Half-year Results

MindGym (AIM: MIND), the global provider of human capital and business improvement solutions, announces its half year results for the six months ended 30 September 2023.

1 Adjusted EBITDA represents the underlying level of profit/ (loss), excluding exceptional items. In H1 FY24, exceptional items totalled £7.7m (H1 FY23: £nil), comprised of: digital asset impairment £6.6m, US office lease impairment £0.5m and restructuring costs £0.6m.

Financial Highlights

• H1 FY24 revenue of £20.9m (H1 FY23: £26.8m) impacted by economic headwinds, resulting in delays and cancellations in Q2, which have affected the whole industry, particularly in the US

o In the US, revenue declined by 33% to £11.1m (H1 FY23: £16.7m), impacted by general market weakness, notably in the technology sector

o In EMEA, performance was resilient with revenues of £9.8m (H1 FY23: £10.1m). £2.0m of expected revenue moved into H2 FY24, resulting from a delay to the start of our large energy framework, which launched successfully in September

• Digitally enabled revenue, as a proportion of total revenue in the period, was broadly flat at 69% (H1 FY23: 71%) reflecting a small increase in the proportion of face-to-face delivery
• Completed an annualised £8.0m cost reduction exercise, of which £3.0m will impact FY24:

o Opex reduced by an annualised £4.5m, generating savings from H2 FY24 onwards and leading to a £1.1m exceptional restructuring charge

o Capex reduced by an annualised £3.5m to an anticipated £2.5m in FY25. This focuses investment on digital assets which are already revenue generating, with other activities paused. This resulted in a one-off, non-cash, impairment charge of £6.6m

• The Group has adequate liquidity, with cash at 30 September 2023 of £2.1m (31 March 2023: £7.6m) and immediate access to £2.0m of its undrawn £10.0m debt facility, which it does not expect to utilise

Operational Highlights and Board Changes:

• Following consultation with major shareholders, the Board has separately announced changes which reflect the planned evolution to the next stage of MindGym's growth and transition away from a founder dependent business:

o Christoffer Ellehuus to join MindGym as CEO designate on 8th January 2024 with the intention to join the Board and transition to CEO by the time of the FY24 AGM

o Octavius Black will move to Executive Chairman as part of a broader Board restructure to retain strong corporate governance and support delivery of MindGym's strategy

MindGym continues to bring innovative products to market:

o Awarded the prestigious Brandon Hall award for work with Burberry using Performa

o The recently acquired organisational diagnostics platform is now in trial with two clients

o Three awards won with the Association of Business Psychologists for our three year, multi million GBP work with Citi, utilising our new 'habit-lab' approach to culture change

o Launched the Point of View: 'Wellworking: how we can all be better at work', with a foreword by Amy Edmondson, Professor of Leadership at Harvard Business School. This has already been instrumental in securing a new contract with an estimated value of c. £0.8m

Current Trading & Outlook

• The Company is trading in line with the Board's recently revised expectations for the full year
• H2 FY24 will see a significant benefit from the Energy framework, which was successfully launched in September 2023, and continues through FY25
• Six-month forward bookings at the start of H2 FY24 are higher than the same position twelve months ago.
• There has been substantial growth in the pipeline in both regions, including a number of multi-year and multi-million pound frameworks
• The level of the pipeline benefit on H2 FY24 is dependent on the speed of decision making and the rate at which clients mobilise. We note that:

o Since the start of October, there have been several notable project wins in EMEA

o Conversion of opportunities in the US remains slow

• Combined with the impact of the revised cost base, this will enable a return to strong profitability in H2 FY24
• The Group continues to target a medium-term EBITDA margin of 15% to 20%.

Analyst and Investor Webcast

The Company will host a webcast and conference call for analysts and investors at 9:00am BST today. Please contact mindgym@mhpgroup.com for further information.

Octavius Black, Chief Executive Officer of Mind Gym, said:

"We have had a challenging first half of FY24, with tough market pressures brought on by significant client restructures, especially in the US technology sector. These have led to programme delays and cancellations. We have responded by rapidly realigning the cost base and focusing capital expenditure on digital assets which are already revenue generating.

"Moreover, recent wins and strong pipeline growth with several significant £1m+ opportunities in healthcare, industrial and financial services, means we are confident of a significant improvement in financial performance in the second half of FY24.

