Source - LSE Regulatory
RNS Number : 4473X
Learning Technologies Group PLC
26 April 2023
 

26 April 2023

 

Learning Technologies Group plc

FULL YEAR RESULTS 2022

 

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

Revenues and profit ahead of expectations, as previously announced

Achieved margin targets for GP Strategies as part of successful integration

 

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

 

Strategic highlights

 

·     

Transformational year for LTG following the successful integration of GP Strategies, which became our lead market-facing brand in Q4

·     

Broader offering supports cross-selling and positions LTG to capture growth opportunities in >$100bn digital learning and talent management market

·     

Resilient model with high levels of visibility due to the majority of revenues from SaaS and long-term contracts (71%) from diversified end markets

 

Financial highlights

 

·     

Significant addition of scale, with revenues more than doubling to £596.9 million, and adjusted EBIT of £100.9 million.  Statutory profit before tax increased 334% to £40.5 million

·     

Proforma constant currency organic revenue growth of 5%; organic revenue up 3%

·     

Achieved margin targets for GP Strategies of an average of 12% and a Q4 2022 exit rate of 14%, a significant increase compared to c.5% pre-acquisition

·     

Efficient cash conversion of 82% (2021: 81% on a like for like basis) resulted in swift deleveraging, in spite of US dollar strength, with net debt of £119.8m at year end (2021: £141.4m)

·     

Strong balance sheet supports ability to make accretive acquisitions that fit long-term strategy

 

Dividend

 

·     

The Board is committed to a progressive dividend policy and is pleased to propose a final dividend of 1.15p, an increase of 64%, leading to a full year dividend of 1.6p, an increase of 60%

 

Current trading and outlook

 

·     

Despite a more challenging macro environment, we have seen moderate revenue growth in Q1 and continue to expect to deliver high single-digit adjusted EBIT growth in 2023, supported by a strong pipeline

·     

Pipeline includes a number of significant long-term contracts for GP Strategies that are at an advanced stage

·     

Expect further margin improvements in the second half of 2023 from the next phase of GP Strategies integration

·     

On track to meet goal of £850m run-rate revenues and £175m run-rate adjusted EBIT by the end of 2025

 

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

 

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

 

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

 

Financial summary: 

£m unless otherwise stated

2022

2021

Change

Revenue

596.9

258.2

131%

Proforma organic growth*

5%



Underlying organic growth*

3%

8%


Software & Platforms organic growth 

5%

2%


Content & Services organic growth

(7%)

25%


     SaaS and long-term contracts 

71%

75%


Adjusted EBIT

100.9

54.8

84%

Adjusted EBIT margin

16.9%

21.2%


Statutory PBT

40.5

9.3

334%

Basic EPS (pence)

3.86

1.96

97%

Adj. Diluted EPS (pence)

8.12

5.01

62%

Net Debt

119.8

141.4


Final dividend (pence)

1.15

0.7

64%

* Organic growth on a constant currency basis

 

Analyst and investor presentation:

 

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

 

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

 

Telephone audio is available via the following numbers:

 

Long distance: +44 330 221 9914          

Toll-free: 0 800 169 0433           

Access code: 455-919-430

 

Enquiries:

 


Learning Technologies Group plc

Jonathan Satchell, Chief Executive

Kath Kearney-Croft, Chief Financial Officer

 

+44 (0)20 7832 3440

Numis Securities Limited (NOMAD and Corporate Broker)

Nick Westlake, Ben Stoop, Tejas Padalkar

 

+44 (0)20 7260 1000

Goldman Sachs International (Joint Corporate Broker)

Bertie Whitehead, Adam Laikin

+44 (0)20 7774 1000



FTI Consulting (Public Relations Adviser)

Rob Mindell / Jamie Ricketts / Emma Hall / Lucy Highland

+44 (0)20 3727 1000

 

 

About LTG

 

Learning Technologies Group plc (LTG) is a leader in the growing workplace digital learning and talent management market. The Group offers end-to-end learning and talent solutions ranging from strategic consultancy, through a range of content and platform solutions to analytical insights that enable corporate and government clients to close the gap between current and future workforce capability.

 

LTG is listed on the London Stock Exchange's Alternative Investment Market (LTG.L) and headquartered in London. The Group has offices in Europe, North America, South America and Asia-Pacific.

 

Chief Executive's Review 

 

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

 

A new go-to-market to drive growth

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Results and operations

 

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

 

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

 

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

 

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

 

Large addressable market opportunity

 

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

 

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

 

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

 

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

 

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

 

2 Training Industry, Inc. Research Data 2022/2023

3 Training Industry, Inc. Learning Services Market 2022

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

 

Investment case

 

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

 

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

·     

We have significant exposure to attractive digital training markets, which are the future of learning and development, and these are benefiting from structural growth trends. We support learning with rigorous data analytics, enabling our customers to measure effectiveness.

·     

Our portfolio of businesses has products that bring best-in-class specialist expertise, including recruitment, learning, performance, learning analytics, succession, compensation, vendor management, diversity and inclusion, immersive virtual, augmented, and mixed reality experiences, and consulting. This makes us well-placed to help customers 'join up' their learning and talent management activities. We are regarded as a thought-leader in a fast-paced and evolving market.

·     

We have a highly skilled and experienced workforce that can bring together our rich product and content offerings to deliver integrated solutions for our customers' talent transformation needs. In 2022 we increased the cross sales of LTG products and services into GP clients by 29%. With only 85 cross-over customers in the top 500 LTG customers there is considerable opportunity to extend this.

·     

We leverage our global scale to attract new customers and expand with existing customers. We have more than 5,000 employees in 35 countries globally, including in attractive US and Asian markets. Using our local presence, we deliver training that is aligned with local culture and needs, for the best results.

·     

We have long-standing relationships and deep expertise in highly regulated, high-consequence markets, which are difficult to enter, and where training needs are complex and mandatory. These include automotive, financial and insurance, defence, aerospace and technology markets.

·     

We invest in software-related learning innovation, in close partnership with customers, and focus on continuous improvement to optimise our performance.

 

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

 

Creating value through investment in innovation

 

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

 

·     

Continued investment in Bridge to enhance capability by combining certain LTG products which will lead to a very powerful mid-market offering


The integration of Rustici technology has allowed us to build the fundamentals of industry standards right into our DNA, and rapidly deploy new functionality like offline course viewing on mobile devices.


Instilled has given us video capabilities, editing, commenting and captioning.


Gomo has brought advanced authoring tools to Bridge customers as well as more sophisticated course branching and other tools needed by professional instructional designers.


The Rustici, Instilled and Gomo integrations occurred in 2022, cutting our time to market down to months versus years to deploy.


We are now in the midst of building out skills management onto Bridge using the technology of Patheer, bringing a skills library, AI content recommendations and more in the first half of 2023.


During 2023, we will also be enhancing our offering with a lot of the excellence found in the Reflektive product, enhancing recognition, engagement and performance management tools. While this is being rolled out as it develops, we see the entirety of the key technology integration manifesting in 2024.

·     

There has been considerable effort in developing and testing the new go-to-market strategy, with new combined product and service offerings in:


      o 

Learning experience design


      o 

Enhanced managed learning services


      o 

A combined consulting and measurement approach

 

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

 

Creating value through acquisitions - GP Strategies

 

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

 

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

 

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

 

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

 

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

 

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

 

Non-core assets

 

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

 

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

 

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

 

People

 

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

 

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

 

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

 

·      

Designing and setting up a multi-disciplinary shared service that could effectively support the needs of thousands of colleagues across dozens of locations

·      

Leading business integration projects for IT infrastructure and business systems

·      

Ensuring that technology strategy, policies, infrastructure, systems and processes are continually optimised to meet the rapidly evolving needs of group businesses

·      

Implementing cyber security and IT compliance frameworks to support mitigation of key business risk

·      

Partnering with operational leaders to deliver improved business intelligence and process optimisation across the enterprise application suite

 

Outlook

 

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

 

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

 

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

 

Jonathan Satchell

Chief Executive

25 April 2023

 

 

Chief Financial Officer's Review  

 

Revenue

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Divisional review

 

GP Strategies

 

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

 

£ million

2022

2021*

Change

Revenue

398.8

82.9

381%

Adjusted EBIT

48.7

7.7

529%

Adjusted EBIT margin

12.2%

9.2%

3.0%pts.

*GP Strategies acquired 14 October 2021

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Software & Platforms

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

 

£ million

2022

2021

Change

Revenue

149.7

130.5

15%

Adjusted EBIT

40.3

36.4

11%

Adjusted EBIT margin

26.9%

27.9%

(1) %pts.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Content & Services

 

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

 

£ million

2022

2021

Change

Revenue

48.2

44.8

8%

Adjusted EBIT

11.7

10.6

10%

Adjusted EBIT margin

24.4%

23.7%

0.7%pts.

