03 May 2022

Learning Technologies Group plc

FULL YEAR RESULTS 2021

Strong organic revenue growth

Transformational GP Strategies acquisition progressing ahead of plan

Learning Technologies Group plc ("LTG" or the "Company"), a market leader in digital learning and talent management, announces full year results for the twelve months ended 31 December 2021.

Jonathan Satchell, Chief Executive of LTG, said:

"2021 was another exciting and successful year for LTG.  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 is progressing ahead of plan and enables us to upgrade our margin expectation for FY 2022. The enlarged Group provides a platform to capture a greater proportion of the circa $100 billion and growing addressable market in digital learning and talent management. Following the acquisition we have a deeper offering to serve a global customer base facing greater complexity and change, creating further margin enhancement and cross-sell opportunities for LTG.

While mindful of the current macro environment, strong business momentum has continued into the new financial year and we have a robust balance sheet that will support further software company acquisitions in due course, underpinning the Board's confidence of significant progress in FY 2022."

Analyst and investor presentation:

LTG will host an analyst and investor webcast at 09.30 BST today, Tuesday 3 May 2022.

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Enquiries:

About LTG:

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

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

Chief Executive's Review 

Introduction

We have seen sustained business momentum through 2021 and this has helped us deliver strong Group organic revenue growth of 8% in the year, with both the Software & Platforms and Content & Services divisions contributing. We have also seen a significant increase in adjusted EBIT and adjusted diluted Earnings per Share, supported by the contribution of acquisitions in 2021.

For many of our customers, COVID-19 has resulted in increased remote and home working and there is a reduced appetite for business travel.  As a result, we believe the long-term, favourable trends in our markets which define our strategy - namely a long-term shift towards digital learning, blended with expert facilitation - are accelerating to our benefit.

In addition to our excellent operational performance in the year, we have made significant strategic progress. We acquired Bridge, Reflektive and PDT Global in the first quarter of 2021 and integrated them during the year. They are now meaningful contributors to Group adjusted EBIT. 

We completed the transformational acquisition of US-listed GP Strategies in October 2021, which is progressing ahead of plan.  GP Strategies adds new blue-chip commercial and government customers, new and deepened customer verticals, expanded capabilities and given us a global reach, and it has brought embedded customer relationships underpinned by long-term contracts.  On a pro forma basis, 71% of 2021 Group revenue is related to Software as a Service (SaaS)-based subscriptions and long-term contracts.

We have an excellent track record of delivering value from acquisitions and after the first months of ownership of GP Strategies, we are very confident that it will create significant shareholder value.  It provides an outstanding margin enhancement opportunity and rich cross-selling prospects, some of which are already starting to show results.  We continue to expect the combination to be significantly earnings accretive and there has been a swifter than anticipated improvement in GP Strategies' margins. The task of integrating and unlocking its growth potential remains our primary focus for 2022.

These acquisitions offer added strength and resilience to our business model, continuing the evolution we've seen over the last several years.

As a result of the significant strategic and operational progress we made in 2021, we have exceeded our 2022 strategic financial goals, previously set in 2020.  These were c.£230 million of run-rate revenue and c.£66 million run-rate adjusted EBIT.

Results and Operations

The Group generated revenue of £258.2 million (2020: £132.3 million).  This included organic revenue growth of 8% and the initial contribution from our 2021 acquisitions.  Both divisions contributed to the organic growth with Software & Platforms delivering 2% growth - 17% excluding PeopleFluent - and 25% in Content and Services.

Adjusted EBIT increased by 36% to £54.8 million (2020: £40.3 million), driven by the contribution from acquisitions and organic revenue growth.  Statutory operating profit was £11.7 million (2020: £14.9 million), including adjusting items of £43.1 million (2020: £25.5 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 £37.5 million (2020: £39.9 million), equivalent to an adjusted operating cash flow conversion rate of 76% (2020: 85%).

After acquisitions, and partially offset by cash generated, net debt was £141.4 million (31 December 2020: £70.2 million - net cash) at 31 December 2021, excluding £21.8 million (31 December 2020: £10.3 million) of lease liabilities.  The covenant net debt/adjusted EBITDA ratio was 1.8 times (2020: n/a).  We remain confident in achieving our target of a net debt/adjusted EBITDA ratio of circa 1.0x by 31 December 2022, excluding the impact of any potential acquisitions.

