrease can be related
objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is
reversed through profit or loss to the extent that the carrying
amount of the asset at the date the impairment is reversed
does not exceed what the amortised cost would have been
had the impairment not been recognised.
(ii) Impairment of non-financial assets
The carrying values of intangible assets are reviewed at the
end of each reporting period for impairment when there is
an indication that the assets might be impaired. Impairment
is measured by comparing the carrying values of the assets
with their recoverable amounts.
An impairment loss is recognised in profit or loss
immediately.
In respect of assets other than goodwill, and when there is a
change in the estimates used to determine the recoverable
amount, a subsequent increase in the recoverable
amount of an asset is treated as a reversal of the previous
impairment loss, and is recognised to the extent of the
carrying amount of the asset that would have been
determined (net of amortisation and depreciation) had no
impairment loss been recognised. The reversal is recognised
in profit or loss immediately.
37
plc Annual Report 2017
plc Annual Report 2017 38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
(j) Income taxes
Income tax for each reporting period comprises current and
deferred tax.
Current tax is the expected amount of income taxes payable
in respect of the taxable profit for the year and is measured
using the tax rates that have been enacted or substantively
enacted, at the end of the reporting period.
Deferred tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the Financial
Statements.
Deferred tax liabilities are recognised for all taxable temporary
differences other than those that arise from goodwill or excess
of the Group’s interest in the net fair value of the acquired
company’s identifiable assets, liabilities and contingent
liabilities over the business combination costs or from the initial
recognition of an asset or liability in a transaction which is not
a business combination and at the time of the transaction,
affects neither accounting profit nor taxable profit.
Deferred tax assets are recognised for all deductible
temporary differences, unused tax losses and unused tax
credits to the extent that it is probable that future taxable
profits will be available against which the deductible
temporary differences, unused tax losses and unused tax
credits can be utilised. The carrying amounts of deferred
tax assets are reviewed at the end of each reporting period
and reduced to the extent that it is no longer probable that
sufficient future taxable profits will be available to allow all or
part of the deferred tax assets to be utilised.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the period when the asset
is realised or the liability is settled, based on the tax rates that
have been enacted or substantively enacted at the end of
the reporting period.
Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has
become probable that future taxable profit will allow deferred
tax assets to be recovered.
(k) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, bank
balances, deposits with financial institutions and short-term,
highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk
of changes in value.
(l) Employee benefits
(i) Short-term benefits
Wages, salaries, paid annual leave and sick leave, bonuses
and non-monetary benefits are accrued in the period in
which the associated services are rendered by employees
of the Group.
(ii) Defined contribution plans
A defined contribution plan is a pension plan under which
the Group pays fixed contributions into a separate entity.
The Group has no legal or constructive obligations to pay
further amounts if the fund does not hold sufficient assets to
pay all employees the benefits relating to employee service
in the current and prior periods. The Group’s contributions to
defined contribution plans are recognised in profit or loss in
the period to which they relate.
(m) Provisions, contingent liabilities
Provisions for property lease dilapidations are recognised
when the Group has a present or constructive obligation as
a result of past events, when it is probable that an outflow
of resources embodying economic benefits will be required
to settle the obligation, and when a reliable estimate of the
amount can be made. Provisions are reviewed at the end of
each financial reporting period and adjusted to reflect the
current best estimate. Where the effect of the time value of
money is material, the provision is the present value of the
estimated expenditure required to settle the obligation.
A contingent liability is not recognised, but is disclosed
in the Notes to the Financial Statements when there is a
possible obligation which arises from past events whose
outcome is uncertain or when it is not probable that there
will be an outflow of economic resources. When a change
in the probability of an outflow occurs so that the outflow is
probable, it will then be recognised as a provision.
(n) Revenue and other income
Group revenue represents the fair value of the consideration
received or receivable for the rendering of services and sale
of software licencing, net of value added tax and other similar
sales based taxes, rebates and discounts after eliminating
intercompany sales.
Revenue from services includes the content, consulting,
platform development and other revenue streams (see Note
4). Revenue from services is recognised on the percentage
of completion method unless the outcome of the contract
cannot be reliably determined, in which case contract
revenue is only recognised to the extent of contract costs
incurred that are recoverable. Foreseeable losses, if any,
are provided for in full as and when it can be reasonably
ascertained that the contract will result in a loss. The stage of
completion is determined based on the proportion of contract
costs incurred compared to total estimated contract costs.
Business development costs incurred as part of our bid or
tender process are expensed as incurred. Only if and when a
project is won and contracted are project costs accounted for
within long-term contracts through Cost of Sale. There are no
costs incurred during the period between the contract being
awarded and service delivery commencing.
Revenue from subscriptions, such as licences, hosting and
support and maintenance, is amortised over the contractual
period of the licence where there are continuing obligations
to the customer. Perpetual licences and on-premise software
licences where all material obligations of the Group to the
customer have been met on the delivery of the licence are
recognised in full when the software has been delivered to the
customer.
Interest income is recognised as other income on an accruals
basis based on the effective yield on the investment.
3. Summary of critical accounting estimates
and judgements
The preparation of financial information in conformity with
IFRS requires the use of certain critical accounting estimates.
It also requires the Directors to exercise their judgement in
the process of applying the accounting policies which are
detailed above. These judgements are continually evaluated
by the Directors and management and are based on
historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The key estimates and underlying assumptions concerning the
future and other key sources of estimation uncertainty at the
statement of financial position date, that have a significant
risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial period, are
reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is
revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both
current and future periods.
(o) Operating segments
Revenue recognition
The Group operates as one reportable segment, that of
the production of interactive multimedia programmes.
An operating segment is a component of the Group that
engages in business activities from which it may earn
revenues and incur expenses, including revenues and
expenses that relate to transactions with any of the Group’s
other components. An operating segment’s operating results
are reviewed regularly by the chief operating decision maker
to make decisions about resources to be allocated to the
segment and assess its performance, and for which discrete
financial information is available.
(p) Share-based payment arrangements
Equity-settled share-based payments to employees and
others providing similar services are measured at the fair value
of the equity instruments at the grant date. Details regarding
the determination of the fair value of equity-settled share-
based transactions are set out in Note 24 to the Consolidated
Financial Statements.
(q) Leases
The Group leases certain property under operating leases.
Operating lease payments are recognised as an expense
on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time
pattern in which economic benefits from the leased asset are
consumed.
There were no material leases classified as finance leases.
The Group recognises revenue from service contracts with
customers.
Revenue is recognised on the percentage of completion
method unless the outcome of the contract cannot be
reliably determined, in which case contract revenue is only
recognised to the extent of contract costs incurred that are
considered to be recoverable. Foreseeable losses, if any,
are provided for in full as and when it can be reasonably
ascertained that the contract will result in a loss.
The stage of completion is determined based on the
proportion of contract costs incurred compared to total
estimated contract costs. The outcome of a development
project can be determined with reasonable certainty when a
project budget is agreed which sets out milestones and costs
for all project deliverables. Staff and contractors record their
actual time spent on each project which is regularly reviewed
against budget.
In making its estimate, management considered the
detailed criteria for the recognition of revenue set out in IAS
18 ‘Revenue’. The Directors are satisfied that the significant
risks and rewards are transferred and that the recognition of
revenue over the duration of a contract is appropriate.
In December 2015, the Group announced a deal to provide
services to Civil Service Learning (‘CSL’) alongside KPMG UK LLP.
Revenue is recognised by the consortium as attendees take
39
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plc Annual Report 2017 40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
the developed courses. This revenue is then shared, after third
party costs, based on an agreed profit share ratio between
KPMG UK LLP and the Group. Management considers
the services provided with KPMG to be, in substance, a
collaborative arrangement. The Group recognises their
agreed share of revenue when the revenue has been earned
by the consortium. The consortium has a reliable forecast of
the expected revenues, based on prudent assumptions which
is used to calculate the forecast margin on the contract. The
Group recognises costs in the Income Statement based on
this forecast margin.
Amounts recoverable on contracts
In making its estimation as to the amounts recoverable on
contracts, management considers estimates of anticipated
revenues and costs from each contract and monitors the
need for any provisions for losses arising from adjustments to
underlying assumptions if this indicates it is appropriate. The
amount of profit or loss recognised on a contract has a direct
impact on the Group’s results and carrying value of amounts
recoverable on contracts. The Directors are satisfied that their
judgement is based on a reasonable assessment of the future
prospects for each contract.
During the year to 31 December 2017 management reviewed
the contracts in place and did not note any contracts
where there was specific increased estimation uncertainty.
Management have reviewed contracts that were ongoing at
the prior year end and there were no significant adjustments
to the budgeted margin.
Valuation of intangible assets
The determination of the fair value of assets and liabilities
including goodwill arising on the acquisition of businesses,
the acquisition of industry-specific knowledge, software
technology, branding and customer relationships, whether
arising from separate purchases or from the acquisition as
part of business combinations, and development expenditure
which is expected to generate future economic benefits,
are based, to a considerable extent, on management’s
estimations.
The fair value of these assets is determined by discounting
estimated future net cash flows generated by the asset where
no active market for the assets exists. The use of different
assumptions for the expectations of future cash flows and the
discount rate would change the valuation of the intangible
assets.
During the year to 31 December 2017, the Group acquired
NetDimensions (Holdings) Limited, see Note 11. On acquisition
the Group recognised intangible assets of £34,312,000, the
most significant of which related to the customer relationships.
Management used a model that present valued the
expected cashflows arising from the customer relationships
over a 5-year period. The significant assumptions used in this
model were as follows:
Discount rate – 10%
Margin – 60%
Customer retention factors ranging from 10% to 90% based
on the strength of the relationship and whether the revenue
stream is recurring
If the discount rate was adjusted by one percentage point,
then the impact on the value of the asset would be plus
or minus £0.77 million. If the margin was adjusted by five
percentage points then the impact on the value of the asset
would be plus or minus £2.5 million. If the customer retention
factors were adjusted by five percentage, points then the
impact on the value of the asset would be plus or minus £2.0
million.
Impairment reviews
IFRS requires management to undertake an annual test for
impairment of indefinite lived assets (goodwill) and, for finite
lived assets, to test for impairment if events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable.