 

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

 

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

 

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

 

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

 

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

 

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

 

Statutory operating profit

 

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

·      

An amortisation charge for acquired intangibles of £35.7 million (2021: £26.2 million);

 

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

·      

Impairment of goodwill and intangibles of £8.0 million (2021: none);

 

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

·      

Acquisition and integration costs of £3.8 million (2021: £10.1 million);

 

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

·      

Acquisition-related contingent consideration, share-based payments and earn-out charges of £3.8 million (2021: £5.3 million);

 

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

·      

£1.5 million other income (2021: none);

 

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

·      

Closure provisions of £1.0 million (2021: none);

 

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

·      

£0.7 million cloud computing configuration and customisation costs (2021: none);

 

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

·      

£1.2 million profit on sale of joint venture (2021: none); 

 

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

 

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

 

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

 

Net finance charge and profit before tax

 

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

 

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

 

Taxation charge

 

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

 

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

 

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

 

Foreign exchange

 

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

 

Earnings Per Share

 

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

 

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

 

Cash generation

 

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

 

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

 

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

 

£'000

2022

2021

Variance

Statutory operating profit

50.5

11.7

38.8

Adjusting items

50.4

43.1

7.3

Adjusted EBIT1

100.9

54.8

46.1

Depreciation & Amortisation

13.9

9.2

4.7

Share based payment charges

6.7

5.2

1.5

Dec / (Inc) working capital

(18.4)

(11.6)

(6.8)

Capital expenditure

(11.6)

(9.0)

(2.6)

Lease liabilities

(7.3)

(4.9)

(2.4)

Other

(1.0)

0.6

(1.6)

Adjusted operating cash flow1

83.2

44.3

38.9

Cash conversion

82%

81%

1%pts

Net Interest paid

(4.3)

(0.3)

(4.0)

Tax paid

(20.2)

(9.4)

(10.8)

Integration & transaction costs

(3.8)

(10.1)

6.3

Earnout & contingent consideration

(6.9)

(1.7)

(5.2)

Proceeds from asset sale

2.3

-

2.3

Free cash flow

50.3

22.8

27.5

 

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

 

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

 

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

 

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

 

Capital allocation, funding priorities and dividend

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

 

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

 

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

 

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

 

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

 

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

 

Net Debt and Gearing

 

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

 

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

 

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

 

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

 

Silicon Valley Bank

 

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

 

Closure of non-core operations

 

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

 

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

 

Balance sheet

 

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

 

·      

Intangible assets - intangible fixed assets have increased £13.6m year-on-year. This is largely due to additions of £10.0m and net foreign exchange gains of £57.2m offset by amortisation charge on intangible assets of £43.1m, assets reclassified as held for sale of £1.8m total impairment charge of £8.0m and an adjustment related to cloud computing costs of £0.6m

·      

Assets held for sale - in December 2022, the Group decided to dispose of the non-core Lorien Engineering business, that was acquired with GP Strategies, as soon as practicable and communicated this decision internally and to investors on 19 December 2022. As a result, the net assets of £4.4m associated with that business have been reclassified as held for sale (see note 20). The sale is expected to conclude in 2023.

·      

Following completion of a tax study to confirm availability of losses in respect of the PeopleFluent and Reflektive acquisitions which resulted in the recognition of previously unrecognised losses in the current year, the Group has presented the deferred tax assets and liabilities with set off of tax in accordance with IAS 12 for current and prior years.

·      

Measurement period adjustments on prior year acquisitions - certain measurement period adjustments amounting to £1.1m have been made to increase the provisional amounts recognised as goodwill primarily in relation to the acquisition of GP Strategies that occurred in 2021. Prior year comparatives have been adjusted for non-current assets, trade and other receivables, corporation tax, trade and other payables, provisions, and other non-current assets These adjustments have been made to reflect new information obtained about the circumstances that existed at the acquisition date and would have affected the measurement of goodwill at the time (see note 8).

 

Key Performance Indicators (KPIs)

 

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

 

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

 

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

 

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

 

Kath Kearney-Croft

Chief Financial Officer

25 April 2023

 

 

 



 

Consolidated Statement of Comprehensive Income

Year ended 31 December 2022

 

 

 

 

Year ended 31 Dec

Year ended 31 Dec

 

 

 

2022

2021

 

Note

 

£'000

£'000




 





 


Revenue

3


596,902

258,226




 


Operating expenses



(541,084)

(241,443)




 


Share-based payment charge



(6,693)

(5,244)




 


Profit on sale of joint venture

4


1,242

-




 


Share of profit from equity accounted investment

4


155

124




 


 



 


Operating profit



50,522

11,663


 


 


Analysed as:

 


 


Adjusted EBIT



100,943

54,754

Adjusting items included in Operating profit

4


(50,421)

(43,091)

Operating profit



50,522

11,663

 



 


Finance expenses



(10,475)

(2,582)

Finance income



429

253




 


Profit before taxation



40,476

9,334

 



 


Income tax (charge) / credit

5


(10,070)

5,586

 

 


 

 

Profit for the year

 


30,406

14,920

 

 


 


Other comprehensive income:

 


 


Items that may be subsequently reclassified to profit or loss

 


 


Exchange differences on translating foreign operations

 


30,961

1,736

Total comprehensive income for the year attributable to owners of the parent Company

 


 

61,367

 

16,656

 

 


 


Earnings per share attributable to owners of the parent:



 


Basic (pence)

6


3.857

1.959

 

 


 


Diluted (pence)

6


3.710

1.878

 

 


 


Adjusted earnings per share:

 


 


Basic (pence)

6


8.443

5.226

 

 


 


Diluted (pence)

6


8.121

5.010


 


 



Consolidated Statement of Financial Position

As at 31 December 2022

 

 

31 Dec

2022

£'000

31 Dec

2021

£'000

 

Note

 

 

 


Non-current assets


 

 

Property, plant and equipment

7

2,857

3,232

Right of use assets

7

11,808

17,245

Intangible assets

9

560,972

547,372

Deferred tax assets

13

4,084

2,391

Other receivables, deposits and prepayments

12

1,874

441

Investments accounted for under the equity method

10

-

1,018

Amounts recoverable on contracts


1,303

1,200



582,898

572,899



 


Current assets


 


Trade receivables

11

136,025

123,905

Other receivables, deposits and prepayments

12

16,765

14,931

Amounts recoverable on contracts


33,221

31,604

Inventory


2,432

1,096

Corporation tax receivable


-

1,807

Amount owing from related parties


59

241

Cash and bank balances


94,847

83,850

Restricted cash balances


2,608

2,987



285,957

260,421



 


Assets in disposal groups classified as held for sale

20

8,369

-



 


Total assets

 

877,224

833,320



 


Current liabilities


 


Lease liabilities

17

5,082

6,755

Trade and other payables

14

180,634

169,358

Borrowings

16

36,714

37,503

Provisions

18

1,602

7,077

Corporation tax payable


602

-

ESPP scheme liability


500

507



225,134

221,200



 




 


Non-current liabilities


 


Lease liabilities

17

9,792

15,090

Deferred tax liabilities

13

27,265

31,667

Other long-term liabilities

15

3,517

3,044

Borrowings

16

177,944

187,759

Corporation tax payable

5

1,431

1,711

Provisions

18

1,857

1,511



221,806

240,782

 


 


Liabilities directly associated with assets in disposal groups classified as held for sale

20

3,984

-

 


 


 


 


Total liabilities


450,924

461,982



 


Net assets


426,300

371,338



 


Shareholders' equity


 


Share capital


2,962

3,034

Share premium account


318,183

317,114

Merger reserve


31,983

31,983

Reverse acquisition reserve


(22,933)

(22,933)

Share-based payment reserve


14,714

11,148

Foreign exchange translation reserve


25,729

(5,232)

Retained earnings


55,662

36,224

Total equity attributable to the owners of the parent


426,300

371,338





 

 


Consolidated Statement of Changes in Equity

Year ended 31 December 2022

 

 

    Share

capital

Share

Premium

Merger reserve

Reverse acquisition reserve

Share-based

payments

reserve

Translation

reserve

Retained earnings

Total equity

 

 

    Note

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 January 2021


2,853

231,671

31,983

(22,933)

7,439

(6,968)

25,025

269,070

Profit for the period


-

-

-

-

-

-

14,920

14,920

Exchange differences on translating foreign operations


-

-

-

-

-

1,736

-

1,736

Total comprehensive profit for the period

 

-

-

-

-

-

1,736

14,920

16,656

Issue of shares net of share issue costs


181

85,443

-

-

-

-

-

85,624

Credit to equity for equity settled share based

payments


-

-

-

-

5,244

-

-

5,244

Credit to equity treated as consideration for equity

settled share based payments


-

-

-

-

120

-

-

120

Tax credit on share options


-

-

-

-

-

-

689

689

Transfer on exercise and lapse of options


-

-

-

-

(1,655)

-

1,655

-

Dividends paid


-

-

-

-

-

-

(6,065)

(6,065)

Transactions with owners

 

181

85,443

-

-

3,709

-

(3,721)

85,612

Balance at 31 December 2021

 

3,034

317,114

31,983

(22,933)

11,148

(5,232)

36,224

371,338

Profit for the period


-

-

-

-

-

-

30,406

30,406

Exchange differences on translating foreign operations


-

-

-

-

-

30,961

-

30,961

Total comprehensive profit for the period

 

-

-

-

-

-

30,961

30,406

61,367

Issue of shares net of share issue costs


8

1,029

-

-

-

-

-

1,037

Reserve transfer


(80)

40

-

-

-

-

40

-

Credit to equity for equity settled share based

payments


-

-

-

-

6,693

-

-

6,693

Credit to equity treated as consideration for equity

settled share based payments


-

-

-

-

542

-

-

542

Tax charge on share options


-

-

-

-

-

-

(1,946)

(1,946)