Market Opportunity

We operate within a very large global learning and talent market, estimated to be worth approximately $378 billion in 2021¹.  This market comprises internal, external and tuition markets although we are primarily focused on the estimated circa $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 'life-cycle' to be brought together in one place.  It includes recruitment, performance management, learning and development, diversity and inclusion 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 main focus overall 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 are able to offer comprehensive learning and development solutions.  We partner with our corporate and government customers in a way that others cannot, in what remains a fragmented market.  Our suite of analytic tools enable 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 are able to 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 between 5-6% in 2022².

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.

·      The growing complexity of business and work

Work and business are becoming more complicated with regulations, specialisms and other complexity increasing.  For example, the US Code of Federal Regulations has expanded from 21,000 pages in 1962 to over 180,000 pages in 2019³. Corporates need to train their employees to remain compliant with this list of rules and regulations to avoid penalties, comply with accounting and tax policies and recruit and successfully manage talent.  Technical and professional specialisms have also increased alongside the complexity of the tools used to perform our work.

·      The pace of change

The pace of change in work is accelerating, in part driven by the revolution in technology, including digitalisation and automation.  A recent survey⁴ concluded that skills required for a single job are increasing 10% per annum.  Furthermore, over 30% of the skills needed three years ago will soon be irrelevant⁴.  For employees to remain productive and effective, employers need to provide training so they can keep pace with changing roles.

·      Unprecedented demographic shifts

As populations get older, the pool of talent available is contracting - a pattern that is expected to accelerate, leaving an estimated deficit of 85 million workers globally⁵.  As a result, there will be intense competition to hire and retain employees, a dynamic which has proven to be particularly prevalent since COVID-19.  A business has to make itself an employer of choice, and development and progression opportunities offered by training are vital.

·      The need to compete through productivity

Labour shortages and an ageing population mean that around 90% of future growth will have to come from productivity improvements⁶.  Technology is needed to drive productivity, and learning is needed to develop and maintain human expertise.  Steps needed to address global warming and other societal pressures mean business travel for face-to-face training is becoming gradually less acceptable, with more digital training and consolidation in face-to-face training provision.

·      The changing relationship to work

Younger workers want meaningful work and autonomy.  For this to happen, they need training to understand what they do and what the organisation needs⁷.  COVID-19 has shifted the relationship between home and work.  The expectation is of a hybrid work-world and, in this context, how we support learning and development is important, with the onus on employers to help employees thrive in this remote-working world.

We continue to be excited by our markets and the huge opportunities they provide.

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.  We make our investments in partnership with customers, informed by a known customer need.

Part of our investment strategy is to leverage value from complementary technologies acquired through our selective M&A programme.  We invest to consolidate 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 2021, we have continued to make investments consistent with our strategy. Examples include:

Our ability to integrate our offerings enables us to offer holistic solutions and cross-sell to customers.  We have had a particularly notable success providing a learning eco-system 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.

Creating Value Through Acquisitions - GP Strategies

Alongside organic growth, we create value from acquisitions to help build our position as a global market leader in the growing digital learning and talent management sector.  These bring quality software or services offerings, enabling us to provide holistic learning and development solutions to our global customer base.  We also invest in businesses with strong underlying assets where we can significantly improve the business model.  To drive value, we integrate our core capabilities, manage costs, including IT systems and back-office, and increase staff utilisation.  These actions improve execution and delivery and increase operating margins and cash generation.

Consistent with our strategy, in October 2021 we completed the transformational acquisition of US-listed GP Strategies.  This is a global provider of organisational and technical performance solutions which transforms organisational effectiveness through innovative and superior training, consulting and business improvement services. 

Total consideration for GP Strategies was $392 million (£288 million), representing an enterprise value on completion of $370 million (£271 million), including lease liabilities.  The acquisition was partially funded by a mix of debt and an equity placing with gross proceeds of approximately £85 million (44.3 million shares).  The acquisition is financially compelling and brings 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 10 years standing.

GP Strategies offers a significant opportunity to cross-sell products and services to a combined base of over 6,100 customers.  We continue to work towards - and are confident we will achieve - our target of launching our combined strategic customer offer by the second half of 2022. 