Goodwill impairment testing is an area involving management
estimates, requiring assessment as to whether the carrying
value of assets can be supported by the net present value
of future cash flows derived from such assets, using cash flow
projections which have been discounted at an appropriate
rate. In calculating the net present value of the future cash
flows, certain assumptions are required to be made in
respect of highly uncertain matters, including management’s
expectations of:
• Growth in adjusted EBIT;
• Long-term growth rates; and
• The selection of discount rates to reflect the risks involved.
The adjusted EBIT is calculated on the same basis as the
adjusted EBIT within the Statement of Comprehensive Income.
The Group prepares and approves a detailed annual budget,
three-year strategic plan and five-year management plan for
its operations, which are used in the value in use calculations.
See Note 12 for details of how these estimates and
judgements have been applied.
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) as defined in IFRS 8, in order to allocate resources
to the segment and to assess its performance.
All other segments primarily comprise income and expenses
relating to the Group’s administrative functions. Interest
income and interest expense are not allocated to segments,
as this type of activity is driven by the central treasury function,
which manages the cash position of the Group. Accordingly,
this information is not separately reported to the Board of
Directors.
The Directors of the Company consider the principal activity
of the Group to be the production of interactive multimedia
programmes, and to constitute one reportable segment, that
of the production of interactive multimedia programmes.
A majority of sales were generated by the operations in the
United Kingdom in the two years ended 31 December 2016
and 2017.
Geographical information
All revenues of the Group are derived from its principal activity,
the production of interactive multimedia programmes. The
Group’s revenue from external customers and non-current
assets by geographical location are detailed below.
UK
Mainland
Europe
United States
Canada
Asia Pacific
Rest of the
world
Total
£’000
£’000
£’000
£’000
£’000
£’000
£’000
31 Dec 2017
Revenue
Non-current assets
31 Dec 2016
Revenue
Non-current assets
27,998
33,155
18,205
22,644
4,926
2
1,368
-
15,757
34,527
7,736
22,914
1,367
-
613
-
1,600
20,189
253
-
408
-
88
-
Revenue by nature
The Group’s revenue by nature is analysed as follows:
Platforms
Content & Services
On-premise
Software
Licences
Hosting
and SaaS
Licences
Support and
Mainte-
nance
Content
Consulting
Platform
development
Other
52,056
87,873
28,263
45,558
Total
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
31 Dec 2017
e-Learning recurring
e-Learning non-recurring
Non-e-Learning
31 Dec 2016
9,460
1,006
-
10,173
8
-
10,466
10,181
e-Learning recurring
3,529
3,790
e-Learning non-recurring
Non-e-Learning
949
-
8
-
4,478
3,798
Information about major customers
441
510
-
951
-
574
-
574
-
-
23,403
1,362
-
-
-
3,703
-
23,403
1,362
3,703
-
14,118
-
14,118
-
853
-
853
-
1,419
-
1,419
-
924
1,066
1,990
-
1,147
1,876
20,074
30,916
1,066
52,056
7,319
19,068
1,876
3,023
28,263
In the year ended 31 December 2017, one customer accounted for 13.3 per cent of reported revenues. For the year ended 31
December 2016, no customer accounted for more than 10 per cent of reported revenues.
41
plc Annual Report 2017
plc Annual Report 2017 42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
5. Profit/(loss) before taxation
Profit/(loss) before taxation is arrived at after charging/(crediting):
7. Directors’ remuneration, interests and transactions
The Directors of the Company are considered to be the Key Management personnel of the Group.
31 Dec 2017
31 Dec 2016
Directors’ emoluments and benefits include:
Costs of acquisition
Integration costs
Amortisation of acquired intangible assets
Amortisation of software development costs
Fees repayable to the company’s auditor and its associates
for the audit of the Group’s annual accounts
Other fees payable to auditors:
- Corporate finance services
- Taxation
Depreciation
Directors’ fees
Directors’ pension contributions
Staff costs (including Directors):
- Salaries, allowances and bonuses
- Social security costs
- Defined contribution pension plan costs
Rental of offices
Research and development
Finance charges on contingent consideration
Finance charges on unwinding provision
Finance charges on borrowings
Fair value movement on contingent consideration
Acquisition-related deferred consideration and earn-outs
Interest income
6. Staff costs
The average monthly number of employees was:
Production
Administration
Management
Aggregate remuneration (including Directors):
Wages and salaries (including bonuses)
Social security costs
Share-based payments
Pension costs
Note
12
12
10
7
7
6
6
6
£’000
920
1,165
7,756
648
113
67
27
422
825
20
21,409
1,820
486
1,277
-
41
11
605
(52)
1,853
(7)
£’000
99
73
3,200
405
55
4
24
320
734
16
13,569
1,292
311
805
-
57
-
358
-
3,211
(1)
Year ended 31 Dec 2017
Year ended 31 Dec 2016
No.
328
77
6
411
£’000
21,409
1,820
675
486
24,390
No.
230
46
7
283
£’000
13,569
1,292
605
311
15,777
Year ended 31 December 2017
Salary or fees
Bonuses
Pension
contribution
Gain on exercise
of share options
Total
£’000
£’000
£’000
£’000
£’000
Andrew Brode
Harry Hill
Jonathan Satchell
Neil Elton
Piers Lea
Dale Solomon
Leslie-Ann Reed
Peter Gordon
-
40
240
170
167
170
30
8
825
-
-
132
93
93
93
-
-
411
-
-
7
5
5
3
-
-
-
-
-
-
-
7,153
-
-
20
7,153
-
40
379
268
265
7,419
30
8
8,409
Year ended 31 December 2016
Salary or fees
Bonuses
Pension
contribution
Gain on exercise
of share options
Total
£’000
£’000
£’000
£’000
£’000
Andrew Brode
Harry Hill
Jonathan Satchell
Neil Elton
Piers Lea
Dale Solomon
Leslie-Ann Reed
Peter Gordon
-
40
210
158
126
147
30
23
734
-
-
54
35
35
35
-
-
159
-
-
6
5
4
1
-
-
16
-
-
-
-
-
340
-
-
340
-
40
270
198
165
523
30
23
1,249
Key management remuneration
Short-term employee benefits
Share-based payments
Total key management remuneration
2017
2016
£’000
£’000
1,256
184
1,440
909
305
1,214
43
plc Annual Report 2017
plc Annual Report 2017 44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
Directors’ emoluments and benefits are stated for the Directors
of Learning Technologies Group plc only. The amounts shown
were recognised as an expense during the year.
Total social security costs related to Directors during the year
was £128,000 (2016: £111,000), these are excluded from the
table above.
Peter Gordon resigned as a Non-Executive Director on 4 April
2017.
There were no other short-term or long-term benefits, post-
employment benefits or termination benefits paid to Directors
in either of the years ended 31 December 2017 or 31
December 2016.
Directors’ interests in the shares of the Company at 31
December 2017 and 31 December 2016 are as follows:
LTG Ordinary shares of
£0.00375 each
Options
Shares
Andrew Brode
Harry Hill
Jonathan Satchell
Leslie-Ann Reed
Neil Elton
Piers Lea
Dale Solomon
2017
2016
2017
2016
2017
2016
Weighted Average Exercise
Price (pence)
Number
Number
-
-
-
-
30.946
-
5.888
24.796
-
-
-
-
-
-
-
-
-
-
-
-
115,881,671
113,215,005
2,236,000
2,028,000
103,139,995
105,289,995
4,875,074
1,100,000
19.000
3,095,744
1,095,744
206,666
160,000
-
5.653
6.329
-
-
16,023,383
17,023,383
1,006,469
20,561,013
6,000,000
-
4,102,213
21,656,757
248,362,789
238,816,383
On 29 April 2016 Dale Solomon exercised 1,065,000 options
granted in May 2012.
On 14 June 2017, Dale Solomon exercised and sold 1,165,914
share options granted in May 2012 and November 2013.
He exercised a further 18,388,607 share options on 23 June
2017 which had been granted in February 2014 and sold
12,388,607 shares on the same date.
See Note 24 for further details on share option plans.
Dividends paid to Directors during the year were as follows.
Total
2017
£’000
556
2016
£’000
408
See Note 28 for further details on dividends.
8. Income tax
Current tax expense:
- UK Current Tax on profits for the year
- Adjustments in respect to prior years
- Foreign Current Tax on profits for the year
Total current tax
Deferred tax (Note 18)
- Origination and reversal of temporary differences
- Adjustments in respect to prior years
- Change in deferred tax rate
Total deferred tax
Income tax (credit)/expense
31 Dec 2017
31 Dec 2016
£’000
1,498
(253)
421
1,666
(2,032)
-
(805)
(2,837)
(1,171)
£’000
565
(35)
528
1,058
(943)
2
16
(925)
133
The change in deferred tax rate of £805,000 credited to the
income statement relates wholly to the US corporation tax
reform where the expected future tax rate has changed from
35% to 21%.
A reconciliation of income tax expense applicable to the
profit/(loss) before taxation at the statutory tax rate to the
income tax expense at the effective tax rate of the Group is
as follows:
Profit / (loss) before taxation
Tax calculated at the domestic tax rate of 19.25% (2016: 20%):
Tax effects of:
Income not subject to tax
Expenses not deductible for tax purposes
Joint venture/associate results reported net of tax
Tax deductions not recognised as an expense
Utilisation of previously unrecognised or acquired tax losses
Tax losses in the year for which no deferred tax is recognised
Difference of deferred rate and current tax rate
Adjustments in respect to prior years
Effect of different international tax rates
Income tax (credit)/expense
31 Dec 2017
31 Dec 2016
£’000
692
133
(288)
521
39
(350)
(486)
298
(978)
(252)
192
(1,171)
£’000
(1,193)
(239)
(157)
467
41
(234)
-
2
38
(33)
248
133
The aggregate current and deferred tax directly credited to equity amounted to £1,331,000 (2016: £823,000).
45
plc Annual Report 2017
plc Annual Report 2017 46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
9. Earnings per share
10. Property, plant and equipment
Basic profit/(loss) per share
Diluted profit/(loss) per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
31 Dec 2017
31 Dec 2016
Pence
0.379
0.363
2.156
2.064
Pence
(0.317)
(0.317)
1.286
1.184
Basic earnings per share is calculated by dividing the profit/
(loss) after tax attributable to the equity holders of the Group
by the weighted average number of shares in issue during
the year.
Diluted earnings per share is calculated by adjusting the
weighted average number of shares outstanding to assume
conversion of all potential dilutive shares, namely share
options or deferred consideration payable in shares where the
contingent conditions have been met.