"We have the right strategy, based on providing integrated solutions that deliver impact at scale. The opportunity for MindGym in this large and disaggregated market, remains strong."

Operational Review

While trading conditions during H1 FY24 have been challenging, the Company is well-positioned for future success. Businesses continue to operate in a tight labour market with a shortage of skills driving a commercial necessity to invest to attract, retain and develop talent. There is no scale player in the highly fragmented $370bn Learning & Development market and MindGym offers a standout proposition in culture, leadership and productivity with 23 years of proprietary IP, clients who include most of FTSE-100 and S&P-100, and an omnichannel solution that integrates live, virtual and digital, fuelled by data.

Board changes:

As announced separately today, Christoffer Ellehuus will join MindGym as CEO designate on 8th January 2024, transitioning to CEO by the time of the AGM in July 2024 when Octavius Black will transition to Executive Chair and Ruby McGregor-Smith's three year term as Chair ends. In conjunction, a broader Board restructure will be undertaken to retain strong corporate governance, providing the right balance of skills, experience and independence and supporting delivery of MindGym's strategy.

Improvement in pipeline and conversion:

Despite the challenging conditions experienced during H1 FY24 there has been strong pipeline growth in both regions since the end of the period, including an increasing number of opportunities of £1m-£10m in value. Whilst conversion of opportunities in the US remains slow, there have been several notable project wins recently in EMEA, which will primarily benefit FY25, with FY24 impact dependent upon final agreed project phasing.

Developing market leading products

MindGym continues to bring innovative products to market, which are meeting with client approval:

• In H1 FY24 we have seen a 31% uplift in the number of users utilising our Performa product. We were recently awarded the prestigious Brandon Hall award for our work with Burberry who used Performa as an integrated part of their MindGym leadership programme;
• The Company's proprietary organisational diagnostics delivered on our new platform is now in trial with two clients and receiving positive feedback; and
• We have had success with our new 'habit lab' approach to culture change, working with Citi on a multi-million, 3-year programme, which recently won three awards at the prestigious Association of Business Psychologist's awards. Several other clients are in conversations with the Company about adopting 'habit labs' for their culture change initiatives.

New wellness market opportunity

The global market for corporate wellbeing is estimated at £50bn and forecast to grow to £70bn[1] by 2030.

MindGym has launched a new point of view in a research paper 'Wellworking: how we can all be better at work' with a foreword by Amy Edmondson, Professor of Leadership at Harvard Business School. This has already been instrumental in securing one new contract with an estimated value of almost £1m and the Board expects this to be a driver of future growth.

Outlook

The Company is trading in line with the Board's recently revised expectations for the full year. We started H2 FY24 with higher forward bookings than at the same point in the prior year. We have also seen substantial growth in the pipeline in both regions, including a number of multi-year, multi-million pound frameworks, which will impact both FY25 and H2 FY24. The level of pipeline impact on H2 FY24 will depend on the speed of decision making and the rate at which clients mobilise once decisions are taken.

Whilst US conversion of opportunities remains subdued, several recent wins in EMEA, together with the ramp up of activity under our major energy framework provide increased confidence that we will see a step change in revenues vs. H1 FY24. This, coupled with the impact of the revised cost based will enable a return to strong profitability in H2 FY24, and into FY25. The Group continues to target a medium term EBITDA margin of 15% to 20%.

Financial Review:

Revenue and Gross Margin

Revenue in H1 FY24 was £20.9m, a reduction of 22% on the equivalent period in the prior year (H1 FY23: £26.8m), impacted by economic headwinds. In Q2, these trading conditions resulted in several clients and prospective clients undergoing major restructuring programmes and showing caution in committing to new spend. This both pushed out the timeframe for the delivery of existing programmes and resulted in delays to the procurement of new projects.

The effects of this were more pronounced in the US, where MindGym's client base, especially in the technology sector, were particularly affected. As a result, revenue in the Americas declined by 33% to £11.1m (H1 FY23: £16.7m).

In EMEA, performance was more resilient, where revenue declined 3% vs. prior year to £9.8m (H1 FY23: £10.1m). £2m of expected revenue slipped into H2 FY24, resulting from a delay to the start of our large energy framework, which launched successfully in September.

Digitally enabled revenue in the period was broadly flat at as a proportion of total revenue at 69% (H1 FY23: 71%) reflecting a small increase in the proportion of face-to-face delivery.