With limited areas of service overlap, the cross-selling focus is primarily a means by which we can combine GP Strategies' compelling services offerings with LTG's software platforms, to provide a value-add solution to customers of both businesses.  We have seen encouraging early customer interest in our combined service and software offerings.  There are also some early cross-selling successes including a significant multi-year contract with a major US professional association in the financial services industry who delivers learning and accreditation services to more than 400,000 members worldwide.  Neither business would have been able to provide the suite of services won, had it not been for the combined services and software within the Group.

We have an excellent track record of enhancing our margin over many years, including from acquisitions.  The near-term priority for GP Strategies management has been 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.  

Since the acquisition completed, listing costs have been eliminated and other corporate overheads reduced.  GP Strategies' management has put in place new commercial and supplier approvals and controls, and it has made substantial progress on the rationalisation of the supplier base, achieving significant supplier cost efficiencies.

Billable utilisation of customer-facing employees is also a focus, with work previously carried out by subcontractors now being done increasingly in-house.  There is also a greater focus on winning higher value-add business.  This includes, for example, a focus on work requiring more creative content and technical services.

In late 2021 there was a senior management reorganisation, and, in January 2022, there was a planned reduction in staff, impacting 45 employees across GP Strategies.  This has removed a layer of management and reduced back-office costs and underutilised staff.  The reduction has helped efficiency without impacting the ability to serve customers.

Overall, we have seen a swifter-than-anticipated improvement in operational performance, with excellent progress being made.  It is important to acknowledge the collegiate and co-operative approach of our GP Strategies' colleagues in this crucial commercial initiative.  As a result, we expect a GP Strategies' adjusted EBIT margin of 12% in 2022.  We remain confident there is further margin improvement potential for the business beyond this, such that we expect the run rate adjusted EBIT margin at the end of 2022 to be in the mid-teens.

During the year, GP Strategies incurred non-recurring costs of £2.9 million.  This includes costs relating to the senior management reorganisation in late 2021, as well as legal, insurance and audit costs related to the transaction.

As a result of the acquisition of GP Strategies, LTG owned a 10% stake in National Aerospace Solutions LLC ("NAS"). Among other activities, NAS supports US Air Force test facilities at Arnold Engineering Development Complex, which operates 28 aerodynamic and propulsion wind tunnels and rocket and turbine engine test units. This shareholding was not considered core and on 18 April 2022 we divested it for $3.0 million proceeds.  The GP Strategies' employees supporting this business have transferred to NAS and, as such, LTG no longer holds an interest in NAS and its employees no longer support it.

Creating Value Through Acquisitions - Reflektive, PDT Global and Bridge

As well as GP Strategies, and the small acquisition of Moodle News in August 2021, we announced the Reflektive, PDT and Bridge acquisitions in the first quarter of 2021. These bring complementary software products as well as training and consulting in Diversity & Inclusion, enabling us to expand our offering to customers as follows:

Reflektive brings agile performance management software, including engagement and analytics tools to the Group.  It enables collaborative goal setting, continuous feedback and analytics, providing measurable results for boosting productivity, engagement and improving employee retention.  It serves the mid-market corporate customer base, complementing Bridge (see below).

PDT Global brings Diversity & Inclusion offerings and is managed alongside our existing Affirmity brand, which offers affirmitive action planning in the US.  The two businesses' highly complementary offerings enable customers to objectively measure and track their performance and implement the tools, processes and learning required to drive appropriate change. 

Bridge is a learning, performance and skills development platform for mid-enterprise organisations which operates on a single, easy-to-use, SaaS-based platform. It complements our PeopleFluent learning and talent platform for the large enterprise market.  The addition of Bridge enables us to cover a broader corporate market and creates opportunities for further cross-selling across our customer base.

We have removed overheads across our acquisitions as appropriate and implemented LTG's well-tested, rigorous commercial and operational processes.  As a result of our actions, we have moved Reflektive and Bridge, which were significantly loss-making at the time of acquisition, quickly and sustainably into profit.  There has also been initial success with our cross-selling strategy.  We are pleased to be creating value from these acquisitions in the first year of ownership.

During 2022, our primary focus will continue to be on the successful transformation of GP Strategies, ahead of its integration into LTG.  The Group will continue to look for additional bolt-on acquisition opportunities with an emphasis on the Software & Platforms division.