Transfer on exercise and lapse of options


-

-

-

-

-

-

-

-

Distributions in respect of cancelled options


-

-

-

-

(3,669)

-

-

(3,669)

Dividends paid

19

-

-

-

-

-

-

(9,062)

(9,062)

Transactions with owners

 

(72)

1,069

-

-

3,566

-

(10,968)

(6,405)

Balance at 31 December 2022

 

2,962

318,183

31,983

(22,933)

14,714

25,729

55,662

426,300


Consolidated Statement of Cash Flows

Year ended 31 December 2022

 

 

 

 

 

 

Year ended

31 Dec

Year ended

31 Dec

 

 

2022

2021

 

Note

£'000

£'000

 


 


Cash flows from operating activities


 


Profit before taxation


40,476

9,334

Adjustments for:


 


Loss on disposal of PPE and right-of-use assets


230

202

Share-based payment charge


7,235

5,244

Amortisation of intangible assets

9

43,183

31,787

Depreciation of plant and equipment

7

2,141

780

Depreciation of right-of-use assets

7

4,343

2,829

Impairment of right-of-use assets

7

-

2,120

Impairment of goodwill and acquired intangibles

9

7,958

-

Finance expense (including IFRS 16 finance charge)


573

517

Interest on borrowings


9,102

2,065

Net foreign exchange gain on borrowings


-

(246)

Acquisition-related contingent consideration and earn-outs

4

3,273

5,207

Fair value movement on contingent consideration

4

(21)

22

Payment of acquisition-related contingent consideration and earn-outs


(6,139)

(1,180)

Profit on sale of joint venture


(1,242)

-

Share of profit in equity accounted investment

10

(155)

(124)

Interest income


(429)

(7)

Operating cash flows before working capital changes


110,528

58,550

Increase in trade and other receivables


(6,521)

(18,377)

Increase in inventory


(1,210)

(64)

Decrease/(increase) in amount recoverable on contracts


3,647

(169)

(Decrease)/ increase in payables


(14,317)

6,988

Cash generated from operations


92,127

46,928

Income tax paid


(20,180)

(9,403)

Net cash flows from operating activities


71,947

37,525

 


 


Cash flows used in investing activities


 


Purchase of property, plant and equipment

7

(1,641)

(572)

Development of intangible assets

9

(9,966)

(8,390)

Acquisition of subsidiaries, net of cash acquired


-

(311,234)

Sale of Investment in associates and joint ventures

10

2,300

-

Net cash flows used in investing activities

 

(9,307)

(320,196)



 


Cash flows (used in) / from financing activities


 


Dividends paid

19

(9,062)

(6,065)

Proceeds from borrowings

16

-

221,853

Repayment of bank loans

16

(38,458)

(18,143)

Interest paid


(4,609)

(316)

Interest received


352

7

Issue of ordinary share capital net of share issue costs


1,037

85,624

Contingent consideration payments in the period


(705)

(520)

Interest paid on lease liabilities


(614)

(434)

Payments for lease liabilities

17

(6,719)

(4,420)

Net cash flows (used in)/from financing activities


(58,778)

277,586

 

 

 


Net increase/(decrease) in cash and cash equivalents


3,862

(5,085)

Cash and cash equivalents at beginning of the year


83,850

88,614

Exchange gains on cash


7,135

321

Cash and cash equivalents at end of the year


94,847

83,850


1.       General information

 

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

 

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

 

The auditors' reports on the accounts for 31 December 2022 and 31 December 2021 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

Learning Technologies Group plc ('the Company') and its subsidiaries (together, 'the Group') provide a range of talent and learning solutions, content, services and digital platforms, to corporate and government clients. The principal activity of the Company is that of a holding company for the Group, as well as performing all administrative, corporate finance, strategic and governance functions of the Group.

 

             The Company is a public limited company, which is listed on the AIM Market of the London Stock Exchange and domiciled in England and incorporated and registered in England and Wales. The address of its registered office is 15 Fetter Lane, London, EC4A 1BW. The registered number of the Company is 07176993.

 

2.       Summary of significant accounting policies

 

The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied unless otherwise stated.

 

a   Basis of preparation

 

The consolidated financial statements have been prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

 

Going concern

 

The Directors report that the going concern basis is appropriate from at least 12 months from the approval of these financial statements.  The Group meets its day-to-day working capital requirements from the positive cash flows generated by its trading activities and its available cash resources. These are supplemented when required by additional drawings under the Group's committed $50.0 million revolving credit facility (RCF) and an uncommitted $50.0 million accordion facility, which are available until 2025.

 

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

 

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

 

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

 

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

 

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

 

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

 

The Group continues to hold a strong liquidity position overall at 31 December 2022, with gross cash and cash equivalents of £94.8 million and net debt of £119.8 million (see note 16) (31 December 2021: gross cash was £83.9 million and net debt of £141.4 million).  Whilst there are a number of risks to the Group's trading performance, the Group is confident of its ability to continue to access sources of funding in the medium term.

 

The Directors report that they have re-assessed the principal risks, reviewed current performance and forecasts, combined with expenditure commitments, including capital expenditure, business acquisitions, and borrowing facilities. The Group's forecasts demonstrate it will generate profits and cash in the year ending 31 December 2023 and beyond.  In addition, the Group continues to have sufficient cash reserves to enable it to meet its obligations as they fall due, as well as operate within its banking covenants, for a period of at least 12 months from the date of signing of these financial statements. 

 

The Group has also assessed a range of downside scenarios to assess if there is a significant risk to the Group's liquidity position. The forecasts and scenarios prepared consider our trading experience to date and we have modelled downside scenarios such as:

 

i.    10% and 25% reductions in revenues;

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

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

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

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

 

The Directors have concluded that it is appropriate to adopt the going concern basis of accounting in preparing the Annual Report, having undertaken a review of a detailed forecast for 2023 and the impact this forecast has on the Group's gross cash, net debt and ability to meet bank covenants under the existing facilities agreement. 

 

Changes in accounting policies

 

(i)   New standards, interpretations and amendments adopted from 1 January 2022

 

New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2022 are:

 

Amendments to IAS 37

Onerous Contracts - Cost of Fulfilling a Contract

Amendments to IAS 16

Property, Plant and Equipment: Proceeds before Intended Use

Amendments to IFRS 3

References to Conceptual Framework

Amendments to IFRS 1, 9, 16 & 41

Annual Improvements to IFRS Standards 2018-2020

 

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

 

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

 

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

 

Amendments to IAS 7

Demand deposits with restrictions on use arising from a contract with a third party

Amendments to IFRS 15

Principal vs Agent: Software reseller

Amendments to IAS 37

Negative low emissions vehicle credits

Amendments to IAS 32

Special Purpose Acquisition Companies (SPAC): Classification of public shares as financial liabilities or equity

Amendments to IFRS 17

Transfer of insurance coverage under a group of annuity contracts

Amendments to IFRS 17 and IAS 21

Multi-currency groups of insurance contracts

Amendments to IFRS 9 and IFRS 16

Lessor forgiveness of lease payments

 

Alternative performance measures

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

 

Adjusting items

The Group has chosen to present an adjusted measure of profit and earnings per share, which excludes certain items which are separately disclosed due to their size, nature or incidence, and are not considered to be part of the normal operating costs of the Group. These costs (refer to Note 4) may include the financial effect of adjusting items such as, inter alia, restructuring costs, impairment charges, amortisation of acquired intangibles, costs relating to business combinations, one-off foreign exchange gains or losses, integration costs, acquisition related share based payments charges, contingent consideration and earn-outs, cloud computing configuration and customisation costs (see below)  joint venture profits and losses, profit on the sale of a joint venture and fixed asset or right-of-use asset disposal gains or losses.

 

Cloud computing configuration and customisation costs

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

 

 

b   Basis of consolidation

 

A subsidiary is defined as an entity over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

 

Business combinations accounted for under the acquisition method and merger relief has been taken on recognising the shares issued on acquisition, where applicable.

 

Under the acquisition method, the results of the subsidiaries acquired or disposed of are included from the date of acquisition or up to the date of disposal. At the date of acquisition, the fair values of the subsidiaries' net assets are determined and these values are reflected in the Consolidated Financial Statements. The cost of acquisition is measured at the aggregate of the fair values at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree.  Any excess of the purchase consideration of the business combination over the fair value of the identifiable assets and liabilities acquired is recognised as goodwill. Goodwill, if any, is not amortised but reviewed for impairment at least annually. If the consideration is less than the fair value of assets and liabilities acquired, the difference is recognised directly in the statement of comprehensive income. Acquisition-related costs are expensed as incurred.

 

Intra-group transactions, balances and unrealised gains on transactions are eliminated. Intragroup losses may indicate an impairment which may require recognition in the consolidated financial statements. Where necessary, adjustments are made to the Financial Statements of subsidiaries to ensure consistency of accounting policies with those of the Group.

 

3.       Segment analysis

 

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker (which takes the form of the Board of Directors of the Company), in order to allocate resources to the segment and to assess its performance.