In order to give a better understanding of the underlying
operating performance of the Group, an adjusted earnings
per share comparative has been included. Adjusted earnings
per share is stated after adjusting the profit/(loss) after tax
attributable to equity holders of the Group for certain charges
as set out in the table below. Adjusted diluted earnings per
share has been calculated to also include the contingent
shares payable as deferred consideration on acquisitions
where the future conditions have not yet been met,
as shown below.
The calculation of earnings per share is based on the following
earnings and number of shares.
Profit after
tax
2017
Weighted
average
number of
shares
Pence per
share
(Loss) after
tax
2016
Weighted
average
number of
shares
Pence per
share
Basic earnings per ordinary share attributable to the
owners of the parent
2,013
530,444
0.379
(1,326)
418,619
(0.317)
Effect of adjustments:
Amortisation of acquired intangibles
Share-based payment costs
Integration costs
Cost of acquisitions
Fair value movement on contingent consideration
Deferred consideration and earn-outs from acquisitions
Net foreign exchange differences on borrowings
Interest receivable
Finance expense
Income tax expense
Effect of adjustments
Adjusted profit before tax
Tax impact after adjustments
7,756
675
1,165
920
(52)
1,853
151
(7)
52
(1,171)
11,342
13,355
(1,921)
-
-
-
Adjusted basic earnings per ordinary share
11,434
530,444
Effect of dilutive potential ordinary shares:
Share options
Deferred consideration payable (conditions met)
Deferred consideration payable (contingent)
-
-
-
21,789
888
818
Adjusted diluted earnings per ordinary share
11,434
553,939
2.138
-
(0.361)
2.156
(0.085)
(0.004)
(0.003)
2.064
3,200
605
73
99
-
3,211
333
(1)
57
133
7,710
6,384
(1,000)
5,384
-
-
-
-
-
-
418,619
30,031
1,819
4,412
5,384
454,881
1.842
-
(0.239)
1.286
(0.086)
(0.005)
(0.011)
1.184
Cost
Computer
equipment
Fixtures and
fittings
£’000
£’000
Motor
vehicles
£’000
Leasehold
improvements
£’000
Total
£’000
Cost
At 1 January 2016
Additions on acquisitions
Additions
Foreign exchange differences
At 31 December 2016
Additions on acquisitions
Additions
Foreign exchange differences
Disposals
At 31 December 2017
Accumulated Depreciation
At 1 January 2016
Charge for the year
At 31 December 2016
Charge for the year
At 31 December 2017
At 31 December 2016
At 31 December 2017
11. Acquisitions
NetDimensions (Holdings) Limited
1,296
9
206
15
1,526
104
392
(19)
(6)
1,997
955
168
1,123
236
1,359
403
638
305
8
211
31
555
18
57
(13)
(6)
611
227
116
343
117
460
212
151
-
-
-
-
-
10
-
(1)
(1)
8
-
-
-
8
8
-
-
235
1,836
-
5
-
240
66
-
(5)
(40)
261
111
36
147
61
208
93
53
17
422
46
2,321
198
449
(38)
(53)
2,877
1,293
320
1,613
422
2,035
708
842
The non-controlling interest has been measured on the
proportionate basis of net assets acquired.
On 3 February 2017 LTG announced an all cash offer for the
issued and to be issued share capital of NetDimensions (Holdings)
Limited (‘NetDimensions’) for £53.6 million (£1 per share and share
option).
NetDimensions is a leading global enterprise solutions provider
of talent and learning management systems, headquartered in
Hong Kong and with operations in the USA, UK, Germany, Australia
and the Philippines.
On 23 July 2017 the compulsory acquisition of the non-controlling
shareholders’ interests was completed, for £1.48 million in cash;
this represents the reconciling difference between the £52.1
million total consideration shown in the table below and the £53.6
million cash offer disclosed above. The £0.82 million difference
between the cash paid to acquire the non-controlling interest
(£1.48 million) and the carrying value of the non-controlling
interest (£0.67 million) was recognised directly in equity as it
related to the repurchase of an equity interest.
On 9 February 2017, the Group announced the purchase of
None of the goodwill recognised is expected to be deductible for
1,000,000 ordinary shares in NetDimensions (representing 1.95%)
income tax purposes.
for total consideration of £0.984 million. On 20 March 2017, the
offer was declared unconditional in all respects; this is the date
that the Group obtained control and is the date used for the
acquisition accounting. At this date the Group had a 97.2%
holding of NetDimensions.
£’000
‘000
Pence
£’000
‘000
Pence
Net book value
47
plc Annual Report 2017
plc Annual Report 2017 48
plc Annual Report 2017 48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
The following table summarises the consideration paid for
NetDimensions, the fair value of assets acquired and liabilities
assumed at the acquisition date.
Cost
Fair value
£’000
49,793
2,311
52,104
859
52,963
7,881
198
8,825
(14,435)
(5,733)
34,312
31,048
21,915
52,963
NetDimensions contributed £12.9 million of revenue for the
period between the date of acquisition and the balance
sheet date and £3.5 million of profit before tax. If the
acquisition of NetDimensions had been completed on the first
day of the financial year, Group revenues would have been
£4.5 million higher and Group profit attributable to equity
holders of the parent would have been £0.2 million higher.
Details regarding the strategic decision to acquire
NetDimensions can be found in the Chairman’s Statement
and Strategic Report on pages 1 and 9 respectively.
Consideration
Cash paid to NetDimensions shareholders
Cash paid to NetDimensions share option holders
Total consideration
Non-controlling interest on acquisition
Recognised amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents
Property, plant and equipment
Gross trade and other receivables
Trade and other payables
Deferred tax liabilities on acquisition
Intangible assets identified on acquisition
Total identifiable net assets
Goodwill
Total
The goodwill arising is attributable to the acquired workforce,
anticipated future profit from expansion opportunities and
synergies of the business. The goodwill arising from the
acquisition has been allocated to the NetDimensions CGU.
Fair value adjustments have been recognised for acquisition-
related intangible assets and related deferred tax as well
as future liabilities which are in alignment with accounting
policies.
Acquisition-related intangible assets of £31.8 million relate
to the valuation of the customer relationships which are
amortised over a period of five years, and £1.1 million which
relates to the value of the NetDimensions brand which is
amortised over five years, and £1.4 million which relates to the
value of the acquired intellectual property which is amortised
over three years.
Acquisition costs of £920,000 have been charged to the
statement of comprehensive income in the year relating to
the acquisition of NetDimensions.
A deferred tax liability of £5.7 million in respect of the
acquisition-related intangible assets was established on
acquisition (refer to Note 18).
12. Intangible assets
Cost
At 1 January 2016
Additions on acquisitions
Additions
Foreign exchange differences
At 31 December 2016
Additions on acquisition
Additions
Foreign exchange differences
At 31 December 2017
Accumulated amortisation
At 1 January 2016
Amortisation charged in year
At 31 December 2016
Amortisation charged in year
At 31 December 2017
Carrying amount
At 31 December 2016
At 31 December 2017
Goodwil
Customer
contracts &
relationships
Branding
IP & Software
development
Total
£’000
£’000
£’000
£’000
£’000
12,379
12,233
-
1,996
26,608
21,915
-
(2,473)
46,050
-
-
-
-
-
26,608
46,050
6,291
8,584
-
1,317
16,192
31,811
-
(2,983)
45,020
1,609
3,060
4,669
7,144
11,813
11,523
33,207
428
256
-
125
809
1,069
-
(90)
1,788
164
140
304
286
590
505
1,198
1,127
249
796
69
2,241
1,432
1,384
(202)
4,855
522
405
927
974
20,225
21,322
796
3,507
45,850
56,227
1,384
(5,748)
97,713
2,295
3,605
5,900
8,404
1,901
14,304
1,314
2,954
39,950
83,409
Goodwill and acquisition-related intangible assets recognised
Goodwill acquired in a business combination is allocated,
have arisen from acquisitions. Refer to Note 11 for further details
at acquisition, to the cash generating units (‘CGUs’) that are
of acquisitions undertaken during the year. IP and software
expected to benefit from that business combination. The
development reflects the recognition of development work
Group has four CGUs. Following the acquisition of LINE and its
undertaken in-house.
The amortisation charge for the year of £8,404,000 includes
£7,756,000 relating to acquired intangibles. Included within IP and
software development are acquired intangibles with a cost of
£1,432,000 and cumulative amortisation of £326,000.
merger with Epic in July 2014, to form LEO, management have
determined that LEO represents one CGU. The carrying amount of
goodwill has been allocated as follows:
Goodwill
Growth rate
Pre-tax discount rate
CGU
LEO
Preloaded
Eukleia
Rustici
NetDimensions
2017
£’000
7,435
2,180
2,764
12,911
20,760
46,050
2016
£’000
7,435
2,180
2,764
14,229
-
26,608
2017
2016
%
8%
9%
9%
9%
9%
%
8%
9%
9%
9%
2017
%
11.0%
12.5%
12.5%
12.5%
12.5%
2016
%
11.0%
12.5%
12.5%
12.5%
49
plc Annual Report 2017
plc Annual Report 2017 50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
The Group tests goodwill annually for impairment or more
frequently if there are indications that goodwill might
be impaired. The recoverable amounts of the CGUs are
determined from value in use. The key assumptions for the
value in use calculations are those regarding the discount
rates (being the companies cost of capital), growth rates
(based on past experience and pipeline in place) and future
EBIT margins (which are based on past experience). The Group
monitors its pre-tax Weighted Average Cost of Capital and
those of its competitors using market data. In considering
the discount rates applying to CGUs, the Directors have
considered the relative sizes, risks and the inter-dependencies
of its CGUs. The impairment reviews use a discount rate
adjusted for pre-tax cash flows. The Group prepares cash
flow forecasts derived from the most recent financial plan
approved by the Board and extrapolates revenues, net
margins and cash flows for the following four years based on
forecast growth rates of the CGUs. Cash flows beyond this five-
year period are also considered in assessing the need for any
impairment provisions. The growth rates are based on internal
growth forecasts of between 8% and 9% for the first five
years. The terminal rate used for the value in use calculation
thereafter is 2.25%.
If the growth rate or the discount rate used increased or
decreased by 10%, with all other factors being equal, there
would be no impact on the goodwill impairment assessment.