People

Kath Kearney-Croft joined us as Chief Financial Officer and Board member on 1 December 2021, replacing Neil Elton after seven years in the role.  Kath brings extensive public company experience in senior finance roles across a range of industries with operations in international markets.

The acquisition of GP Strategies brought 4,000 new colleagues, alongside LTG's 1,100 people.  Given the scale of this cultural integration, we decided to hire a new Chief People Officer with large, global company experience.  Liz Freedman will join us on 23 May 2022, arriving from IHG Hotels & Resorts 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 brings 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.  I look forward to welcoming her to LTG's Executive Team.

Environmental, Social and Governance (ESG)

What we provide to our customers enables them to manage and develop their human capital and is therefore fully aligned with ESG principles. We also focus on our own performance, including environmental sustainability. We report on our scope 1, 2 and 3 Greenhouse Gas (GHG) emissions and there was a 17% decrease in our total GHG emissions in 2021.  In part, this was due to the mitigating actions taken, as well as the impact of reduced office use during COVID-19.  While our GHG emissions will increase in the short term, due to our significantly increased scale following the acquisition of GP Strategies, we have now committed to an ambition of Net Zero by 2050, or sooner.  During 2022, we will be developing actions to support this ambition and we will provide an update in our 2022 results.

Update on Russia

Thankfully, LTG has no staff or contractors based in Russia or Ukraine and we do minimal business in either market.  In response to the conflict, we have decided not to conduct business with any customer which is Russian domiciled or predominantly Russian owned.

Outlook

2021 was another exciting and successful year for LTG.  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 is progressing ahead of plan and enables us to upgrade our margin expectation for FY 2022. The enlarged Group provides a platform to capture a greater proportion of the circa $100 billion and growing addressable market in digital learning and talent management. Following the acquisition we have a deeper offering to serve a global customer base facing greater complexity and change, creating further margin enhancement and cross-sell opportunities for LTG.

Current trading in Q1 2022 is strong, in line with management expectations.  While mindful of the current macro environment, strong business momentum has continued into the new financial year and we have a robust balance sheet that will support further software company acquisitions in due course, underpinning the Board's confidence of significant progress in FY 2022.

Jonathan Satchell

Chief Executive

29 April 2022

Chief Financial Officer's Review

Revenue

The Group's revenue increased by 95% to £258.2 million (2020: £132.3 million).  This included organic revenue growth of 8% and the initial contributions from Bridge, Reflektive, PDT Global, Moodle News and GP Strategies, which were acquired during the year.  These favourable impacts were partially offset by adverse currency translation of £8.8 million.

There was 2% organic revenue growth in the Software & Platforms division.  This comprised the expected lower revenue in the more mature PeopleFluent talent management product line, which is focused on large and complex corporate customers, being more than offset by continued strong growth from the Rustici e-learning standards business, growth in Open LMS, a combination of three open-source software companies acquired in 2020 and strong growth in Breezy HR, a leading edge talent acquisition platform.

Organic revenue growth in the Content and Services division was strong at 25%, driven by a recovery in demand through the year with revenue now back at 2019 levels, as expected.   All businesses in the division delivered organic growth with a particularly strong performance from LEO and PRELOADED, the Group's digital learning specialists with content and design capabilities.  Affirmity, the US-market leader in affirmative action planning, also delivered strong organic growth.  This included the benefit from a renewed focus on retaining existing customers, as well as new client wins, and there have been some encouraging cross-selling wins with PDT Global, which was acquired in the first quarter of 2021.

SaaS-based subscription and long-term contract revenue was 75% (2020: 81%) of total Group revenue, reflecting a change in revenue mix primarily from GP strategies.

Adjusted Earnings Before Interest and Tax (EBIT) and Operating Profit

Adjusted EBIT⁸ increased by 36% to £54.8 million (2020: £40.3 million), driven by the contribution from acquisitions and organic revenue growth.  The Group's adjusted EBIT margin was lower as anticipated at 21.2% (2020: 30.5%), including the initial contribution from GP Strategies, a service-related business, which has a lower adjusted EBIT margin.  In addition, the 2021 Bridge and Reflektive acquisitions were loss-making when acquired and there was an overall lower margin portfolio mix resulting from varying growth rates across the business.