 

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

 

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

 

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

 

Geographical information

 

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

 

 

UK

Mainland Europe

North America1

Asia Pacific

Rest of the world

Total

 

£'000    

   £'000

£'000

£'000

£'000

     £'000

31 Dec 2022

 

 

 

 

 

 

Revenue

66,994

71,637

407,343

21,824

29,104

596,902

 







Non-current assets

31,017

569

527,634

19,177

417

578,814

 







31 Dec 2021







Revenue

32,493

18,779

180,738

17,026

9,190

258,226

 







Non-current assets2

45,186

689

503,459

20,870

304

570,508

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

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

 

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

 


Revenue and expenses by nature

 

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

 


Software & Platforms

Content & Services

GP Strategies

Other

 


On-premise Software Licences

Hosting & SaaS

Support & Maintenance

Total

Content

Platform Development

Consulting  & Other

Total

Global services

Regional services

Other technical

Total

Rental Income

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

31 December 2022












 

SaaS and long-term contracts

30,417

108,466

7,041

145,924

-

1,414

13,561

14,975

86,492

159,889

15,500

261,881

168

422,948

Transactional

891

1,534

1,324

3,749

19,020

8,026

6,211

33,257

7,976

92,846

36,126

136,948

-

173,954

 

Total Revenue

31,308

110,000

8,365

149,673

19,020

9,440

19,772

48,232

94,468

252,735

51,626

398,829

168

596,902

Depreciation & amortisation

 

 


(7,161)




(2,574)




(4,209)

-

(13,944)

Adjusted EBIT

 

 

 

40,336

 

 

 

11,749

 

 

 

48,690

168

100,943

Amortisation of acquired intangibles




(17,803)




(3,272)




(14,648)

-

(35,723)

Acquisition related adjusting items




(4,093)




(391)




(3,125)

-

(7,609)

Other adjusting items




1,604




(686)




(8,007)

-

(7,089)

Finance expenses




(7,423)




(2,465)




(158)

-

(10,046)

Profit before tax

 

 

 

12,621

 

 

 

4,935

 

 

 

22,752

168

40,476


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to intangible assets*

 

 

 

2,500




806




6,660

-

9,966

Total Assets**

 

 

 

219,001

 

 

 

70,574

 

 

 

583,565

 

873,140

*Includes additions from business combinations, refer to Note 9.

**Total assets is exclusive of deferred tax assets

 



 

 

Software & Platforms

Content & Services

GP Strategies

Other

 

 

On-premise Software Licences

Hosting & SaaS

Support & Maintenance

Total

Content

Platform Development

Consulting  & Other

Total

Global services

Regional services

Other technical

Total

Rental Income

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

31 December 2021




 




 

 

 

 

 

 

 

SaaS and long-term contracts

21,441

101,348

3,293

126,082

-

1,039

9,687

10,726

17,627

35,268

3,234

56,129

143

193,080

Transactional

1,046

1,979

1,367

4,392

19,151

4,916

9,962

34,029

1,742

18,324

6,659

26,725

-

65,146

Total Revenue

22,487

103,327

4,660

130,474

19,151

5,955

19,649

44,755

19,369

53,592

9,893

82,854

143

258,226

Depreciation & amortisation

 

 

 

(6,169)




(2,117)




(928)

-

(9,214)

Adjusted EBIT

 

 

 

36,365

 

 

 

10,591

 

 

 

7,655

143

54,754

Amortisation of acquired intangibles

 

 

 

(20,126)




(3,823)




(2,233)

-

(26,182)

Acquisition related adjusting items

 

 

 

(6,220)




(1,078)




(8,158)

-

(15,456)

Other adjusting items

 

 

 

(2,322)




-




869

-

(1,453)

Finance expenses

 

 

 

(1,938)




(637)




246

-

(2,329)

Profit / (Loss) before tax




5,759



 

5,053

 

 

 

(1,621)

143

9,334


 

 

 












Additions to intangible assets*

 

 

 

65,175




12,549




240,066

-

317,790

Total Assets**




341,199

 

 

 

73,078

 

 

 

416,652

 

830,929

*Includes additions from business combinations, refer to Note 9.

**Total assets is exclusive of deferred tax assets

 

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

 

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


Information about major customers

           

In the year ended 31 December 2022 and the year ended 31 December 2021, no customer accounted for more than 10 per cent of reported revenues.

 

4.         Adjusting items

 

These items are included in normal operating costs of the business, but are significant cash and non cash expenses that are separately disclosed because of their size, nature or incidence.  It is the Group's view that excluding them from Operating Profit gives a better representation of the underlying performance of the business in the period. Further details of the adjusting items are included in Note 2.

 

 

 

31 Dec

31 Dec

 

 

2022

2021

 

 

£'000

£'000

Adjusting items included in Operating profit:


 


Acquisition related costs:


 


Amortisation of acquired intangibles


35,723

26,182

Acquisition-related contingent consideration and earn-outs


3,273

5,207

Acquisition-related share based payment charge


542

123

Fair value movement on contingent consideration


(21)

22

Acquisition costs


304

6,067

Integration costs


3,512

4,037

Total acquisition related costs


43,333

41,638



 


Other adjusting items:


 


Impairment of right-of-use assets


-

2,120

Impairment of goodwill and intangibles


7,958

-

Loss on disposal of fixed assets


2

272

Loss / (profit) on disposal of right-of-use assets


228

(70)

Net foreign exchange gain arising due to business acquisition


-

(745)

Share of profit of joint venture


(155)

(124)

Profit on sale of joint venture


(1,242)

-

Cloud computing configuration and customisation costs


719

-

Closure provisions


1,047

-

Other income


(1,469)

-

Total other adjusting items


7,088

1,453



 


Total adjusting items


50,421

43,091





 

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

-     Amortisation of acquired intangibles - the cost of £35.7 million (2021: £26.2 million) is excluded from the adjusted results of the Group since the costs are non-cash charges arising from investment activities. As such, they are not considered reflective of the core trading performance of the Group.

-     Impairment of goodwill and intangibles and closure provisions - these costs are excluded from the adjusted results of the Group since the costs are one-off charges related to closure of the non-core UK apprenticeship business in early 2023.

-     Acquisition-related share based payments, contingent consideration and earn-outs - these costs are excluded from the adjusted results since these costs are also associated with business acquisitions and represent post-combination remuneration, which is not included in the  calculation of goodwill and also not considered part of the core trading performance of the Group.

-     Fair value movement on contingent consideration - similar to the above, any adjustments to contingent consideration through profit or loss are excluded from adjusted results on the basis that it is non-cash non-operational income or costs.

-     Impairment of right-of-use assets - these costs are excluded from the adjusted results of the Group since the costs are one-off, non-cash charges related to an abandoned lease that cannot be sub-let.

-     Foreign exchange (gains) or losses associated with business acquisitions - excluded from the adjusted results of the Group since these costs relate to investment activities and occur irregularly.

-     Costs of acquisition and integration - the costs of acquiring and integrating subsidiaries purchased.  These costs associated with completed acquisitions are excluded from the adjusted results on the basis they are directly attributable to investment activities, rather than the core trading activities of the Group. Included within the £3.5 million integration costs are certain retention bonuses of £1.2 million, severance costs of £0.9 million and an allocation of internal labour for employees who have worked on integration activities during the year of £0.6 million.

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

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

 

5.         Income tax

 

31 Dec

31 Dec

 

2022

2021

 

£'000

£'000

Current tax expense:

 


- UK current tax on profits for the year

(282)

926

- Adjustments in respect to prior years

2,522

(4,678)

- Foreign current tax on profits for the year

19,193

9,598

Total current tax

21,433

5,846

Deferred tax (Note 13):

 


- Origination and reversal of temporary differences

(7,459)

(3,711)

- Adjustments in respect to prior years

(3,597)

(7,611)

Change in deferred tax rate

(307)

(110)

Total deferred tax

(11,363)

(11,432)


 


Income tax expense/(credit)

10,070

(5,586)

 

The increases in UK and foreign current tax reflect inclusion of full year results of GP Strategies Corporation and its subsidiaries for 2022 compared to results for 2021 representing the post-acquisition period 14 October to 31 December in 2021 only.                                                                                                       

 

The 'changes in tax rate' reflect the remeasuring of temporary differences using the enacted rate applicable when the liabilities are settled, or the asset realised and primarily arise in the UK and US.  The UK Government announced an increase in the corporation tax rate from 19% to 25%, with an effective date of 1 April 2023, which was substantively enacted on 24 May 2021. The impact from the US is due to the change in the blended tax rate derived from state income apportionment as well as fluctuations in state tax rates.

                                                                              

In 2021 the Group applied a valuation allowance against losses acquired with the PeopleFluent and Reflektive acquisitions pending completion of a tax study to confirm their availability. The Group has completed the study and determined that tax effected losses amounting to £24.7 million are available for recognition, consisting of £12.9 million for the period 2022-2038 and £11.8 million to be carried forward indefinitely. The Group has considered both positive and negative evidence available and recognised a deferred tax asset for losses of £5.5 million, of which £2.6 million has been utilised in the current year and £2.9 million expected to be utilised over the subsequent three-year period in line with the forecast period prepared for the Group.  In subsequent years, the Group will consider recognition of further deferred tax assets on the remaining losses on an annual basis.

 

Further to the above credit arising for loss utilisation and recognition, the Group has identified and reflected adjustments to prior years amounting to £4.4 million, primarily arising in the US and Hong Kong of amounts £3.4 million and £1.0 million respectively.  In respect of Hong Kong, the adjustment includes £0.5 million additional tax charge pending completion of the 2021 tax return.