Customer contracts, relationships and branding
These intangible assets include the Group’s aggregate
amounts spent on the acquisition of industry-specific
knowledge, software technology, branding and customer
relationships. These assets arose from acquisition as part of
business combinations.
The fair value of these assets is determined by discounting
estimated future net cash flows generated by the asset where
no active market for the assets exists.
The cost of these intangible assets is amortised over the
estimated useful life of each separate asset of between two
and five years.
IP and software development
IP and software development costs principally comprise
expenditure incurred on major software development projects
and the production of generic e-learning content where it
is reasonably anticipated that the costs will be recovered
through future commercial activity.
Capitalised development costs are amortised over the
estimated useful life of between three and five years.
13. Investments accounted for using the equity method
Joint ventures
Investment in joint ventures:
Cost of investments
Share of accumulated losses
Foreign exchange differences
The movements in joint venture investments is as follows:
Balance at beginning of year
Share of losses for the year
Investment during the year
Foreign exchange differences
31 Dec 2017
31 Dec 2016
£’000
£’000
274
(271)
(3)
-
274
(271)
(3)
-
31 Dec 2017
31 Dec 2016
£’000
£’000
-
-
-
-
-
-
-
-
-
-
The joint venture has share capital consisting solely of ordinary shares, which are held directly by the Group. The nature of the
investment at 31 December 2016 and 31 December 2017 is listed below.
Name of entity
Country of Registration or
Incorporation
Principal activity
Percentage of ordinary shares
held by Group
LEO Brasil Tecnologia Educacional
Ltda (formerly Epic Brasil
Tecnologia Educacional Ltda)
Brazil
Bespoke e-learning
50%
The joint venture is a private company and there is no quoted
market price available for its shares.
The accounting reference date of the joint venture is
coterminous with that of the Company.
There are no contingent liabilities or commitments relating to
the Group’s interest in the joint venture.
Where the Group’s share of losses in a joint venture exceeds
its interests in the joint venture, the Group does not recognise
further losses as it has no further obligation to make payments
on behalf of the joint venture.
No further disclosures are provided on the grounds of
materiality.
51
plc Annual Report 2017
plc Annual Report 2017 52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
Summarised financial information for the associate
Set out below is summarised financial information for
Watershed which is accounted for using the equity method.
The information reflects the amounts presented in the
Financial Statements of the associate adjusted for differences
in accounting policies between the Group and the associate
where appropriate, and not the Group’s share of those
amounts. Other than disclosed below there are no other
current or non-current financial liabilities.
Summarised statement of financial position:
Associates
Investment in associates:
Cost of investments
Share of accumulated losses
Foreign exchange differences
The movements in associate investments is as follows:
Balance at beginning of year
Share of losses for the year
Investment during the year
Foreign exchange differences
31 Dec 2017
31 Dec 2016
£’000
£’000
2,095
(406)
-
1,689
2,095
(205)
-
1,890
Non-current assets
Current assets
Cash and cash equivalents
Other current assets
Total current assets
Current liabilities
31 Dec 2017
31 Dec 2016
Other current liabilities (including trade payables)
£’000
1,890
(201)
-
-
1,689
£’000
-
(205)
2,095
-
1,890
Total current liabilities
Non-current liabilities
Net assets
Summarised statement of comprehensive income:
The Group acquired a 27.27% interest in Watershed LLC
(‘Watershed’) on 28 January 2016, for a total consideration of
$3 million, approximately £2.095 million.
The associate has share capital consisting solely of ordinary
shares, which are held directly by the Group. The nature of
the investment at 31 December 2016 and 31 December 2017
is listed below.
Name of entity
Country of Registration or
Incorporation
Principal activity
Percentage of ordinary shares
held by Group
Watershed LLC
USA
Learning Analytics
27.27%
Revenue
(Loss) from continuing operations
Income tax (expense) / release
(Loss) for the year
Other comprehensive (expense) / income
Total comprehensive (loss) for the year
No depreciation or amortisation was charged in the period.
The associate is a private company and there is no quoted market price available for its shares.
Reconciliation of summarised financial information:
The accounting reference date of the associate is coterminous with that of the Company.
There are no contingent liabilities or commitments relating to the Group’s interest in the associate.
Opening net assets/(liabilities)
(Loss) for the year
Issue of share capital or capital contribution
Foreign exchange differences
Closing net assets at 31 December
Interest in associate’s net assets at 27.27%
31 Dec 2017
31 Dec 2016
£’000
857
889
349
1,238
(394)
(394)
(101)
1,600
£’000
610
1,753
219
1,972
(131)
(131)
(34)
2,417
Year ended
31 December 2017
(Post acquisition)
Period ended
31 December 2016
£’000
844
(742)
(3)
(745)
-
(745)
2017
£’000
2,417
(745)
-
(72)
1,600
436
£’000
299
(752)
-
(752)
-
(752)
2016
£’000
(9)
(752)
2,797
381
2,417
659
53
plc Annual Report 2017
plc Annual Report 2017 54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
14. Trade receivables
17. Cash and cash equivalents
31 Dec 2017
31 Dec 2016
For the purpose of the statement of cash flows, cash and cash equivalents comprise the following:
Trade receivables
Allowance for impairment losses
Impairment losses:
At 1 January
Additions on acquisition
Additions
Amounts written-back
At 31 December
£’000
12,253
(186)
12,067
57
111
18
-
186
£’000
4,286
(57)
4,229
40
-
17
-
57
The Group’s normal trade credit term is 30 days. Other credit
terms are assessed and approved on a case-by-case basis.
The fair value of trade receivables approximates their
carrying amount, as the impact of discounting is not
significant. No interest has been charged to date on
overdue receivables.
15. Other receivables, deposits and prepayments
Current assets
Sundry receivables
Prepayments
Non-current assets
Prepayments
16. Amount recoverable on contracts
Amount recoverable on contracts
31 Dec 2017
31 Dec 2016
£’000
577
1,786
2,363
-
-
£’000
238
1,757
1,995
1,293
1,293
31 Dec 2017
31 Dec 2016
£’000
4,242
4,242
£’000
2,642
2,642
Cash and bank balances
18. Deferred tax assets/(liabilities)
31 Dec 2017
31 Dec 2016
£’000
15,662
£’000
5,348
Deferred tax assets
Share options
Tax losses
Short-term
timing differences
At 1 January 2016
Acquisition of subsidiaries
Deferred tax charge directly to the income statement
Deferred tax charged directly to equity
At 31 December 2016
Acquisition of subsidiaries
Deferred tax charged/(credited) directly to the income statement
Deferred tax charged directly to equity
Exercise of share options
At 31 December 2017
£’000
1,029
-
38
648
1,715
-
(143)
1,331
(1,499)
1,404
£’000
£’000
-
-
-
-
-
-
521
-
-
521
-
-
2
-
2
-
6
-
-
8
Deferred tax liabilities
Intangibles
Accelerated tax
depreciation
At 1 January 2016
Deferred tax on acquired intangibles and via acquisition
Deferred tax charge directly to the income statement
Exchange rate differences
At 31 December 2016
Deferred tax on acquired intangibles and via acquisition
Deferred tax charge directly to the income statement
Exchange rate differences
At 31 December 2017
£’000
(996)
(3,094)
919
(506)
(3,677)
(5,733)
2,443
694
(6,273)
£’000
(186)
-
(34)
-
(220)
-
16
-
Total
£’000
1,029
-
40
648
1,717
-
384
1,331
(1,499)
1,933
Total
£’000
(1,182)
(3,094)
885
(506)
(3,897)
(5,733)
2,459
694
(204)
(6,477)
The deferred tax balances relate to temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the Financial Statements. Deferred tax
assets are recognised to the extent that it is probable that the
future taxable profits will allow the deferred tax assets to be
recovered. Deferred tax assets of £664,000 relating to carried
forward tax losses have not been recognised as it is not
probable that future taxable profits will allow these deferred
tax assets to be recovered.
55
plc Annual Report 2017
plc Annual Report 2017 56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
19. Trade and other payables
22. Provisions
Trade payables
Payments received on account
Tax and social security
Contingent consideration
Acquisition-related deferred consideration and earn-outs
Accruals
31 Dec 2017
31 Dec 2016
£’000
946
13,930
1,673
168
2,641
4,398
23,756
£’000
871
2,711
1,002
59
2,824
1,748
9,215
At 1 January – brought forward
Paid in the year
Addition
31 Dec 2017
31 Dec 2016
£’000
99
-
158
257
£’000
99
-
-
99
The provision relates to the Group’s share of dilapidation costs in respect of costs to be incurred at the end of property leases.
TThe contingent consideration relates wholly to the acquisition
of Preloaded Limited and is a financial instrument held at
fair value within the scope of IAS 39. The acquisition-related
deferred consideration and earn-outs balance relates wholly
to the acquisition of Rustici Software LLC. This is treated as
post-combination remuneration and is accrued over the
service period.
23. Share capital
Shares were issued during the year as follows:
20. Other long-term liabilities
Acquisition-related deferred consideration and earn-outs
Contingent consideration
31 Dec 2017
31 Dec 2016
£’000
-
192
192
£’000
1,055
371
1,426
At 1 January 2017
Placing of shares
Cost of issuing shares
Issue of shares on payment of Rustici contingent
consideration
Shares issued on the exercise of options
Number of
shares
421,411,980
124,000,000
-
1,931,911
24,656,614
Share capital
Share premium
£’000
1,580
465
-
7
93
£’000
17,044
46,035
(1,122)
620
1,631
Merger
reserve
£’000
31,983
-
-
-
-
At 31 December 2017
572,000,505
2,145
64,208
31,983
Total
£’000
50,607
46,500
(1,122)
627
1,724
98,336
The contingent consideration relates wholly to the acquisition of Preloaded Limited and is repayable during 2019
(see Note 19).
21. Borrowings
On the acquisition of NetDimensions the debt facility with
Barclays Bank plc was fully repaid and a new debt facility
of £30 million was entered into with Silicon Valley Bank on
29 March 2017. Part of this facility was applied to settle a
portion of the consideration payable to NetDimensions
(Holdings) Limited shareholders. The facility comprises a £10
million equivalent multicurrency term loan, a £10 million
equivalent multicurrency revolving credit facility and a £10
million accordion facility, all available to the Group for 5
years. The facility attracts variable interest between 1.6% and
2.1%, based on the Group’s leverage, above LIBOR for the
currency of the loan. The term loan was drawn down in USD
($12.4 million) and is repaid with quarterly instalments of $0.622
million with the balance repayable on the expiry of the loan in
March 2022.