In the short term, there will be an adverse impact from the lower GP Strategies' margin with an expected gradual improvement, in part driven by efficiencies and synergies and from incremental returns due to operational leverage.   We intend to continue to invest in the business on an organic basis to drive revenue and adjusted EBIT with the aim of delivering Group adjusted EBIT margins of around twenty per cent in the medium term. 

Included within adjusted EBIT was a share-based payment charge which increased to £5.2 million (2020: £3.3 million), of which £1.2 million relates to the grant of new options to Executive Directors, and the remainder as a result of new, unapproved options issued during the year.

Also included within adjusted EBIT was an amortisation charge for internally generated development costs which increased to £5.6 million (2020: £4.2 million), as set out in Note 10.  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's statutory operating profit was £11.7 million (2020: £14.9 million), with adjusting items of £43.1 million (2020: £25.5 million), which included:

 Goodwill and other intangible assets arising on business combinations are recognised as a result of the purchase price allocation on acquisition of subsidiaries.  While goodwill is not amortised, other intangible assets acquired are amortised over their useful economic lives.  The increased amortisation charge was driven by increased acquired intangible assets, comprising software and IP, customer contracts and relationships and branding assets.

The costs of acquiring and integrating subsidiaries purchased in the year or in prior periods.  In 2021, this includes £6.1 million costs of acquisition and £4.0 million of integration costs, primarily related to acquisitions completed in the year. Within integration costs was £2.9 million relating to GP Strategies, which includes costs relating to the senior management reorganisation in late 2021, as well as legal, insurance and audit costs related to the transaction.

The cost of contingent earn-out mechanisms included in the purchase agreements of business combinations in the year, relating to eThink, eCreators, PDT Global and Breezy HR, 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.  In 2020, this charge related primarily to Breezy HR.

The net foreign exchange gain arose from the movement in the USD/GBP exchange rate relating to cash held specifically for the GP Strategies acquisition.  In 2020 the net foreign exchange loss was related to the acquisition of Open LMS, reflecting the movement in the USD/GBP exchange rate between the revolving credit facility being drawn and completion of the acquisition.

The impairment charge relates to an onerous lease inherited from the acquisition of Reflektive in 2021.  On acquisition, the Group was required to measure the right-of-use asset arising from the lease as an amount equal to the lease liability.  As the office space has been vacated, with the Group unable to successfully sub-let it, it has immediately impaired the right-of-use asset.

For details of the items excluded from statutory operating profit, see Note 5.

Divisional Review

Following the acquisition of GP Strategies, we have disclosed this entity as a separate division within the business. 

Software & Platforms

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

Software & Platforms comprised 51% (2020: 76%) of 2021 Group revenue.  On a proforma basis, assuming a full year revenue contribution from Bridge, Reflektive and GP Strategies, Software & Platforms would represent 25% of Group revenue.

Revenue increased to £130.5 million (2020: £100.0 million) largely reflecting organic growth of 2% and the initial contributions from Bridge and Reflektive, which were purchased in the first quarter of 2021. Excluding the more mature PeopleFluent, organic growth was 17%.  In addition, this division was impacted by adverse currency translation of £7.2 million.

The organic result was driven by continued strong growth from Breezy HR, the division's cloud-based software product for talent acquisition for small and mid-size customers.  In addition, there was also continued strong organic growth from the Rustici e-learning standards business, as it continued to benefit from increasing demand for digital learning tools from new customers and from existing customers purchasing extra functionality.  The Open LMS business, a combination of three companies acquired in 2020, also delivered growth with customers continuing to benefit from its open-source software.  This uses a platform that is customisable to specific needs with customers including universities and educational establishments.

Partially offsetting this, revenue in the more mature PeopleFluent talent management product line, an integral part of the Group's differentiated software offering, was lower as expected.  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 those with less complex needs will migrate over the coming years to the division's fast-growing talent management solutions, including Bridge.  Accordingly, we are bringing together our complementary talent related brands, including PeopleFluent, Bridge, Breezy, Reflektive, Gomo and Instilled, to form a new Talent Solutions division, enabling an enhanced go-to-market strategy.

In 2021, 97% (2020: 97%) of the revenue in Software & Platforms was related to SaaS-based subscriptions and long-term contracts.