 

The current year deferred tax credit of £7.5 million, arising from the origination and reversal of temporary differences, relates to the deferred tax liability release associated with acquired intangible amortisation and impairments amounting to £8.9 million, recognition of a new deferred tax asset in respect of capitalised R&D associated with changes in US legislation, effective from 2022, of amount £1.5 million, offset by utilisation of deferred tax losses of £2.6 million referenced above and other net timing differences of £0.3 million.

 

The £1.4 million non-current corporation tax liability is in relation to amounts payable over eight years by GP Strategies Corporation and TTi Global, Inc. in relation to 2017 US tax reform, decreased from the prior year amount payable of £1.7 million.  This will be fully settled by 2025.

 

A reconciliation of income tax expense applicable to the profit before taxation at the statutory tax rate to the income tax expense at the effective tax rate of the Group is as follows:

 

 

 

31 Dec

31 Dec

 

 

   2022

2021

 

 

   £'000

£'000



 


Profit before taxation


40,476

9,334



 


Tax calculated at the domestic tax rate of 19.00% (2021: 19.00%):


7,690

1,774



 


Tax effects of: -


 


Expenses not deductible for tax purposes


2,148

3,238

Adjustments in respect to prior years


2,522

(4,678)

Utilisation of previously unrecognised or acquired tax losses


(2,589)

-

Recognition of previously unrecognised deferred tax assets


(2,881)

(7,611)

Reversal of prior year deferred tax short-term timing difference


1,872

-

Effect of differences in tax rates


1,308

1,691



10,070

(5,586)

 

The aggregate current and deferred tax directly charged to equity amounted to £1,946,000 (2021: credit £689,000).



 

6.         Earnings per share

 

 

 

31 Dec

31 Dec

 

 

2022

2021

 

 

Pence

Pence



 


Basic earnings per share


3.857

1.959

 

Diluted earnings per share


3.710

1.878

 

Adjusted basic earnings per share


8.443

5.226

 

Adjusted diluted earnings per share


8.121

5.010

 

Basic earnings per share is calculated by dividing the profit/loss after tax attributable to the equity holders of the Group by the weighted average number of shares in issue during the year.

 

Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potential dilutive shares, namely share options or deferred consideration payable in shares where the contingent conditions have been met.

 

In order to give a better understanding of the underlying operating performance of the Group, an adjusted earnings per share comparative has been included. Adjusted earnings per share is stated after adjusting the profit after tax attributable to equity holders of the Group for certain charges as set out in the table below. Adjusted diluted earnings per share has been calculated to also include the contingent shares payable as deferred consideration on acquisitions where the future conditions have not yet been met, as shown below. 

 

Adjusted earnings per share is stated after the impact of the adjusting items disclosed in note 4.

 

In the prior year, management had excluded the profit or losses on disposal of fixed assets and right-of-use assets and included the impact of financing items in their calculation of adjusted earnings per share.  When including the profit or losses on disposal of fixed assets and excluding interest receivable, finance expense on contingent consideration and finance expense on lease liabilities to present earnings per share on a like for like basis, the adjusted basic earnings per share would have been 5.024p and adjusted diluted earnings per shares 4.816p, a difference of 0.151p and 0.145p, respectively.

 

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



 


2022

2021


Profit after tax

Weighted average number of shares

Pence per share

Profit after tax

 

Weighted average number of shares

Pence per share


£'000

'000

 

£'000

'000


Basic earnings per ordinary share attributable to the owners of the parent

30,406

788,295

3.857

14,920

761,627

1.959


 

 

 




Effect of adjustments:

 

 

 




Total adjusting items (see note 4)

50,421

 

 

43,091



Adjusting items excluded from earnings per share adjustments:

 

 

 




Loss on disposal of fixed assets

-

 

 

(272)



Profit on disposal of right of use assets

-

 

 

70



Interest receivable

-

 

 

(7)



Net foreign exchange gain on borrowings

-

 

 

(246)



Finance expense on contingent consideration

-

 

 

82



Finance expense on lease liabilities (IFRS 16)

-

 

 

435



Income tax expense / (credit)

10,070

 

 

(5,586)



Effect of adjustments

60,491

 

7.673

37,567

-

4.949

Adjusted profit before tax

90,897

 

 

52,487

-

-

Tax impact after adjustments

(24,338)

 

(3.087)

(12,811)

-

(1.682)

Adjusted basic earnings per ordinary share

66,559

788,295

8.443

39,676

761,627

5.226


 

 

 




Effect of dilutive potential ordinary shares:

 

 

 




Share options

 

31,310

(0.322)

-

32,804

(0.216)

Adjusted diluted earnings per ordinary share

66,559

819,605

8.121

39,676

794,431

5.010

Diluted earnings per ordinary share attributable to the owners of the parent

30,406

819,605

3.710

14,920

794,431

1.878

 



 

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

 


 

 

 

 

Right of use assets


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Cost

 


 

 

 

 

 

 

 

At 1 January 2021

2,202

857

214

3,273

83

13,387

-

13,470

Additions on acquisitions

657

224

1,713

2,594

181

12,429

134

12,744

Additions

278

28

266

572

315

982

-

1,297

Foreign exchange differences

12

(4)

21

29

(20)

36

-

16

Impairments

-

-

-

-

-

(2,120)

-

(2,120)

Disposals

(1,345)

(667)

(597)

(2,609)

-

(1,367)

-

(1,367)










At 31 December 2021

1,804

438

1,617

3,859

559

23,347

134

24,040

Reclassification

1,134

140

(1,274)

-

-

-

-

-

Additions

1,515

103

23

1,641

-

2,062

-

2,062

Foreign exchange differences

2,042

(26)

229

2,245

12

199

-

211

Reclassified as assets held for sale

(236)

(48)

(43)

(327)

-

(278)

-

(278)

Disposals

(591)

(233)

(159)

(983)

(101)

(4,065)

(57)

(4,223)










At 31 December 2022

5,668

374

393

6,435

470

21,265

77

21,812

 

Accumulated Depreciation









 

At 1 January 2021

1,706

541

1

2,248

83

4,581

-

4,664

Charge for the year

397

142

241

780

103

2,713

13

2,829

Transfers out

(64)

-

-

(64)

-

-

-

-

Disposals

(1,758)

(559)

(20)

(2,337)

-

(698)

-

(698)










At 31 December 2021

281

124

222

627

186

6,596

13

6,795

Charge for the year

1,619

270

252

2,141

161

4,129

53

4,343

Reclassification

129

-

(129)

-

-

-

-

-

Reclassified as assets held for sale

(178)

(47)

(43)

(268)

-

(105)

-

(105)

Disposals

(480)

(221)

(148)

(849)

(20)

(987)

(22)

(1,029)

Foreign exchange differences

1,765

(10)

172

1,927

-

-

-

-










At 31 December 2022

3,136

116

326

3,578

327

9,633

44

10,004

 









Net book value


 







At 31 December 2021

1,523

314

1,395

3,232

373

16,751

121

17,245

 









At 31 December 2022

2,532

258

67

2,857

143

11,632

33

11,808

 









 

The above property, plant and equipment and right-of-use assets are held as security as part of the fixed and floating charge over the assets of the Group, refer to note 16 for further details of the Group's borrowings.

 

The reclassifications in the year relate to misclassification of assets acquired as part of a business combination in 2021.

 

8.         Prior year acquisition measurement period adjustments

 

Outlined below are the retrospective adjustments to the provisional amounts recognised as goodwill in relation to the acquisitions that occurred in 2021. These adjustments have been made to reflect new information obtained about the circumstances that existed at each respective acquisition date and would have affected the measurement of goodwill at the time.

 

GP Strategies

 

Assets acquired and liabilities assumed

 

Increase/(decrease) to recognised amounts

£'000

 

Goodwill

£'000

Non-current assets

(3,069)

3,069

Trade and other receivables

742

(742)

Corporation tax

(579)

579

Trade and other payables

3,589

(3,589)

Provisions (note 18)

(2,200)

2,200

Other Non-current liabilities

393

(393)

Net assets

(1,124)

1,124

              

 

Categories of adjustments

Increase/(decrease) to recognised amounts

£'000

 

Goodwill

£'000

Cloud computing configuration and customisation costs adjustments

(2,194)

2,194

Litigation

1,075

(1,075)

Accounts receivables

1,051

(1,051)

Taxation

(970)

970

Other remeasurements

(86)

86

Net assets

(1,124)

1,124

 

 

Other remeasurements include lease adjustments and the fair value of other liabilities.