The bank loan is secured by a fixed and floating charge over
the assets of the Group and is subject to various financial
covenants.
Current interest-bearing loans and borrowings
Non-current interest-bearing loans and borrowings
31 Dec 2017
31 Dec 2016
£’000
1,849
12,765
14,614
£’000
3,252
10,582
13,834
The par value of all shares is £0.00375. All shares in issue were
allotted, called up and fully paid.
On 3 March 2015 the Group incorporated Learning
Technologies Group (Trustee) Limited, a wholly owned
subsidiary of the Company. The purpose of the company
is to act as an Employee Benefit Trust (‘EBT’) for the benefit
of current and previous employees of the Group. At 31
December 2017 the EBT holds 404,340 ordinary shares in the
Company. These shares are held in treasury.
(Holdings) Limited (‘NetDimensions’) and the conditional
placing of 124,000,000 shares to raise approximately £46.5
million. On 20 February 2017 at the General Meeting the
Resolutions were passed and the Placing Shares were
admitted to trading on AIM on 30 March 2017. Further details
of the acquisition are provided in Note 11.
During the year, 1,931,911 new ordinary shares were issued
as part payment of the acquisition-related deferred
consideration due on the acquisition of Rustici Software LLC.
On 3 February 2017, the Company announced its proposed
recommended cash offer for the acquisition of NetDimensions
24,656,614 ordinary shares were issued during the course of
the year as a result of the exercise of employee share options.
57
plc Annual Report 2017
plc Annual Report 2017 58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
24. Share-based payment transactions
The Group operates an Approved and Unapproved share
option plan and Sharesave option scheme. The Group’s
share-based payment arrangements are summarised below.
(a) Share option plans
As part of its strategy for executive and key employee
remuneration, on Admission to AIM the Company
established a Share Option Scheme under which share
options may be granted to officers and employees or
members of the Group. Under the rules of the Share Option
Scheme, the Company may grant EMI options and/
or unapproved options. Prior to the reverse takeover by
LTG in November 2013, Epic Group Limited ran their own
share option scheme. Option holders in this plan either
exercised their options or modified them into share options
in the new scheme, such that they had a neutral effect
on the option holders immediately before and after the
amendment of the options.
There is no limit on the number of shares, or the
percentage of issued share capital, that can be used
by the Company for share options. The rules of the Share
Option Scheme do not comply with the ABI’s guidelines
on policies and practices in respect of executive
remuneration.
2017
2016
Number of options
Weighted average
exercise price
pence
Number of
options
Weighted average
exercise price
Approved share option plan - Enterprise Management Incentive (‘EMI’):
At 1 January
17,834,083
9.478
24,449,914
Options granted by Company
Forfeited
Exercised during the year
At 31 December
-
-
(5,689,570)
12,144,513
-
-
5.278
11.446
-
(2,600,000)
(4,015,831)
17,834,083
pence
9.397
-
16.600
4.380
9.478
EMI options are granted to employees of the Group and
vesting criteria are subject to challenging performance
targets, such as share price growth, or other criteria such as
annual sales. Except where agreed by the Board, options will
lapse if an option holder ceases to be an employee of the
Group. All EMI options are settled by equity.
Unapproved share option plan:
At 1 January
Granted by Company
Forfeited
Exercised during the year
At 31 December
2017
2016
Number of options
Weighted average
exercise price
19,412,353
9,400,000
-
(16,002,452)
12,809,901
pence
9.671
43.588
-
5.880
39.295
Number of
options
17,412,353
2,800,000
(800,000)
-
19,412,353
Weighted average
exercise price
pence
7.130
28.500
20.250
-
9.671
Unapproved options are granted to employees of the Group
and vesting criteria are subject to challenging performance
targets, such as share price growth, or other criteria such as
annual sales. Except where agreed by the Board, options will
lapse if an option holder ceases to be an employee of the
Group. All unapproved options are settled by equity.
(b) Sharesave option scheme
The Company established the 2014, 2015, 2016 and 2017
Learning Technologies Group plc Sharesave Scheme in
April 2014, April 2015, April 2016 and April 2017 respectively.
The scheme enables UK permanent employees of the
Group to buy shares in the Company at a discount on
maturity of a three-year savings contract, unless they are
made redundant, in which case they can exercise their
options at the time of redundancy. The savings are held
with the Yorkshire Building Society.
Each member of the scheme may save a fixed amount of
up to £500 per month for three years at the end of which
period, each employee may buy shares at a fixed price
of 16.25, 18.8, 29.6 and 40.8 pence per share respectively
(the ‘Option Price’), being a discount of 20% on the share
price as of 28 April 2014, 24 April 2015, 26 April 2016 and
20 April 2017 respectively. At the end of three years, an
employee may either opt to buy shares at the Option Price
or take the savings in cash.
Sharesave Option Scheme:
At 1 January
Granted by Company
Forfeited
Exercised during the year
At 31 December
2017
2016
Number of options
Weighted average
exercise price
Number of options
Weighted average
exercise price
3,908,777
984,231
(307,465)
(2,964,593)
1,620,950
pence
17.911
40.800
25.349
16.250
33.436
3,964,574
406,815
(398,003)
(64,609)
3,908,777
pence
16.594
29.600
17.017
16.250
17.911
59
plc Annual Report 2017
plc Annual Report 2017 60
The weighted average share price at grant date of the
Sharesave Scheme was £0.5100 (2016: £0.3700) and the
estimated fair value of each share option was £0.1763 (2016:
£0.0953). It is assumed that 75% of members will remain in the
Group after three years.
A 1.78% (2016: 1.78%) risk-free interest rate has been assumed
for all three schemes.
This estimated fair value was calculated by applying a Black-
Scholes option pricing model. The expected volatility of the
Group’s share price is calculated based on an assumption of
historical volatility.
The expense and equity reserve arising from share-based
payment transactions recognised in the year ended 31
December 2017 was £675,000 (year ended 31 December
2016: £605,000).
The weighted average share price at the date of exercise of
options under the EMI Share Option Scheme was £0.3244.
The weighted average share price at the date of exercise of
options under the Sharesave Scheme was £0.3300.
The number of options that are exercisable at 31 December
2017 is 9,727,198 (2016: 13,555,713).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
At 31 December 2017, options granted to subscribe for ordinary shares of the Company, and the valuation criteria,
are as follows:
Number of shares under option
Date of grant
Approved
Scheme
Unapproved
scheme
Sharesave
Scheme
Exercise Price
Pence
Remaining
vesting
period
Fair value of
options
Life
Volatility
Pence
Years
Percent
May 2012
Jun 2013
Nov 2013
Mar 2014
Apr 2014
Nov 2014
Nov-2014
Nov 2014
Nov 2014
Nov 2014
Nov 2014
Nov 2014
Jan 2015
Jan 2015
Jan 2015
Apr 2015
Dec 2015
Dec 2015
Dec 2015
Dec 2015
Dec 2015
Dec 2015
Dec 2015
Apr 2016
Aug 2016
Aug 2016
Aug 2016
Aug 2016
Aug 2016
Mar 2017
Mar 2017
Mar 2017
Mar 2017
Apr 2017
Apr 2017
Apr 2017
May 2017
May 2017
May 2017
Jun 2017
Jun 2017
Jun 2017
Jun 2017
Dec 2017
Dec 2017
Dec 2017
Dec 2017
Totals
2,371,359
831,824
3,012,960
200,000
-
650,000
200,000
450,000
200,000
450,000
200,000
250,000
500,000
250,000
250,000
-
200,000
400,000
400,000
338,271
200,000
200,000
590,099
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
609,901
-
250,000
700,000
700,000
700,000
450,000
200,000
200,000
200,000
200,000
1,000,000
1,000,000
-
-
-
-
11,076
-
-
-
-
-
-
-
-
-
-
371,483
-
-
-
-
-
-
-
311,952
-
-
-
-
-
-
-
-
-
-
-
-
926,439
1,000,000
1,000,000
1,000,000
400,000
400,000
400,000
400,000
500,000
500,000
500,000
500,000
-
-
-
-
-
-
-
-
-
-
-
12,144,513
12,809,901
1,620,950
1.882
2.718
5.880
15.500
16.250
17.625
17.625
17.625
17.625
17.625
17.625
17.625
19.000
19.000
19.000
18.800
20.250
20.250
20.250
20.250
25.250
25.250
25.250
29.600
28.500
28.500
28.500
28.500
28.500
42.500
42.500
42.500
42.500
37.500
37.500
40.800
37.500
37.500
37.500
42.500
42.500
42.500
42.500
60.114
60.114
60.114
60.114
-
-
-
-
-
-
-
-
-
Jan 2018
Oct 2018
Jan 2019
-
-
-
-
-
Jan 2018
Jan 2019
Jan 2020
-
Dec 2018
Dec 2019
-
-
Dec 2018
Dec 2019
Dec 2020
Dec 2021
Jan 2019
Jan 2020
Jan 2021
Jan 2022
-
Mar 2018
-
Jan 2019
Jan 2020
Jan 2021
Jan 2019
Jan 2020
Jan 2021
Jan 2022
Jan 2020
Jan 2021
Jan 2022
Jan 2023
12.52
11.96
10.46
8.76
7.57
9.96
9.96
9.96
9.96
9.96
9.96
9.96
8.81
3.35
2.59
9.47
4.22
5.77
6.95
7.94
6.71
8.18
9.40
9.53
16.11
16.11
16.11
16.11
16.11
19.63
19.63
19.63
19.63
13.86
5.20
17.63
29.63
29.63
29.63
20.46
20.46
20.46
20.46
30.10
30.10
30.10
30.10
10
10
10
10
3
10
10
10
10
10
10
10
10
10
10
3
10
10
10
10
10
10
10
3
10
10
10
10
10
10
10
10
10
10
10
3
10
10
10
10
10
10
10
10
10
10
10
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
45%
34%
34%
34%
34%
34%
34%
34%
34%
34%
34%
36%
36%
36%
36%
38%
38%
38%
38%
An option-holder has no voting or dividend rights in the Company before the exercise of a Share option.