Adjusted EBIT increased in the year to £36.4 million (2020: £32.2 million) driven by the 2021 acquisitions of Reflektive and Bridge and the full year contribution from Open LMS, which was acquired in 2020.  Underpinning this was a strong performance from Breezy HR and Rustici which was partially offset by the lower performance in PeopleFluent.  The adjusted EBIT Margin was 27.9% (2020: 32.2%) driven by a combination of lower EBIT margins from Bridge and Reflektive due to being loss making upon acquisition, and now profitable, and a lower margin portfolio mix as new and growing businesses are partially offset by PeopleFluent.

Statutory profit before tax was £5.8 million (2020: £8.9 million) after deducting adjusting items including amortisation of acquisition-related intangible assets, acquisition and integration costs, acquisition-related contingent consideration and earn-out charges and impairment of right-of-use assets.

Demonstrating PeopleFluent's continuing customer relevance, an existing customer, a global technology company based in the US, expanded its use of the PeopleFluent compensation system.  Using PeopleFluent, it paid salary, bonus and other variable compensation remuneration to its global employee population for the first time, disbursing some $5 billion in total. 

We successfully deployed in 2021 our Reflektive performance product to a global investment bank with some 40,000 employees worldwide, representing a highly successful large enterprise deployment of this product line.

During 2021 and following a rigorous tender process, Open LMS along with partner Seidor, was selected to provide the learning management system for the Universidad Nacional de Educacion a Distancia.  This is the largest university in Spain and second largest in Europe, with more than 200,000 students.  It continues Open LMS' growth in Spain, where customers include University of Barcelona, University Pompeu Fabra, and Universidad Pontifica Comillas.

Content & Services

The Content & Services division includes LEO and PRELOADED. LEO is the Group's innovative digital learning consultancy, strategy, and content generation specialist, whereas PRELOADED is LTG's highly-regarded games studio. The division also includes PDT Global, a leading provider of diversity and inclusion training solutions, which operates alongside Affirmity, LTG's affirmative action specialist.

Content & Services comprised 17% (2020: 24%) of 2021 Group revenue.  On a proforma basis, assuming a full year revenue contribution from PDT Global and GP Strategies, Content & Services would represent 8% of Group revenue.

Revenue increased to £44.8 million (2020: £32.2 million) largely reflecting organic growth of 25% and the initial contribution from PDT Global, which was purchased in the first quarter of 2021.  There was growth from all businesses in the division, with a particularly strong performance from LEO and PRELOADED.  These were partially offset by adverse currency translation of £1.6 million.

LEO's strong organic result was driven by a recovery in demand through the year.  Within the organic result LEO benefited from significant increases in work for a blue-chip, international bank and, following an initial contract award in 2020, from a well-known international consultancy practice.

Adjusted EBIT also increased to £10.6 million (2020: £8.0 million), driven by the contribution from increased revenue and the initial contribution from PDT Global. The adjusted EBIT margin was 23.7% (2020: 24.9%) reflecting a change in portfolio mix.

Statutory profit before tax was £5.0 million (2020: £4.5 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.

LEO's market is anticipated to benefit from the ongoing move to on-line learning over the medium term, following COVID-19, as large corporates look 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. 

Affirmity, the US-market leader for affirmative action planning, also delivered strong organic growth.  This included the benefit from a new focus on existing customers, new client wins and cross-selling wins from PDT Global, which as a leading international provider of diversity and inclusion training solutions, brings complementary offerings to Affirmity.

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.  Clients include Fortune 500 companies, automotive, financial services, technology, aerospace and defence industries, and other commercial and government customers. 

*Acquired 14 October 2021.

GP Strategies comprised 32% (2020: nil) of 2021 Group revenue.  On a proforma basis, assuming a full year revenue contribution from all acquisitions made in 2021 GP Strategies would represent 67% of revenue.

The acquisition of GP Strategies completed on 14 October 2021 and post-completion revenue was £82.9 million (2020: £nil). The strength of its global business model was demonstrated with significant, new post-acquisition awards from blue-chip customers in Asia, the Middle East and South America.

In 2021, 68% (2020: n/a) of the revenue in GP Strategies was from long-term contracts.