 

9.         Intangible assets

 

 

 

 

 

Goodwill

Customer contracts and  relationships

 

 

Branding

Acquired software and Intellectual Property

Internal Software Development

 

 

Total

 

 

£'000

£'000

£'000

£'000

£'000

£'000









Cost

 

 

 

 

 

 

 

At 1 January 2021


156,860

109,315

2,485

48,702

18,103

335,465

Additions on acquisitions


176,541

79,368

12,644

40,847

-

309,400

Additions


-

-

-

-

8,390

8,390

Measurement period adjustments


1,269

-

-

-

-

1,269

Foreign exchange differences


3,084

177

148

765

(294)

3,880

At 31 December 2021

 

337,754

188,860

15,277

90,314

26,199

658,404

Additions


-

-

-

-

9,966

9,966

Adjustment related to cloud computing costs


-

-

-

-

(640)

(640)

Reclassified as assets held for sale


(501)

(1,095)

(450)

(28)

-

(2,074)

Impairment


(5,401)

(2,581)

(497)

(59)

-

(8,538)

Foreign exchange differences


35,417

13,937

2,448

9,345

2,291

63,438

At 31 December 2022

 

367,269

199,121

16,778

99,572

37,816

720,556









Accumulated amortisation

 

 

 

 

 

 

 

At 1 January 2021


-

54,354

1,228

14,430

9,169

79,181

Amortisation charged in year


-

16,593

840

8,749

5,605

31,787

Transfers in


-

-

-

-

64

64

At 31 December 2021

 

-

70,947

2,068

23,179

14,838

111,032

Amortisation charged in year


-

20,651

3,056

12,016

7,460

43,183

Reclassified as assets held for sale


-

(182)

(105)

(7)

-

(294)

Impairment


-

(446)

(120)

(14)

-

(580)

Foreign exchange differences


-

2,703

981

1,944

615

6,243

At 31 December 2022

 

-

93,673

5,880

37,118

22,913

159,584

 

 

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

 

 

At 31 December 2021

 

337,754

117,913

13,209

67,135

11,361

547,372

 

At 31 December 2022


367,269

105,448

10,898

62,454

14,903

560,972

 

The measurement period adjustments in 2021 relate to £145,000 for acquisitions in 2020 and £1,124,000 in relation to adjustments to acquisitions made in 2021 (see note 8).

 

The above intangible assets are held as security as part of the fixed and floating charge over the assets of the Group, refer to note 16 for further details of the Group's borrowings.

 

Goodwill and acquisition-related intangible assets recognised have arisen from acquisitions.  Internal software development reflects the recognition of development work undertaken in-house.

 

The amortisation charge for the year of £43.2 million (2021: £31.8 million) includes £35.7 million (2021: £26.2 million) relating to acquired intangibles. Amortisation is included within operating expenses in the Statement of Comprehensive Income.

 

The goodwill acquired in each of the acquisitions is not expected to be deductible for tax purposes. 

 

Annual impairment review

 

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units ('CGUs') that are expected to benefit from that business combination. Following a change in the aggregation of cash inflow and assets for identifying CGUs discussed above, the Group has nine (2021: nine) CGUs.  The carrying amount of goodwill has been allocated as follows:

 

CGU

Goodwill

 

Growth rate for years 2 to 5

Post-tax discount rate


2022

2021

2022

2021

2022

2021


£'000

£'000

%

%

%

%

Content & learning services

12,712

12,676

2%

4%

10.7%

9.5%

Diversity & inclusion

28,020

25,908

6%

5%

10.6%

10.4%

Software solutions

166,370

150,185

4%

4%

10.6%

9.7%

GP Strategies - Global Services

35,839

31,602

5%

5%

10.2%

11.2%

GP Strategies - Americas

106,995

95,256

5%

5%

10.1%

10.3%

GP Strategies - EMEA

2,832

3,341

4%

5%

10.2%

13.0%

GP Strategies - APAC

2,623

1,921

5%

5%

10.2%

13.0%

GP Strategies - HCT

12,379

10,906

8%

6%

10.2%

13.0%

GP Strategies - SFA

-

4,824

0%

6%

16.8%

13.0%


367,770

336,619





 

The difference between the net book value of the Goodwill generated on acquisitions as at 31 December 2022 of £367,269,000 and the £367,770,000 stated above relates to £501,000 of Goodwill relating to assets classified as held for sale (see note 20).

 

The difference between the net book value of the Goodwill generated on acquisition as at 31 December 2021 of £337,754,000 and the £336,619,000 stated above relates to the prior year acquisition measurement adjustments as presented at the closing balance sheet rate (see note 8).

 

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 calculations. 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 Board approved forecasts and estimated growth rates in years 2 to 5) 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 post-tax cash flows.

The Group prepares cash flow forecasts derived from the 2023 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 2% and 8% for the first five years. The terminal rate used for the value in use calculation thereafter is 2.5%.

 

All CGUs have substantial headroom between the calculated value-in-use and the net book value except for the GP Strategies - SFA CGU which has been fully impaired following the Board's announcement in December 2022 regarding closure of the UK apprenticeship business in early 2023.  Approximately 80% of operations within the GP Strategies - SFA CGU are being discontinued. The remaining contracts within the CGU are of uncertain longevity and management are not targeting further investment in this area. The resultant impairment charge is £8.0 million.

 

Sensitivity analysis

 

A reduction to 0% for the terminal rate applied to the cash flows (with other assumptions remaining constant) would not result in an impairment to any CGU.

 

A 10% decrease in the 2023 cash flows used in the discounted cash flow model for the value-in-use calculation (with other assumptions remaining constant) would not result in an impairment to any CGU.

 

A 250bps increase in discount rates used in the discounted cash flow model for the value-in-use calculation (with other assumptions remaining constant) would not result in an impairment to any CGU.

 

A 10% decrease in the 2023 cash flows and a 250bps increase in the discount rates used in the discounted cash flow model for the value-in-use calculation (with other assumptions remaining constant) would not result in an impairment to any CGU. Our sensitivity analysis has concluded that these changes would not result in an impairment to any other CGU.

 

Management do not consider that any reasonably possible changes in the assumptions for the above CGUs would result in an impairment.

 

As disclosed in note 2, Accounting policies, the forecast cash flows used within the impairment model are based on assumptions which are sources of estimation uncertainty and it is possible that significant changes to these assumptions could lead to an impairment of goodwill and acquired intangibles. Given the uncertainty surrounding the macroeconomic factors including the impact of COVID-19, geopolitical uncertainties and inflationary pressures on the Group's operations and on the global economy, management have considered a range of sensitivities on each of the key assumptions, with other variables held constant. The sensitivities which were each assessed in isolation include; applying a 10 per cent reduction in the revenue assumption in the next financial year from the base cash flow projections, representing a slower recovery from the impact of COVID-19; increases in the discount rate by 1% and reductions in the long-term growth rates to 0%. Under these severe scenarios, the estimated recoverable amount of goodwill and acquired intangibles still exceeded the carrying value of all CGUs.

 

The sensitivity analysis showed that no reasonably possible change in assumptions would lead to an impairment.

 

Customer contracts, relationships, branding and Acquired IP

 

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 twelve years.

 

Internal software development

Internal 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 two and ten years.

 

10.       Investments accounted for using the equity method

 

Joint ventures

 

The joint venture has share capital consisting solely of ordinary shares, which are held directly by the Group. The nature of the investments is listed below.

 

 

 

 

Percentage of ordinary shares held by Group

Name of entity

Country of Registration or Incorporation

Principal activity

31 December 2022

31 December 2021

LEO Brasil Tecnologia Educacional Ltda (formerly Epic Brasil TecnologiaEducacional Ltda)

 

Brazil

Bespoke e-learning

17%

17%

National Aerospace Solutions, LLC

United States

Engineering services

-

10%

 

LEO Brasil Tecnologia Educacional Ltda

On 27 August 2019, the Group entered into a debt for equity swap agreement whereby Epic Group Limited and the other 50% investor agreed to convert debts due from Leo Brasil Tecnologia Educacional Ltda ('LEO Brazil') to equity in the proportion to amounts owed at that date. Epic Group Limited had a total of $268,000 (equivalent to approximately £200,000) converted to equity and, following such conversion, its shareholding was reduced from 50% to 38%. A further reduction of the proportionate ownership was made during the year ended 31 December 2020 by a debt/equity conversion reducing the Group's proportional ownership to 19%. During the year ended 31 December 2021, an additional investor was acquired by issuing further equity into the joint venture, which reduced the Group's proportional ownership to 17%.  As all amounts receivable from the investee had been written off by the Group, there was no financial impact, either on the carrying value of the investment or the results for the year.

   

LEO Brazil is a private company and there is no quoted market price available for its shares.

 

The accounting reference date of LEO Brazil is coterminous with that of the Company.

 

There are no contingent liabilities or commitments relating to the Group's interest in LEO Brazil.

 

Where the Group's share of losses in LEO Brazil exceeds its interests in the company, the Group does not recognise further losses as it has no further obligation to make payments on behalf of the company.

 

No further disclosures are provided on the grounds of materiality.

 

National Aerospace Solutions, LLC

 

 

 

Share of joint venture's net assets

Share of joint venture's net assets

 

 

2022

2021

 

 

£'000

£'000



 


Cost


 


At 1 January


1,018

-

Additions from acquisitions


-

1,162

Share of profit after tax


155

124

Disposals


(1,173)

-

Disbursements


-

(305)

Foreign exchange differences


-

37

At 31 December


-

1,018

 

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

 

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

 

11.       Trade receivables

 

 

 

31 Dec

31 Dec

 

 

2022

2021

 

 

£'000

£'000



 


Trade receivables


140,951

126,448

Allowance for impairment losses


(4,926)

(2,543)



136,025

123,905

 

Trade receivables as at 31 December 2021 have been adjusted relating to the impact of prior year acquisition measurement period adjustment (see note 8).

 

The Group's normal trade credit term is 30-60 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. 

 

In accordance with IFRS 15, the Group has disclosed trade receivable balances net of the associated contract liabilities, as outlined below.  These balances will be shown net until the earlier of either the date the payment becomes due and a receivable is recognised or the date that the services are delivered and an associated contract asset is recognised.