Revenue from the Group's top 25 clients increased slightly to 48% (H1 FY23: 40%) in line with the trend towards a greater proportion of opportunities of scale.

Gross margin declined slightly to 85.4% (H1 FY23: 87.5%), reflecting the change in revenue mix from Design and Advisory to Delivery in the period.

Administrative Expenses

In response to the reduction in revenue, management reacted during the period to realign the cost base and preserve cash. Since the start of FY24, annualised cost reductions of £8.0m have been implemented (£4.5m in operating expenditure and £3.5m in capital expenditure). The benefit of these savings will have an impact of c.£3m on H2 FY24, with the full year benefit in FY25.

These actions resulted in an exceptional charge during the period of £7.7m comprising:

• Digital asset impairment £6.6m: This is outlined in the Digital Asset Impairment section below;
• Impairment of lease on US office £0.5m: With a greater proportion of the team working remotely, the decision was taken during the period to vacate a proportion of the office. Directors are exploring opportunities to sub-let this space, however, with no certainty over any recovery from such sub-letting and with a proportion of the office not now being utilised, an impairment charge in respect of that proportion of the lease has been applied in the period. The pre-COVID £0.8m annual cost of this office will end in February 2025, and be replaced by a significantly cheaper alternative; and
• Restructuring costs £0.6m: Reflecting headcount reductions.

Net of these exceptional items and depreciation and amortisation of £1.4m (H1 FY23: £1.3m), underlying administrative expenses of £22.0m, represented a below inflation increase of 2% on the prior period (H1 FY23: £21.5m).

Excluding the exceptional restructuring cost of £0.6m, employee costs rose 2% to £17.6m in the period (H1 FY23: £17.2m). This reflected average employee numbers of 358, an increase of 10% on the equivalent period in the prior year, following an increase in employee numbers during FY23. The period end employee number of 349, however, represented a 6% reduction on the start of the period. Including further savings implemented since the end of the period, the total annualised value of operating cost savings delivered since the start of FY24 is £4.5m.

Digital Asset Impairment

In response to the downturn in Q2 revenue, with the corresponding impact that this has had on the cash position, the directors reviewed the ongoing investment being made across several digital products in development. Following this revsview, the decision has been taken to pause ongoing funding on longer-term opportunities that are not currently revenue generating, primarily relating to the Digital Experience user journey (DXP) and the platform which supports this. This decision will result in an annualised cash reduction of £3.5m in capital expenditure.

A significant proportion of the features and underlying technology built in the development of these assets will be utilised in the integrated products and solutions MindGym continues to deliver to clients. However, since it is now uncertain whether this technology will not now form part of discrete and separately identifiable products in line with IAS38, the directors have taken the decision to fully impair the carrying value of the impacted products. This has resulted in a one-off impairment charge of £6.6m in the period.

Profit/ (loss)

The adjusted EBITDA loss for the period (excluding the impact of the exceptional items) was £4.1m (H1 FY23: £1.9m profit). The adjusted profit/ (loss) before tax was a loss of £5.5m (H1 FY23: £0.6m profit). Including the exceptional adjusting items, the loss before tax for the period was £13.2m (H1 FY23: £0.6m profit).

On an adjusted basis, basic earnings per share for the period were -5.61p (loss) (H1 FY23: 0.83p) and diluted earnings per share were -5.61p (loss) (H1 FY23: 0.84p). On an unadjusted basis earnings per share for the period were -11.34p (loss) (H1 FY23: 0.83p) and diluted earnings per share were -11.34p (loss) (H1 FY23: 0.84p).

Cash

Despite the loss in the period, the Group has adequate cash liquidity. Cash at bank at 30 September 2023 was £2.1m, a reduction of £5.5m from the year-end balance at 31 March 2023 of £7.6m. Further to this, MindGym retains immediate access to £2.0m of its undrawn £10.0m debt facility.

MIND GYM PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Items that may be reclassified subsequently to profit or loss

The Board of Directors approved these condensed interim financial statements on 30 November 2023.