Post-acquisition adjusted EBIT was £7.7 million (2020: £nil), resulting in an adjusted EBIT margin of 9.2% (2020: n/a).  The expected post-acquisition margin increase is ahead of schedule, driven by the swifter than anticipated improvement in operational performance as management actions, including enhancing controls, reducing costs, and increasing staff utilisation rates, show early results.  Work is ongoing, and we remain confident GP Strategies will achieve a low double-digit adjusted EBIT margin in FY 2022, with the run rate adjusted EBIT margin at the end of 2022 expected to be in the mid-teens per cent. 

The statutory loss before tax was £1.6 million (2020: nil) after adjusting items including amortisation of acquisition-related intangible assets, acquisition and integration costs and a net foreign exchange gain.

The quality of the customer service provided by GP Strategies within its embedded relationships is demonstrated, with the business being awarded Supplier of the Year by General Motors in the US for a fifth 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 continues to be high.

We are encouraged by this early progress and GP Strategies' management remains on track to deliver against initial targets.  These include embedding new ways of working and supplier rationalisation by the end of H1 2022 and the launch of a combined customer offer by the end of H2 2022.

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

Net Finance Charge and Profit Before Tax

The net finance charge was £2.3 million (2020: £1.4 million), with the increase driven by the higher average level of debt in the year, due to acquisition-related cash outflows. 

After the net finance charge, adjusted profit before tax was £52.4 million (2020: £38.9 million) and statutory profit before tax was £9.3 million (2020: £13.5 million).

Taxation Charge

The adjusted tax charge was £12.7 million (2020: £8.2 million), resulting in a tax rate of 24% (2020: 21%).  The statutory tax credit was £5.6 million (2020: £3.9 million credit).

Previously the Group had adopted a prudent approach by placing valuation allowances against deferred tax assets arising in the US. The Group did not recognise these assets in 2020 but subsequently finalised computations with allocation of losses and other timing differences that enabled amounts to be claimed in respect of 2020. It is now clear that the Group will make sufficient profits to enable it to further utilise these assets in 2021 and future periods, resulting in credits to prior years corporation tax and deferred tax of £4.7m and £7.6 million respectively.

The Group has recognised the balance of net deferred tax assets carried forward, other than losses, of £4.7 million, but continues to adopt a prudent approach in respect of the balance of losses carried forward of £25.4 million.  The losses remain with valuation allowances applied pending completion of a tax study to confirm their availability in future, hence these losses have not been recognised as an asset at this stage. The Group anticipates completion of the study prior to the filing of the 2021 tax return during 2022.  Further details are provided in Notes 6 and 14.

The tax impact of the adjusted basic earnings per share is stated primarily after adjusting for deferred tax on the amortisation of acquired intangibles, earnouts, integration costs, tax deductible goodwill and recognition of prior year deferred tax assets.

Earnings per Share

Adjusted diluted EPS increased to 5.010 pence (2020: 4.294 pence), driven by the increase in adjusted EBIT.  This was partially offset by the higher average number of shares outstanding, following the equity placings in May 2020 and July 2021.

On a statutory basis, basic EPS decreased to 1.959 pence (2020: 2.450 pence). In addition to the factors set out above for adjusted EPS, this also reflected the increase in adjusting items.

Cash Generation

Net cash flows from operating activities were £37.5 million (2020: £39.9 million).  This is equivalent to an adjusted operating cash flow conversion rate of 76% (2020: 85%).  The adjusted operating cash flow is net operating cash flows after adjusting for acquisition-related contingent consideration and earn-out payments, transaction and integration costs, interest and tax paid and payments of lease liabilities, expressed as a proportion of adjusted EBITDA.

There was a cash outflow of £11.6 million (2020: £4.3 million) from working capital with increased trade and other receivables and amounts recoverable on contracts, partially offset by increased payables in the year.  Driving this, debtor days increased marginally to 91 days (2020: 87 days) and combined debtor work-in-progress and deferred income days (combined days) increased to 57 days (2020: minus 48 days), reflecting the change in portfolio mix following the acquisition of GP Strategies. The combined days metric benefits from payments being received annually in advance for recurring software licences.  

Net corporation tax payments increased to £9.4 million (2020: £3.4 million), with net finance payments of £0.3 million (2020: £0.6 million).