 

 

 

2022

2021

 

 

£'000

£'000

 

 

 


Contract liabilities offset within trade receivables above


6,639

6,257

 

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.  To measure expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and aging.  The amounts receivables on contacts have similar risk characteristics to the trade receivables for similar types of contracts.

 

The expected loss rates are based on the Group's historical credit losses experienced in the previous period and then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers. 

 

The expected credit loss rate and the aged gross trade receivables and aged loss allowance as at 31 December are as follows:

 

 

 

31 December 2022

 

Expected Loss rate

Gross Trade receivable

Allowance for impairment losses

 

 


£'000

£'000

 

 




Not past due

 

1%

117,464

1,608






Past due:





- Less than three months


5%

12,143

619

- Three to six months

 

7%

2,637

184

-  Past six months

 

29%

8,707

2,515

Gross amount

 

 

140,951

4,926

 

31 December 2021

 

Expected Loss rate

Gross Trade receivable

Allowance for impairment losses

 

 


£'000

£'000

 

 




Not past due

 

1%

102,592

868






Past due:





- Less than three months


-

7,136

28

- Three to six months

 

1%

3,830

49

-  Past six months

 

12%

12,890

1,598

Gross amount

 

 

126,448

2,543

 

The movement in the allowance for expected credit loss is as below:

 

 

2022

2021

 

 

£'000

£'000

 

 

 


At 1 January

 

2,543

1,495

Reclassified as assets held for sale


11

-

Additions


1,949

1,017

Foreign exchange


423

31

At 31 December

 

4,926

2,543

 

As at 31 December 2022 trade receivables of £1,091,000 had lifetime expected credit losses of the full value of the receivables.  The receivables due at the end of the financial year relate to 51 customers and have been fully provided based on the aged profile of the debt or public information available to management indicating the customers may be unable to settle the debt.

 

12.       Other receivables and prepayments

 

Current assets

 

31 Dec

31 Dec

 

 

2022

2021

 

 

£'000

£'000



 


Sundry receivables


6,767

3,976

Prepayments


9,998

10,955



16,765

14,931

 

 

 


Non-current assets

 

31 Dec

31 Dec

 

 

2022

2021

 

 

£'000

£'000



 


Sundry receivables


1,874

441



1,874

441

 

Other receivables as at 31 December 2021 have been adjusted relating to the impact of prior year acquisition measurement period adjustment (see note 8).

 

Sundry receivables include rent deposits and other sundry receivables.

 

13.       Deferred tax assets/(liabilities)

 

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.

 

The movements in deferred tax assets and liabilities prior to offsetting are shown below:

 

 

Share options

Tax losses

Short-term timing differences

Intangibles

Total

Deferred tax assets

£'000

£'000

£'000

£'000

£'000







At 1 January 2021

3,994

2,239

1,381

-

7,614

Deferred tax recognised on acquisition

28

396

6,259

5,414

12,097

Deferred tax (charge)/credit directly to the income statement

1,127

(887)

2,447

(177)

2,510

Deferred tax credited directly to equity

689

-

-

-

689

Exercise of share options

(411)

-

-

-

(411)

Exchange rate differences, charged directly to OCI

(5)

1

60

-

56

Changes in tax rate, credited to the income statement

238

32

(267)

-

3

At 31 December 2021

5,660

1,781

9,880

5,237

22,558

Deferred tax (charge)/credit directly to the income statement

(566)

3,469

1,868

(923)

3,848

Deferred tax charged directly to equity

(1,946)

-

-

-

(1,946)

Exercise of share options

-

-

-

-

-

Exchange rate differences, charged directly to OCI

188

144

962

650

1,944

Changes in tax rate, credited to the income statement

286

(146)

104

(25)

219

At 31 December 2022

3,622

5,248

12,814

4,939

26,623

 



 

 

 

Accelerated tax

Short-term timing

 

 

Intangibles

depreciation

differences

Total

Deferred tax liabilities

£'000

£'000

£'000

£'000






At 1 January 2021

23,172

2,142

303

25,617

Deferred tax on acquired intangibles and via acquisition

33,850

(164)

1,570

35,256

Deferred tax (credit)/charge directly to the income statement

(6,063)

(1,744)

(1,419)

(9,226)

Exchange rate differences, charged directly to OCI

276

3

12

291

Changes in tax rate, charged to the income statement

-

(110)

6

(104)

 

 

 

 

 

At 31 December 2021

51,235

127

472

51,834

Deferred tax credit/(charge) directly to the income statement

(9,900)

585

2,106

(7,209)

Exchange rate differences, charged directly to OCI

5,206

51

9

5,266

Changes in tax rate, charged to the income statement

-

(148)

61

(87)

At 31 December 2022

46,541

615

2,648

49,804

 

The total deferred tax assets and liabilities subject to offsetting are presented below:

 

 

Total Deferred tax assets

Total Deferred tax liabilities

 

31 Dec

2022

£'000

31 Dec

2021

£'000

31 Dec

2022

£'000

31 Dec

2021

£'000


 




At 31 December prior to offsetting

26,623

22,558

49,804

51,834

Offset of tax

(22,539)

(20,167)

(22,539)

(20,167)

At 31 December after offsetting

4,084

2,391

27,265

31,667

 

The deferred tax asset and liability as at 31 December 2021 have been represented to include the prior year acquisition measurement period adjustment as described in note 8.

                                                                                           

The financial statements include a correction to the amounts presented to the comparative 2021 amounts following a review of the requirements of IAS12 to offset deferred tax assets and liabilities when there is a legally enforceable right to set off current tax assets against current tax liabilities, when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. This has resulted in a reduction in deferred tax assets and liabilities included in non-current assets and non-current liabilities respectively of £20.2 million.

 

The impact on the 31 December 2020 balance sheet is to reduce deferred tax assets and deferred tax liabilities by £4.6 million. There is no impact on net assets, cash flow or reserves in 2020.

 

An increase in the UK corporation tax rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. The 'changes in tax rate' reflect the remeasuring of temporary differences using the enacted rate applicable when the liabilities are settled, or the asset realised and primarily arise in the UK and US.  The US corporate tax rate is unchanged at 21% plus state and local taxes at 4-8% which varies by jurisdiction.

 

The Group has recognised £5.2 million (2021: £1.8 million) of deferred tax assets relating to carried forward tax losses.  These losses have been recognised as it is probable that future taxable profits will allow these deferred tax assets to be recovered. The Group has performed a continuing evaluation of its deferred tax asset valuation allowance on an annual basis to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

 

Deferred tax assets of £19.3 million, relating primarily to trading losses carried forward arising in the US totalling £91.9 million (2021: £25.4 million), consisting of £35.5 million available for utilisation for the period 2026-38 and £56.4 million to be carried forward indefinitely, continue to be matched by a valuation allowance. The Group has completed a tax study in 2022 that confirms the availability of these losses.  The Group has utilised approximately £12.3 million of trading losses (2021: £10.4 million) and recognised deferred tax assets relating to trading losses of £13.7 million that are expected to be utilised in the period 2023-2025.

 

14.       Trade and other payables

 

 

 

 

 

31 Dec

31 Dec

 

2022

2021

 

£'000

£'000


 


Trade payables

31,813

39,596

Contract liabilities

99,303

70,154

Tax and social security

22,300

21,931

Contingent consideration

21

749

Acquisition-related contingent consideration and earn-outs

4,876

6,427

 

Accruals

22,321

30,501

 

180,634

169,358

        

Trade and other payables as at 31 December 2021 has been represented to include the prior year acquisition measurement period adjustment as described in note 8.

 

The contract liabilities balance relates mainly to the Group's right to access licences, support and maintenance and hosting contracts which are recognised over the contract term as the customer receives and consumes the benefits of the service. All of the current liability contract liabilities balance at 31 December 2021 was recognised as revenue in 2022 and the current contract liabilities balance at 31 December 2022 is expected to be recognised as revenue in 2023.

 

The acquisition-related contingent consideration and earn-outs balance in 2022 relates to the acquisition of PDT Global, eCreators, eThink and BreezyHR Inc ('BreezyHR'). In 2021, the contingent consideration balances related to the acquisition of Watershed Systems Inc and Moodle News and were financial instruments held at fair value within the scope of IFRS 9 and were repaid during 2022. The 2022 and 2021 contingent consideration balance relates to Moodle News.

 

The Group has netted off £6.6 million (2021: £6.3 million) of contract liabilities against its trade receivables balances as outlined in note 11 above.

15.       Other long-term liabilities

 

 

31 Dec

31 Dec

 

2022

2021

 

£'000

£'000

 

 


Acquisition-related contingent consideration and earn-outs

-

1,090

Contingent consideration

-

19

Contract liabilities

3,517

1,935


3,517

3,044

 

Contract liabilities as at 31 December 2021 has been represented to include the prior year acquisition measurement period adjustment as described in note 8.

 

The acquisition-related contingent consideration and earn-outs balance in 2021 related to the acquisitions of PDT Global, BreezyHR, eCreators, and eThink. The 2021 contingent consideration balance related to the acquisition of Moodle News.

 

The non-current contract liabilities balance relates mainly to the Group's right to access licences, support and maintenance and hosting contracts which are recognised over the contract term as the customer receives and consumes the benefits of the service. The non-current contract liabilities balance at 31 December 2022 is expected to be recognised during 2024.