MIND GYM PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Cash and cash equivalents at the end of period comprise:

MIND GYM PLC

NOTES TO THE GROUP FINANCIAL STATEMENTS

General information

Mind Gym plc ("the Company") is a public limited company incorporated in England & Wales and its ordinary shares are traded on the Alternative Investment Market of the London Stock Exchange ("AIM"). The address of the registered office is 160 Kensington High Street, London W8 7RG. The group consists of Mind Gym plc and its subsidiaries, Mind Gym (USA) Inc., Mind Gym Performance (Asia) Pte. Ltd and Mind Gym (Canada) Inc. (together "the Group").

The principal activity of the Group is to apply behavioural science to transform the performance of companies and the lives of the people who work in them. The Group does this primarily through research, strategic advice, management and employee development, employee communication, and related services.

Basis of preparation

The condensed interim financial statements have been prepared in accordance with the requirements of the AIM Rules for Companies. As permitted, the Company has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing this interim financial information. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 March 2023, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, including interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"), and with the Companies Act 2006 applicable to companies reporting under IFRS. The unaudited interim financial information does not constitute statutory accounts within the meaning of the Companies Act 2006. This interim report, which has neither been audited nor reviewed by independent auditors, was approved by the Board of directors on 30 November 2023.

Statutory accounts for the year ended 31 March 2023 were approved by the Board of Directors on 12 June 2023 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

The interim financial statements have been prepared on a going concern basis under the historical cost convention.

The interim financial statements are presented in pounds sterling. All values are rounded to £1,000 except where otherwise indicated.

The accounting policies used in preparing the interim results are the same as those applied to the latest audited annual financial statements.

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 normal operating costs of the Group. These costs include restructuring costs and impairment charges.

Segmental analysis

Segment results for the 6 months ended 30 September 2023 (Unaudited)

Segment result

The mix of revenue for the six months ended 30 September 2023 is set out below.

Segment results for the 6 months ended 30 September 2022 (Unaudited)

Segment result

The mix of revenue for the six months ended 30 September 2022 is set out below.

Segment results for the year ended 31 March 2023 (Audited)

Segment result

The mix of revenue for the year ended 31 March 2023 is set out below.

The period end number of Group's employees by function was:

Restructuring costs in the six months ended 30 September 2023 include redundancy costs related to the headcount reduction exercise undertaken to reduce the cost base.

The Group tested right-of-use assets for impairment, and recognised an impairment loss on a leased asset.

Tax

The statutory tax credit of £1,808,000 (six months ended 30 September 2022: credit of £207,000); year ended 31 March 2023: charge of £29,000) represents an effective tax rate on loss before tax of 13.7% (six months ended 30 September 2022: -32%; year ended 31 March 2023: 1%).

During the period, The Company resubmitted the UK tax returns for the years ended 31 March 2022 and 31 March 2023, in order to surrender the Research and Development tax credit for a cash refund. This resulted in a current tax prior year adjustment of £1.9m and corresponding deferred tax prior year adjustment of £3.3m.

Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to shareholders of the Company by the weighted average number of ordinary shares in issue during the year. The Company has potentially dilutive shares in respect of the share-based payment plans (see Note 16).

Dividends

The Board did not propose a final dividend for the year ended 31 March 2023. No interim dividend is proposed for the period to 30 September 2023.

Intangible assets

Development cost additions in the six months ended 30 September 2023 includes software development costs directly incurred in the creation of new digital assets. The Group undertook an impairment review and as a result reflected an impairment charge of £6,604k.

Property, plant and equipment

Non-current assets includes £233,000 (30 September 2022: £257,000; 31 March 2023: £230,000) of prepayments in respect of property deposits.

Trade receivables have been aged with respect to the payment terms as follows:

Borrowings

The Group entered into a £10 million debt facility (£6m RCF, £4m accordion) on 30 September 2021 which matures after 3 years. The facility remains undrawn as at 30 November 2023.

Share capital

Share based payments

The awards granted in the six months to 30 September 2023 are subject to performance conditions based on revenues and EBITDA.

The awards granted in the six months to 30 September 2022 are subject to performance conditions based on revenues and EBITDA. Some awards granted during this time period are time bound only.

The awards granted during FY22 are subject to performance conditions based on revenue, adjusted earnings per share and total shareholder return.

On the 30th September 2019 the Group launched an annual Save As You Earn Scheme and an Employee Share Purchase Plan for all eligible employees in the UK and USA respectively.

The total share-based payments (credit)/expense was:

[1] Grandview Research 2021