There were cash outflows from investment activities of £320.2 million (2020: £45.2 million).  These primarily comprised payments, net of cash acquired in 2021 relating to the acquisitions of Bridge, Reflektive, PDT Global, Moodle News and GP Strategies of £311.2 million (2020: £39.0 million).  In 2020, acquisitions comprised Open LMS, eCreators, eThink, Patheer and JCA.  In addition, there was £8.4 million (2020: £6.1 million) of outflows relating to capitalised investment in internally generated IP, as well as £0.6 million (2020: £0.1 million) from investment in property, plant and equipment.

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.  Included in the acquisition-related cash outflows were intangible assets of £309.4 million, including goodwill of £176.5 million, as well as other net assets and liabilities of £36.0 million at fair value. Further details are set out in note 9.

Net cash inflows from financing activities were £277.6 million (2020: £53.2 million).  This was driven by net proceeds from borrowings of £203.7 million (2020: net payment £18.5 million), comprising £221.8 million (2020: £18.1 million) proceeds from borrowings, net of £18.1 million (2020: £36.6 million) repayment of bank loans.  The proceeds from borrowings relate to the acquisition of GP Strategies, which was partly funded by $305 million of incremental debt financing, with further details on the Group's current debt facilities within 'Net Debt and Gearing' below.

In addition, there were £85.6 million (2020: £80.6 million) of proceeds from the issue of ordinary share capital, net of share issue costs.  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.  In 2020, this related to the May equity placing and the exercise of employee stock options. 

Offsetting these items, there were also payments for lease liabilities of £4.4 million (2020: £2.9 million), interest of £0.7 million (2020: £0.4 million), as well as deferred contingent consideration of £0.5 million (2020: £0.1 million) relating to the Breezy HR and Watershed acquisitions, and dividends of £6.1 million (2020: £5.5 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 takes into account 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.

Given the robust operational performance during the year, the Board is recommending a final dividend of 0.7 pence per share (2020: 0.5 pence). The total cash cost of the final dividend is approximately £5.5 million.

Together with the interim dividend of 0.3 pence, this gives a total dividend for the year of 1.0 pence, an increase of 33% on the prior year. 

If approved, the final dividend will be paid on 21 July 2022 to all shareholders on the register at 1 July 2022.

Net Debt and Gearing

At 31 December 2021, the Group's net debt was £141.4 million (31 December 2020: £70.2 million - net cash), excluding £21.8 million (31 December 2020: £10.3 million) of lease liabilities.

The Group's net debt comprised £225.3 million of debt (31 December 2020: £18.4 million) and £83.9 million of cash (31 December 2020: £88.6 million).

On the acquisition of GP Strategies, the existing debt facility with Silicon Valley Bank ('SVB') was repaid and a new facility with SVB, Barclays Bank, Fifth Third Bank, HSBC UK Bank, and the Bank of Ireland was entered into. This is made up of two variable rate committed term loans.  The Term Facility A of $265.0 million (£196.3 million at the year-end exchange rate) is available to the Group until October 2025 with the Term Facility B of $40.0 million (£29.6 million at year-end exchange rates) available to the Group until April 2022. The Term Facility B was repaid in March 2022. The facilities also include a $50.0 million (£37.0 million at year end exchange rates) Revolving Credit Facility and a $50.0 million (£37.0 million at year-end exchange rates) uncommitted accordion, both available to July 2025.  For further details of the Group's debt facility see Note 17.

The Group's covenant basis net debt/adjusted EBITDA ratio was 1.8 times (2020: n/a). 

Prior Year Adjustment

We have identified the need to make a correction to the presentation of the 2020 and 2019 balance sheets where trade receivables and contract liabilities (deferred income) of £6.2 million at 31 December 2020 and £7.4 million at 31 December 2019 had been presented 'gross' but should have been presented 'net,' in accordance with IFRS15. This relates to the timing of recognition of trade receivable balances which are not due for payment until the following year and revenue recognition has not commenced.

The Group has restated the presentation of the balance sheet and cash flow statement for the year, to reflect this requirement.  For details of the presentational changes made, refer to note 3.

The presentational changes made have no impact on reported revenue, profit, net assets or cash generation in the year.

Balance Sheet

The Group has a strong balance sheet with total shareholder equity of £371.3 million at 31 December 2021 (31 December 2020: £269.1 million), reflecting the acquisition of GP Strategies and the other 2021 acquisitions. This is equivalent to 47.1 pence per share (2020: 26.2 pence per share).

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.  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 KPI's, 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

29 April 2022