 

16.       Borrowings

 

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

 

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

 

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

 

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

 

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

The bank loan is secured by a fixed and floating charge over the assets of the Group and is subject to financial covenants that are tested quarterly based on a calendar year.

 

The financial covenants are that the Group must ensure that its interest cover ratio is at least 4.0 times and its leverage ratio does not exceed 3.0 times. The interest cover and leverage ratio is not a statutory measure and so its basis and composition may differ from other leverage measures published by other companies.

 

The interest cover ratio is the ratio of EBITDA to Finance Charges and the leverage ratio is total

net debt on the last day of the relevant period to adjusted EBITDA for that relevant period. Both numerator and denominator in each calculation comprise several adjustments as defined in the

debt facility agreement and as such are not directly calculable from the financial statements.

 

The Group was compliant with all financial covenants throughout the year and as at 31 December 2022, the Group's interest cover was 12.90 (2021: 31.76) and its leverage ratio was 1.08 (2021: 1.77).

The lease liabilities have arisen on adoption of IFRS 16 and are secured by the related underlying assets.

 

31 Dec

31 Dec

 

2022

2021

 

£'000

£'000

 

 


Current interest-bearing loans and borrowings

36,714

37,503

Non-current interest-bearing loans and borrowings

177,944

187,759

Current lease liabilities

5,082

6,755

Non-current lease liabilities

9,792

15,090


229,532

247,107

 

Net debt reconciliation

Net debt, which excludes lease liabilities, can be analysed as follows:


31 Dec

 2022

  31 Dec

2021


£'000

£'000


 


Cash and cash equivalents

94,847

83,850

Borrowings:

 


-     Revolving credit facility

-

-

-     Term loan

(214,658)

(225,262)

Net debt

(119,811)

(141,412)

 

17.       Lease liabilities

 

This note provides information for leases where the group is a lessee.


2022

2021


£'000

£'000

At 1 January

21,845

10,258

Additions

1,948

1,210

Additions on acquisitions

-

14,586

Interest expense

614

434

Lease payments (principal and interest)

(7,333)

(4,854)

Disposals

(2,367)

-

Liabilities in disposal group held for sale

(175)

-

Foreign exchange movements

342

211

At 31 December

14,874

21,845

 

Additional profits or losses and cash flow information

 


31 Dec

2022

31 Dec

2021


£'000

£'000

Income from subleasing office premises

256

245

Total cash outflow in respect of leases in the year

(7,333)

(4,854)

Expense related to short term leases not accounted for under IFRS 16

(594)

(487)

Additions to right of use assets

2,062

14,041

 

18.       Provisions

 

 

 

 

 

 

 

Property provisions1

Litigation and regulation provisions2

Onerous contract provisions3

Closure provisions4

Total

 

£'000

£'000

£'000

£'000

£'000

 

 





At 1 January 2021

121

580

-

-

701

Additions arising from acquisitions

1,139

4,225

1,134

-

6,498

Released to the income statement

-

(580)

(121)

-

(701)

Paid in the year

(284)

-

-

-

(284)

Additions

90

-

-

-

90

Measurement period adjustment (see note 8)

-

2,200

-

-

2,200

Foreign exchange movements

9

64

11

-

84

At 31 December 2021

1,075

6,489

1,024

-

8,588

Released to the income statement

(34)

(3,769)

(643)

-

(4,446)

Paid in the year

(143)

(2,260)

-

-

(2,403)

Additions

204

-

-

1,047

1,251

Foreign exchange movements

(99)

461

107

-

469

At 31 December 2022

1,003

921

488

1,047

3,459

Current

348

11

488

755

1,602

Non-current

655

910

-

292

1,857

Total provisions

1,003

921

488

1,047

3,459

 

Provisions as at 31 December 2021 have been represented to include the prior year acquisition measurement period adjustment as described in note 8.

 

1. The Group is party to a number of leasehold property contracts. Provision has been made for the unavoidable non-rent costs on those leases where the property is now vacant.  As a result of the implementation of IFRS 16 the rental elements of certain property provisions are now included within lease liabilities.  In addition, the Group has provided for dilapidation costs expected to be incurred at the end of property leases.

 

2.  Litigation and regulation provisions relate to estimates for potential liabilities which may arise in the Group as a result of client claims and past practices. Whilst the nature of legal claims means that the timing of settlement can be uncertain, we expect all claims to be settled in the next 1 to 2 years Whilst the provisions are based on management's best estimate of the likely liability for obligations that exist at the year end date, the maximum potential exposure could be materially higher or lower than the provisions made as there is a range of potential outcomes.

 

3. Onerous contract provisions relate to provisions made for certain software contracts where the unavoidable costs of meeting the obligation under the contract, exceed the economic benefits expected to be received under the contract.

 

4. Closure provisions relate to expected redundancy costs and facility obligations in relation to the announced closure of the UK apprenticeship business given the nature of the customer relationships and quality of the offering in the business do not match the high standards elsewhere in the Group.

 

 

19.       Dividends paid

 

 

 

 

 

31 Dec

31 Dec

 

2022

2021

 

£'000

£'000


 


Final dividend paid

5,515

3,705

Interim dividend paid

3,547

2,360


9,062

6,065

                       

On 27 October 2022 the Company paid an interim dividend of 0.45 pence per share (2021: 0.30 pence per share) amounting to a total dividend payment of £3.5 million.  Given the robust performance of the Group during the past year the Directors propose to pay a final dividend of 1.15 pence per share for the year ended 31 December 2022, equating to a total payment in respect of the year of 1.6 pence per share (2021: 1.00 pence per share).

 

The proposed final dividend of 1.15 pence per share, amounting to a final dividend of c. £9.1m, is not included as a liability in these financial statements and, subject to shareholder approval, will be paid on 14 July 2023 to shareholders on the register at the close of business on 23 June 2023. The final dividend will be paid gross.

 

20.       Assets and liabilities classified as held for sale

 

In December 2022, the Group decided to dispose the non-core Lorien Engineering business as soon as practicable and communicated this decision internally and to investors on 19 December 2022.  This business was acquired as part of the GP Strategies acquisition in October 2021.

 

Following its classification as held for sale the asset group is held at the lower of fair value less costs to sell and net book value.

 

Effect of the assets and associated liabilities on financial position of the Group

 

 

31 Dec

 

 

 

2022

 

Non-current assets


£'000

Goodwill


501

Intangible assets


1,279

 

Property, plant and equipment


58

 

Right of use assets


173

 



2,011

 

Current assets


 

 

Trade receivables


5,299

 

Other receivables, deposits and prepayments


82

 

Amounts recoverable on contracts


977

 



6,358

 



 

 

Assets in disposal groups classified as held for sale


8,369

 



 

 

Current liabilities


 

 

Lease liabilities


77

 

Trade and other payables


3,809

 



3,886

 

Non-current liabilities


 

 

Lease liabilities


98

 

 


 

 

Liabilities directly associated with assets in disposal groups classified as held for sale


3,984

 

The net assets of the Lorien Engineering business held for sale as at 31 December 2022 exclude deferred tax assets of £39,000 and current tax liabilities of £412,000 which remain within the Group tax position.

 

The Group expects to recover greater than the net book value from the eventual sale which is expected to complete in 2023.

 

21.       Events since the reporting date

 

Silicon Valley Bank

 

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

 

Closure of non-core operations

 

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

 

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



 

Glossary

 

Alternative Performance Measures

 

In reporting financial information, the Group presents alternative performance measures, "APMs", which are not defined or specified under the requirements of IFRS. The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional useful information on the underlying trends, performance and position of the Group and are consistent with how business performance is measured internally. The alternative performance measures are not defined by IFRS and therefore may not be directly comparable with other companies' alternative performance measures. The key APMs that the Group uses are outlined below.

 

 

Closest equivalent IFRS measure

Reconciling items to IFRS measure

Definition and purpose

Income Statement Measures

Adjusted EBIT

Operating profit

Adjusting items

Adjusted EBIT excludes adjusting items.  A reconciliation from Adjusted EBIT to Operating profit is provided in the Consolidated statement of comprehensive income.

Adjusting items

None

Refer to definition

Items which are not considered part of the normal operating costs of the business, are separately disclosed because of their size, nature or incidence are treated as adjusting. The Group believes the separate disclosure of these items provides additional useful information to users of the financial statements to enable a better understanding of the Group's underlying financial performance. An explanation of the nature of the items identified as adjusting is provided in note 4 to the financial statements.

SaaS and long-term contracts

Revenue

Refer Note 3

Recurring revenue is defined as the revenue streams of the Group that are predictable and expected to continue into the future upon customer renewal.

Transactional

Revenue

Refer Note 3

Non-recurring revenue is defined as the revenue streams of the Group that arise from one-off fees or services that may or may not happen again.

Balance Sheet Measures

Net cash or debt

None


Net cash / debt is defined as Cash and cash equivalents and short-term deposits, less Bank overdrafts and other current and non-current borrowings.

Earnings per share

None

Refer to definition

Calculated as Total Equity at the end of the period/year divided by the number of shares on issue at the end of the period/year, The shares on issue at 31st December 2021 were 787,642,975 and 789,824,841 at 31st December 2022.

 

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
FR NKPBDFBKDNQB
Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJ Bell logo

Related Charts

Learning Technologies Group PLC (LTG)

+0.50p (+0.65%)
delayed 17:13PM