The weighted average share price at grant date of options granted during the year in the Unapproved Share Option Scheme at
grant date was £0.5020 (2016: £0.2850) and the estimated fair value of each share option granted was £0.2304 (2016: £0.1611).
61
plc Annual Report 2017
plc Annual Report 2017 62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
25. Subsidiaries of the Group
The subsidiaries of the Group, all of which are private companies limited by shares, as at 31 December 2017, are as follows:
Company
Country of Registration or
Incorporation
Registered Office
Principle Activity
Percentage of ordinary
shares held by Company
Epic Group Limited
England and Wales
gomo Learning Limited
England and Wales
Leo Learning Limited
England and Wales
Leo Learning Inc
USA
Preloaded Limited
England and Wales
Learning Technologies
Group (Trustee) Limited
England and Wales
Eukleia Training Limited
England and Wales
Rustici Software LLC
USA
NetDimensions Limited
Hong Kong
NetDimensions, Inc.
USA
52 Old Steine, Brighton, BN1
1NH, England
52 Old Steine, Brighton, BN1
1NH, England
52 Old Steine, Brighton, BN1
1NH, England
C/O RWS Group, 11
Broadway, Suite 466, New
York, New York, 10004, USA
52 Old Steine, Brighton, BN1
1NH, England
52 Old Steine, Brighton, BN1
1NH, England
52 Old Steine, Brighton, BN1
1NH, England
Holding company
Mobile e-learning
Bespoke e-learning
Bespoke e-learning
Educational Games
Employee Benefit Trust
Bespoke e-learning
210 Gothic CT # 100,
Franklin, TN 37067-8256, USA
e-learning
interoperability
17/F, Sui on Center, 188
Lockhart Road, Wan Chai,
Hong Kong
c/o The Corporation Trust
Company (Delaware), 1209
Orange Street, New Castle,
DE 19801, USA
e-learning software
licencing and services
e-learning software
licencing and services
NetDimensions (UK) Limited
England and Wales
52 Old Steine, Brighton, BN1
1NH, England
e-learning software
licencing and services
NetDimensions (China)
Limited
NetDimensions (Australia) Pty
Limited
Hong Kong
Australia
NetDimensions Asia Limited
Hong Kong/Philippines
NetDimensions Germany
GmbH
Germany
NetDimensions Holdings (UK)
Limited
England and Wales
NetDimensions (Holdings)
Limited
Cayman Islands
Line Communications
Holdings Limited
Line Communications Group
Limited
England and Wales
England and Wales
17/F, Sui on Center, 188
Lockhart Road, Wan Chai,
Hong Kong
19 Northcote Street,
Haberfield, NSW 2015,
Australia
17/F, Sui on Center, 188
Lockhart Road, Wan Chai,
Hong Kong
Arcisstr. 32, c/o Taxon
GmbH, 80799 Munchen,
Germany
Sherborne House, 5th Floor
119-121 Cannon Street,
London, EC4N 5AT, England
Maples Corporate Services
Limited, PO Box 309, Ugland
House, Grand Catman, KY1-
1104, Cayman Islands
52 Old Steine, Brighton, BN1
1NH, England
52 Old Steine, Brighton, BN1
1NH, England
e-learning software
licencing and services
e-learning software
licencing and services
e-learning software
licencing and services
e-learning software
licencing and services
Holding company
Dormant
Dormant
Dormant
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The accounting reference date of each of the subsidiaries is coterminous with that of the Company.
On 19 December 2017, the Group disposed of its 100% holding in LEO Learning AG for £4,000 resulting in a profit on disposal of
£42,000 which has been included within integration costs.
26. Reserves
The share premium account represents the amount received
on the issue of ordinary shares by the Company in excess of
their nominal value and is non-distributable.
The merger reserve arose on the acquisition of Leo Learning
Limited (formerly Epic Performance Improvement Limited)
by Epic Group Limited in 1996, and the Company’s reverse
acquisition of Epic Group Limited. The merger reserve also
includes the merger relief on the issue of shares to acquire
Line Communications Holding Limited on 7 April 2014,
Preloaded Limited on 12 May 2014, Eukleia Training Limited on
31 July 2015 and Rustici Software LLC on 29 January 2016.
The reverse acquisition reserve was created in accordance
with IFRS3 ‘Business Combinations’. The reserve arises due
to the elimination of the Company’s investment in Epic
Group Limited. Since the shareholders of Epic Group Limited
became the majority shareholders of the enlarged group, the
acquisition is accounted for as though there is a continuation
of the legal subsidiary’s Financial Statements. In reverse
acquisition accounting, the business combination’s costs are
deemed to have been incurred by the legal subsidiary
(see Note 2(b)).
The share-based payment reserve arises from the requirement
to value share options in existence at the grant date
(see Note 24).
The translation reserve represents cumulative foreign
exchange differences arising from the translation of the
Financial Statements of foreign subsidiaries and is not
distributable by way of dividends.
27. Related party transactions
Amount owing (from)/to joint venture/associate:
Current
Trade balances with joint venture
Trade balances with associate
Total
31 Dec 2017
31 Dec 2016
£’000
£’000
10
10
20
45
-
45
The amounts due to related parties were unsecured, interest-
free and repayable on demand.
Balances and transactions between the Company and its
subsidiaries are eliminated on consolidation and are not
disclosed in this Note. Balances and transactions between the
Group and other related parties are disclosed below.
Remuneration of Directors and other transactions
During the year there were no material transactions between
the Company and the Directors, other than their emoluments
(disclosed in Note 7). The Directors of the Company are
considered to be the key management personnel of
the entity.
During the normal course of business, the Group purchased
translation and accommodation services from RWS Group
Limited totalling £255,000 in the year ended 31 December
2017 (2016: £453,000). Andrew Brode is the Chairman of
RWS Group Limited. The amount due/accrued to RWS Group
Limited at 31 December 2017 was £57,000 (31 December
2016: £69,000). These balances are included in trade and
other payables (refer to Note 19).
Transactions with joint venture
During the normal course of business, the Group purchased
graphics services from its joint venture, LEO Brazil, totalling
£192,000 and received licence fee income, totalling £5,000 in
the year ended 31 December 2017.
Transactions with associate
In the year ended 31 December 2017, the Group purchased
licences and services totalling £48,000 from its associate,
Watershed, during the normal course of business.
63
63
plc Annual Report 2017
plc Annual Report 2017
plc Annual Report 2017 64
plc Annual Report 2017 64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
28. Dividends paid
Foreign currency risk sensitivity analysis
Final dividend paid
Interim dividend paid
Total
31 Dec 2017
31 Dec 2016
£’000
766
513
1,279
£’000
418
294
712
On 24 October 2017, the Company paid an interim dividend
of 0.09 pence per share (2016: 0.07 pence per share). The
Directors propose to pay a final dividend of 0.21 pence per
share for the year ended 31 December 2017 (totalling £1.2
million based on the issued share capital of the Company at
the date of this report), equating to a total pay-out in respect
of the year of 0.30 pence per share (2016: 0.21 pence per
share). The final dividend paid in 2017 relates to the year
ending 31 December 2016.
29. Financial instruments
The Group’s activities are exposed to a variety of market
risk (including foreign currency risk, interest rate risk and
equity price risk), credit risk and liquidity risk. The Group’s
overall financial risk management policy focuses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on its financial performance.
(a) Financial risk management policies
The Group’s policies in respect of the major areas of
treasury activity are as follows:
(i) Market risk
(i) Foreign currency risk
The Group is exposed to foreign currency risk on
transactions and balances that are denominated in
currencies other than Pounds Sterling. The currencies giving
rise to this risk are primarily the United States Dollar, Swiss
Franc, Euro and the Brazilian Real. Foreign currency risk is
monitored closely on an ongoing basis to ensure that the
net exposure is at an acceptable level.
The Group maintains a natural hedge whenever possible,
by matching the cash inflows (revenue stream) and cash
outflows used for purposes such as capital and operational
expenditure in the respective currencies.
The carrying amounts of the Group’s foreign currency
denominated financial assets and liabilities at the end of
year were as follows:
United
States
Dollar
Hong Kong
Dollar
Euro
Swiss
Francs
Canadian
Dollar
Australian
Dollar
Philippine
Piso
Swedish
Krona
Total
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
11,712
15,858
3,623
13,948
146
193
-
-
4,984
94
265
-
108
-
49
-
163
349
-
-
-
5
-
-
9
6
-
-
29
-
-
-
17,500
16,156
3,937
13,948
31 Dec 2017
Financial assets
Financial liabilities
31 Dec 2016
Financial assets
Financial liabilities
The following table details the sensitivity analysis to possible changes in the relative values of foreign currencies to which the
Group is exposed as at the end of each year, with all other variables held constant:
Effects on profit after taxation/equity
31 December 2017
increase/ (decrease)
31 December 2016
increase/ (decrease)
United States Dollar:
- Strengthened by 10%
- Weakened by 10%
Hong Kong Dollar:
- Strengthened by 10%
- Weakened by 10%
Euro:
- Strengthened by 10%
- Weakened by 10%
Swiss Franc:
- Strengthened by 10%
- Weakened by 10%
Canadian Dollar:
- Strengthened by 10%
- Weakened by 10%
Australian Dollar:
- Strengthened by 10%
- Weakened by 10%
Philippine Piso:
- Strengthened by 10%
- Weakened by 10%
Swedish Krona:
- Strengthened by 10%
- Weakened by 10%
(ii) Interest rate risk
Interest rate risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of
changes in market interest rates.
Interest rate risk sensitivity analysis
The Group’s external borrowings at the balance sheet
date comprise loan facilities on floating interest rates.
The Group considers the exposure to interest rate risk
acceptable.
If the interest rates had been 50 basis points higher and
all other variables were held constant, the Group’s profit
for the year ended 31 December 2017 and net assets at
£’000
(415)
415
(5)
5
489
(489)
11
(11)
16
(16)
34
(34)
-
-
3
(3)
£’000
(1,033)
1,033
-
-
27
(27)
5
(5)
-
-
-
-
-
-
-
-
that date would decrease by £45,000 (2016: £64,000).
This is attributable to the Group’s exposure to movements
in interest rate on its variable borrowings.
(ii) Credit risk
The Group’s exposure to credit risk, or the risk of
counterparties defaulting, arises mainly from trade and
other receivables. The Group manages its exposure to
credit risk by the application of credit approvals, credit limits
and monitoring procedures on an ongoing basis. For other
financial assets (including cash and bank balances), the
Group minimises credit risk by dealing exclusively with high
credit rating counterparties.
65
plc Annual Report 2017
plc Annual Report 2017 66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
The Group establishes an allowance for impairment
that represents its estimate of incurred losses in respect
of the trade and other receivables as appropriate. The
main components of this allowance are a specific loss
component that relates to individually significant exposures,
and a collective loss component established for groups
of similar assets in respect of losses that have been
incurred but not yet identified. Impairment is estimated by
management based on prior experience and the current
economic environment.
Credit risk concentration profile
The Group did not have significant credit risk exposure to
any single counterparty or any group of counterparties
United Kingdom
United States
Europe
Asia Pacific
Allowance for impairment losses
Ageing analysis
The ageing analysis of the Group’s trade receivables is as follows:
Not past due
Past due:
Less than three months
Three to six months
Past six months
Gross amount
having similar characteristics (2016: No significant credit risk
exposure). The Group defines major credit risk as exposure
to a concentration exceeding 10% of a total class
of such asset.
Exposure to credit risk
As the Group does not hold any collateral, the maximum
exposure to credit risk is represented by the carrying
amount of the financial assets as at the end of each
reporting period.
(iii) Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group’s
exposure to liquidity risk arises primarily from mismatches of
the maturities of financial assets and liabilities.
The Group maintains a level of cash and cash equivalents
and bank facilities deemed adequate by management to
ensure, as far as possible, that it will have sufficient liquidity
to meet its liabilities when they fall due. All current liabilities
are repayable within one year.
The exposure of credit risk for trade receivables by
geographical region is as follows:
Ageing analysis
31 Dec 2017
31 Dec 2016
£’000
6,467
2,775
494
2,517
(186)
12,067
£’000
2,870
1,136
280
-
(57)
4,229
31 Dec 2017
31 Dec 2016
£’000
8,183
2,879
603
588
12,253
£’000
2,743
1,135
330
78
4,286
The table below summarises the maturity profile of the
Group’s financial liabilities, including interest payments,
where applicable based on contractual undiscounted
payments:
Year ended 31 December 2017
Trade payables
Amounts owing to related parties
Borrowings
Contingent consideration
Year ended 31 December 2016
Trade payables
Amounts owing to related parties
Borrowings
Contingent consideration
Less than 1 year
1-2 years
2-3 years
>3 years
£’000
£’000
£’000
£’000
946
20
2,279
168
3,413
871
45
3,602
59
4,577
-
-
2,184
192
2,376
-
-
3,516
371
3,887
-
-
2,125
-
2,125
-
-
7,401
-
7,401
-
-
9,463
-
9,463
-
-
-
-
-
Total
£’000
946
20
16,051
360
17,377
871
45
14,519
430
15,865
(b) Capital risk management
The Group defines capital as the total equity of the Group
attributable to the owners of the parent Company and net
funds. The Group’s objectives when managing capital are
to safeguard its ability to continue as a going concern in
order to provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to
reduce the cost of capital and to provide funds for merger
and acquisition activity.
During the year, the Group fully repaid the term loan with
Barclays PLC with a new term loan and revolving credit facility
up to £30 million with Silicon Valley Bank – see Note 21 – this is
the only external debt finance of the Group.
The Company made dividend distributions of 0.23 pence per
share during the year ended 31 December 2017 (2016: 0.17
pence per share).
Total equity increased from £30.7 million to £76.8 million during
the year and net funds increased from net debt of £8.5 million
to net cash of £1 million.
Trade receivables that are individually impaired were those
in significant financial difficulties and have defaulted on
payments. These receivables are not secured by any
collateral or credit enhancement.
Collective impairment allowances are determined based
on estimated irrecoverable amounts from the sale of
goods, determined by reference to experience of past
defaults.
Trade receivables that are past due but not impaired
The Group believes that no impairment allowance is
necessary in respect of these trade receivables. They are
substantial companies with good collection track record
and no recent history of default.
67
plc Annual Report 2017
plc Annual Report 2017 68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
(c) Classification of financial instruments
(e) Fair values of financial instruments
Financial assets
Loans and receivables financial assets:
Trade receivables
Amounts recoverable on contracts
Cash and bank balances
Financial liabilities
Fair value through the profit and loss:
Contingent consideration
At amortised cost:
Trade payables
Borrowings
Amount owing to related parties
31 Dec 2017
31 Dec 2016
£’000
£’000
12,067
4,242
15,662
31,971
4,229
2,642
5,348
12,219
31 Dec 2017
31 Dec 2016
£’000
£’000
360
360
946
14,614
20
15,580
430
430
871
13,834
45
14,750
(d) Reconciliation of liabilities arising from financing activities
Borrowings
Contingent consideration
Note
21
19,20
31 December
2016
Net financing
cashflows
Interest paid
Fair value
movement
13,834
430
1,807
(59)
(474)
-
594
(11)
Foreign
exchange
movement
(1,147)
-
31 December
2017
14,614
360
The financial assets and financial liabilities maturing within
the next 12 months approximate their fair values due to the
relatively short-term maturity of the financial instruments.
The Group holds certain financial instruments on the
statement of financial position at their fair value. The
following table provides an analysis of those that are
measured subsequent to initial recognition at fair value
through profit or loss, grouped into levels 1 to 3 based on
the degree to which the fair value is observable.
• Level 1- Fair value measurements are those derived
from quoted prices (unadjusted) in active markets for
identical assets or liabilities:
• Level 2 - Fair value measurements are those derived
from inputs other than quoted prices included in level 1
that are observable for the asset or liability, either directly
or indirectly (derived from prices), and
• Level 3 - Fair value measurements are those derived
from the valuation techniques that include inputs for
the asset or liability that are not based on observable
market data (unobservable inputs). The fair value
of the contingent consideration is calculated using
actual and forecast results to value the amount which
will be payable according to the earnout metrics on
acquisitions. These liabilities are discounted to their
present value using the Group’s weighted average
cost of capital of 10%. Both the future cash flows
and discount rate used are unobservable inputs.
Management believes that reasonably possible
changes to the unobservable inputs would not result in a
significant change in the estimated fair value.
There have been no transfers between these categories in
the current or preceding year
2017
Contingent consideration
2016
Contingent consideration
30. Commitments
Level 1
£’000
-
-
Level 1
£’000
-
-
Level 2
£’000
-
-
Level 2
£’000
-
-
Level 3
£’000
360
360
Level 3
£’000
430
430
Total
£’000
360
360
Total
£’000
430
430
The Group had no material capital commitments contracted but not provided for in the Financial Statements. Operating lease
payments represent rental payable by the Group for its office properties.
The amounts of minimum lease payments under non-cancellable operating leases are as follows:
Operating leases which are due:
Within one year
In the second to fifth years inclusive
Over five years
31 Dec 2017
31 Dec 2016
Land and buildings
Land and buildings
£’000
1,075
1,841
330
3,246
£’000
666
1,530
553
2,749
31. Events since the reporting date
The Company appointed Goldman Sachs International as joint corporate broker on 15 February 2018.
69
plc Annual Report 2017
plc Annual Report 2017 70
COMPANY
FINANCIAL
STATEMENTS
COMPANY STATEMENT OF FINANCIAL POSITION
(Registered number: 07176993)
As at 31 December 2017
Fixed assets:
Investment in subsidiaries
Current assets:
Debtors
Cash and bank balances
Creditors:
Amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors:
Amounts falling due after more than one year
Net Assets
Capital and Reserves:
Share capital
Share premium account
Merger reserve
Share-based payments reserve
Retained profits
Note
31 Dec 2017
31 Dec 2016
£’000
£’000
3
4
8
9
7
7
7
7
91,160
91,160
13,243
2,001
15,244
2,397
2,397
12,847
104,007
12,957
91,050
2,145
64,168
9,714
1,090
13,933
91,050
36,271
36,271
13,283
317
13,600
3,397
3,397
10,203
46,474
12,008
34,466
1,580
17,004
9,714
1,879
4,289
34,466
Capital and reserves includes profit or loss for the year of the parent company, of £9.459 million (2016 - £3.854 million).
The Notes on pages 72 to 76 form an integral part of these Financial Statements.
The Financial Statements on pages 70 to 76 were approved and authorised for issue by the Board of Directors on
16 March 2018 and were signed on its behalf by:
Neil Elton
Group Finance Director
16 March 2018
71
plc Annual Report 2017
plc Annual Report 2017 72
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2017
Share capital
Share premium Merger reserve
Note0
Share-based
payments
reserve
Retained
Profits
£’000
1,506
£’000
15,948
£’000
5,851
£’000
1,555
Share-based payment charge credited
to equity
11
At 1 January 2016
Profit for the year
Other comprehensive income
Total comprehensive income for
the period
Issue of shares
Costs of issuing shares
Payment of dividends
Transfer on exercise and lapse of
options
Transactions with owners
At 31 December 2016
Profit for the year
Other comprehensive income
Total comprehensive income for
the period
Issue of shares
Costs of issuing shares
Payment of dividends
Share-based payment charge credited
to equity
11
Transfer on exercise and lapse of
options
Transactions with owners
At 31 December 2017
-
-
-
-
-
-
-
-
-
6
74
1,056
3,863
-
-
-
-
-
-
-
-
-
-
-
-
74
1,580
1,056
17,004
3,863
9,714
-
-
-
6
565
-
-
-
-
-
-
-
48,286
(1,122)
-
-
-
565
2,145
47,164
64,168
-
-
-
-
-
-
-
-
-
9,714
3,854
3,854
£’000
1,147
3,854
-
-
-
(712)
-
-
(712)
4,289
9,459
-
9,459
-
-
(1,279)
-
-
-
-
-
-
605
(281)
324
1,879
-
-
-
-
-
-
675
-
(1,464)
(789)
1,090
1,464
185
13,933
Total
£’000
26,007
3,854
-
4,993
-
(712)
605
(281)
4,605
34,466
9,459
-
9,459
48,851
(1,122)
(1,279)
675
-
47,125
91,050
1. General information
(b) Revenue recognition
The Company is a public limited company, which is listed on
the AIM Market of the London Stock Exchange and domiciled
in England and incorporated and registered in England and
Wales. The address of its registered office is Sherborne House,
5th Floor, 119-121 Cannon Street, London, EC4N 5AT. The
registered number of the Company is 07176993.
2. Summary of significant accounting
policies
(a) Basis of preparation
The Company’s Financial Statements have been prepared
in accordance with applicable law and accounting
standards in the United Kingdom and under the historical
cost accounting rules (Generally Accepted Accounting
Practice in the United Kingdom).
Revenue is stated net of Value Added Tax and net of any
applicable discounts or rebates. Revenue is recognised for
the rendering of services when all the following conditions
are satisfied:
• The amount of revenue can be measured reliably
• It is probable that the economic benefits associated
with the transaction will flow to the Company.
(c) Interest revenue
Interest revenue is accrued on a time basis, by reference to
the principal outstanding and the effective interest rate.
(d) Fixed asset investments
Fixed asset investments in Group undertakings are carried
at cost less any provision for impairment.
(e) Foreign currencies
The Directors have assessed the Company’s ability to
continue in operational existence for the foreseeable
future in accordance with the FRC guidance on the going
concern basis of accounting and reporting on solvency
and liquidity risks (April 2016). It is considered appropriate to
continue to prepare the Financial Statements on a going
concern basis.
Transactions in foreign currencies are recorded using the
rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated using the contracted rate or the
rate of exchange ruling at the balance sheet date and the
gains or losses on translation are included in the profit and
loss account.
These Financial Statements have been prepared in
accordance with applicable United Kingdom accounting
standards, including Financial Reporting Standard 102
– ‘The Financial Reporting Standard applicable in the
United Kingdom and Republic of Ireland’ (‘FRS 102’), and
with the Companies Act 2006. The Financial Statements
have been prepared on the historical cost basis except for
the modification to a fair value basis for certain financial
instruments as specified in the accounting policies below.
The Company has taken advantage of Section 408 of the
Companies Act 2006 and has not included a Profit and
Loss account in these separate Financial Statements. The
profit attributable to members of the Company for the year
ended 31 December 2017 is £9,459,000 (year ended 31
December 2016: profit of £3,854,000).
The company has taken advantage of the following
disclosure exemptions in preparing these Financial
Statements, as permitted by FRS 102 “The Financial
Reporting Standard applicable in the UK and Republic of
Ireland”:
• the requirements of Section 7 Statement of Cash Flows
• the requirements of Section 11 Financial Instruments
(f) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, bank
balances, deposits with financial institutions and short-
term, highly liquid investments that are readily convertible
to known amounts of cash and which are subject to an
insignificant risk of change in value.
(g) Income taxes
The charge for taxation is based on the profit/loss for the
year and takes into account taxation deferred because of
timing differences between the treatment of certain items
for taxation and accounting purposes.
Deferred tax is recognised in respect of all timing
differences between the treatment of certain items for
taxation and accounting purposes which have arisen but
not reversed by the balance sheet date.
(h) Pensions
The policy for the company’s defined contribution plan can
be found in Note 2 of the Consolidated Accounts.
(i) Share-based payment arrangements
The policy for the company’s share-based payment
arrangements can be found in Note 2 of the Consolidated
Accounts.
73
plc Annual Report 2017
plc Annual Report 2017 74
NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
3. Investment in subsidiaries
Cost
At 1 January
Additions
Disposals
At 31 December
Amortisation/impairment:
At 1 January
Provision for impairment
Disposals
At 31 December
Net Book Value
31 Dec 2017
31 Dec 2016
£’000
£’000
36,271
54,889
-
91,160
-
-
-
-
26,558
9,713
-
36,271
-
-
-
-
Details of the Company’s acquisitions during the year ended 31 December 2017 are set out in Note 11 to the Consolidated
Financial Statements.
Details of the Company’s subsidiaries as at 31 December 2017 are set out in Note 25 to the Consolidated Financial Statements.
4. Debtors
Amounts due from subsidiary undertakings
Deferred tax asset (see Note 5)
Other debtors
Deferred tax includes £51,000 (2016: £77,000) falling due after more than one year.
5. Deferred tax assets
31 Dec 2017
31 Dec 2016
£’000
13,091
51
101
13,243
£’000
13,167
77
39
13,283
91,160
36,271
8. Creditors: amounts falling due within one
year
6. Share capital
Details of the Company’s authorised, called-up and fully
paid share capital are set out in Note 23 to the Consolidated
Financial Statements.
The ordinary shares of the Company carry one vote per share
and an equal right to any dividends declared.
7. Reserves
The share-based payment reserve arises from the requirement
to value share options in existence at the fair value at the date
they are granted.
The share premium account represents the amount received
on the issue of ordinary shares by the Company, other than
those recognised in the merger reserve described below, in
excess of their nominal value and is non-distributable.
The merger reserve represents the amount received on the
issue of ordinary shares by the Company in excess of their
nominal value on acquisition of subsidiaries where merger
relief under section 612 of the Companies Act 2006 applies.
The merger reserve consists of the merger relief on the issue of
shares to acquire Line Communications Holding Limited on 7
April 2014, Preloaded Limited on 12 May 2014, Eukleia Training
Limited on 31 July 2015 and Rustici Software LLC on 29 January
2016.
Trade creditors
Contingent consideration
Other creditors and accruals
Borrowings
31 Dec 2017
31 Dec 2016
£’000
55
168
325
1,849
2,397
£’000
25
59
61
3,252
3,397
Details of the Company’s contingent consideration as at 31 December 2017 are set out in Notes 19 and 20 to the Consolidated
Financial Statements.
9. Creditors: amounts falling due after more
than one year
At 1 January
Deferred tax credit on share options in issue
Release of deferred tax on exercise of share options
77
-
(26)
51
53
24
-
77
The interest expense relating to the movement in present value of contingent consideration in the year ending 31 December
2017 amounted to £41,000 (2016: £57,000).
31 Dec 2017
31 Dec 2016
Contingent consideration
Deferred consideration on acquisitions charged to the Income Statement
£’000
£’000
Borrowings
31 Dec 2017
31 Dec 2016
£’000
192
-
12,765
12,957
£’000
371
1,055
10,582
12,008
75
plc Annual Report 2017
plc Annual Report 2017 76
An option-holder has no voting or dividend rights in the
Company before the exercise of a share option.
1,000,000 options were exercised during the year (2016: nil),
the weighted average share price at exercise was £0.6025.
No options were granted, forfeited or expired during the year
(2016: nil)
A 1.78% (2016: 1.78%) risk-free interest rate has been assumed
for all schemes.
This estimated fair value was calculated by applying a Black-
Scholes option pricing model. The expected volatility of the
Group’s share price is calculated based on an assumption of
historical volatility.
The number of options that are exercisable at 31 December
2017 is 2,000,000 (2016: 3,000,000).
Share-based payments which were expensed in the entity
and taken to equity in the year ended 31 December 2017,
amounted to £nil (year ended 31 December 2016: £141,000).
The remaining difference between the share-based payments
which were expensed as per Note 24 and the entity, relate
to the options over the Company’s share capital held by
employees of subsidiaries.
12. Dividends paid
Disclosure of dividends paid can be found in Note 28 to the
Consolidated Financial Statements.
13. Subsequent events
Disclosures in relation to events after 31 December 2017 are
shown in Note 31 to the Consolidated Financial Statements.
NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2017
10. Related party transactions
The only key management personnel of the Company are the Directors. Details of their remuneration are contained in Note 7 to
the Consolidated Financial Statements.
The following transactions with subsidiaries occurred in the year:
Opening amount due from related parties
Amounts (repaid) by related parties
Amounts advanced from related parties
Closing amount due from related parties
31 Dec 2017
31 Dec 2016
£’000
13,167
(20,121)
20,045
13,091
£’000
602
(15,808)
28,373
13,167
The amounts owing to/from related parties are unsecured, interest-free and repayable on demand.
11. Share-based payments
Details of the group share-based plans are contained in Note 24 to the Consolidated Financial Statements.
The company operates an Approved share option plan. The company’s share-based payment arrangements are summarised
below.
Approved share option plan - Enterprise Management Incentive (‘EMI’):
At 31 December
2,000,000
Number of options
2017
2016
Weighted average
exercise price
pence
5.88
Number of options
3,000,000
Weighted average
exercise price
pence
5.88
At 31 December 2017, options granted to subscribe for ordinary shares of the Company, and the valuation criteria are as follows:
Date of grant
Approved Scheme
Nov 2013
Totals
2,000,000
2,000,000
Exercise Price
Pence
5.88
Remaining
vesting period
-
Fair value of
options
Pence
10.46
Life
Years
10
Volatility
Percent
45%
plc Annual Report 2017 78
77
77
plc Annual Report 2017
plc Annual Report 2017
COMPANY INFORMATION
Directors
Nominated adviser and joint broker
Andrew Brode, Non-executive Chairman
Harry Hill, Non-executive Deputy Chairman
Leslie-Ann Reed, Non-executive Director
Jonathan Satchell, Chief Executive
Neil Elton, Group Finance Director
Piers Lea, Chief Strategy Officer
Dale Solomon, Chief Operating Officer
Company Secretary
Neil Elton
Company number
07176993
Registered address
Sherborne House
5th Floor
119-121 Cannon Street
London
EC4N 5AT
Legal adviser
DWF LLP
Bridgewater Place
Water Lane
Leeds
LS11 5DY
Independent auditor
Crowe Clark Whitehill LLP
St Bride’s House
10 Salisbury Square
London
EC4Y 8EH
Numis Securities Limited
10 Paternoster Square
London
EC4M 7LT
Joint broker
Goldman Sachs
Peterborough Court
133 Fleet Street
London
EC4A 2BB
Registrar
Computershare Investor Services plc
The Pavilions
Bridgewater Road
Bristol BS13 8AE
Principal banker
Silicon Valley Bank
Alphabeta
14-18 Finsbury Square
London
EC2A 1BR
Communications consultancy
FTI Consulting LLP
200 Aldersgate
Aldersgate Street
London
EC1A 4HD
79
plc Annual Report 2017
plc Annual Report 2017 80
learning
technologies
group
ltgplc.com
UK
London
Brighton
Sheffield
USA
Atlanta, GA
Bloomington, IN
Nashville, TN
New York, NY
Brazil
Rio de Janeiro
São Paulo
Germany
Frankfurt
Hong Kong
Wan Chai