Half Year Results

3 December 2024

Mind Gym PLC

("Mind Gym", the "Group" or the "Company")

Half year results for the six months ended 30 September 2024

MindGym returns to EBITDA profit

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 2024.

¹ Adjusted EBITDA represents the underlying level of profit/(loss), excluding exceptional items.  In H1 FY25, exceptional items totalled £nil (H1 FY24: £7.7m).

² Adjusted EBITDA includes £0.1m of other income (H1 FY24: £nil) relating to Research and Development tax relief under the merged scheme.  Previously Research and Development was accounted for as a tax credit under the SME scheme.

Overview

MindGym is in a transition, making our solutions easier to buy, easier to sell and easier to renew.  The business has returned to profitability amidst challenging market conditions for HR services. We are making good progress on our strategic areas of focus launching new diagnostics and AI-based products together with a new set of packaged go-to-market solutions to deliver more sustainable, repeatable revenues.

Financial Highlights - Return to EBITDA profit

·      The Group returned to EBITDA profitability with margins of 4.0% (HY24 adjusted EBITDA loss: margin of -20%) driven by the impact of the cost reduction exercise in FY24.

·      Revenue was broadly flat at -3% (-2% in constant currency) versus H1 FY24, reflecting economic headwinds resulting in cautious buying behaviours and postponed contracts: 

o  Performance in EMEA has been strong with revenues of £12.1m, a 24% improvement versus H1 FY24, benefiting from the multi-year energy framework agreement, which ends in December 2024.

o  In the US, performance was weaker and has been impacted by the challenging market conditions, including a continued reduction in DEI spending, with H1 revenues down 27% to £8.1m (25% in constant currency).  There are early indicators of market recovery with pipeline improvements and average deal size increasing.

·      Significant reduction in overheads reflecting the savings from the prior year cost reduction exercise and operational efficiencies gained in line with our globalised strategy: 

o  Decreased by 42% or £12m year on year, or 23% when excluding the adjusting items in the prior period

o  Since H1, a further £2m in annualised cost savings have been implemented.

·      During the period, MindGym negotiated a new £4m overdraft facility which replaces the existing RCF and reduces ongoing finance costs.  As at 30 September 2024, cash at bank was £0.7m which, combined with access to the £4m overdraft facility, provides the Group with sufficient liquidity.

Strategic and Operational Highlights - New products, platforms and packaged solutions

·      Successfully launched a new diagnostics offering in Q2 with a number of clients, to be followed by additional diagnostics products in H2 laying the foundations for a data and analytics proposition. 

·      Existing solutions are being enhanced by new AI-powered products to further personalise the user experience. These products will include a new AI-based speech coaching platform launching in H2.

·      Moving from a "build" to a "partner" platform strategy, which includes several new platform partnerships signed in early H2 to improve operational efficiency and add new product features and offers.  This includes contracting a new third party coaching platform that will provide a more cost-effective solution and improved features for our clients. This will lead to a £4.4m impairment charge in H2.

·      Expanded our go-to-market strategy with the launch of several new packaged solutions that are expected to deliver multi-year agreements and recurring revenues.

Current Trading & Outlook - Unchanged

·      MindGym's outlook for the full year remains unchanged, with actions taken to eliminate further costs, providing greater resilience and underpinning improved profitability.

·      Headline revenue in FY26 is expected to be slightly lower as a result of the anticipated conclusion of the energy framework agreement in December 2024. However, underlying revenue growth is expected in FY26 and beyond. 

·      The new go-to-market strategy focussed on introducing package subscription offers will lay the foundation for continued and sustainable growth into FY26 and beyond.

·      The Group continues to invest in the strategic objectives and targets a medium-term EBITDA margin of 15% to 20%.

Board Changes

o  Emily Fyffe was appointed as Chief Financial Officer and to the Board during the period.

Analyst and Investor Webcast

The Company will host a webcast and conference call for analysts and investors at 9:00am GMT today. Please contact [email protected] for further information.

Christoffer Ellehuus, Chief Executive Officer of Mind Gym, said:

"MindGym has delivered a resilient performance with a significant improvement in profitability, despite a macroeconomic environment that remains challenging.

We are making good progress on our strategy to productise and digitise our IP, as we evolve the business from episodic training provider to behaviour change partner. This multi-year transformation is making MindGym solutions easy to buy, easy to sell and easy to renew, whilst delivering more sustainable and repeatable revenues."

Enquiries:

About MindGym

MindGym is a company that delivers business improvement solutions using scalable, proprietary products which are based on behavioural science. The Group operates in three global markets: business transformation, human capital management and learning & development.

MindGym is listed on the London Stock Exchange Alternative Investment Market (ticker: MIND) and headquartered in London. The business has offices in London, New York and Singapore.

Further information is available at www.themindgym.com

Operational Review

MindGym is on a multi-year transformation journey to evolve the business from episodic training provider to behaviour change partner, which is setting the Group up to earn more sustainable, repeatable revenues. FY25 is a year of recalibration for the business as it balances positioning the Group for growth while delivering a return to profit.

Trading conditions continued to be challenging in H1 FY25 with cautious buying behaviours leading to delayed contracts, particularly in the US.  H1 revenues of £20.2m were 3% lower than FY24.  Strong performance in EMEA with 24% growth largely offset the reduction in the US, which was down 27% (25% in constant currency). 

Despite the reduction in revenues, the Group achieved a return to profitability at the EBITDA level. 

The Group continues to deliver against its strategy:

Improvement in operational efficiency and resilience:

In H1 the Group continued to simplify and globalise its organisational structure and reduce the cost base.  These activities will continue into H2 and will result in eliminating a further £2m of annualised costs. The streamlined organisation structure, combined with the simplified product offering, builds an operating model that is more sustainable and less key person dependent. 

As anticipated, this journey will take time and the impact of the investments are expected to benefit FY26, with the larger operational efficiencies benefitting FY27 in full.

Integrated packages:

Through H1 FY25, the Company focussed product development on integrated packages which combines MindGym proprietary diagnostics, digital self-directed and live deliveries aligned with our strategy to make our solutions easier to buy, easier to sell and easier to renew.

·      According to a study conducted by MindGym of 200 CHRO's, 58% say enhancing workforce productivity is a top priority for 2024¹.  The business has launched two packaged products in response to this market need.  The first packaged product, "Discover and Drive: Wellworking", is targeted at helping our clients drive sustainable employee productivity by leveraging a combination of our new proprietary employee diagnostic together with our proven training products and application tools. A separate manager package is targeted at helping managers have difficult performance conversations and will feature a new AI conversation coaching tool.  This will be launched in early Q4.

·      In November, the Group also launched a new licensed IP Package for clients who have their own in-house certified MindGym coaches and want more flexible access to MindGym's proven content.  This allows clients to access MindGym's proprietary IP over a license period of one to three years and offers greater flexibility to use the content, separate to our facilitation, and embed MindGym content in the clients' learning journeys.  This will lead to stickier client relationships and ultimately sustainable, recurring revenues.

Strategic partnerships:

In early H2 MindGym has secured significant partnerships to drive operational efficiencies and improve the scalability of the MindGym offering, signing new vendor agreements for:

·      A new third party coaching platform that in combination with MindGym's scalable Precision Coaching solution provides a seamless, integrated experience for clients seeking high-quality, scalable coaching interventions via our network of accredited coaches.  This partnership is a more cost-effective solution and provides our clients with more features and a better user experience compared to our internally developed Performa platform.  This will lead to a £4.4m impairment charge in H2 largely relating to the Performa platform and associated assets.

·      A comprehensive Training Management System (TMS) designed to manage complex training needs more efficiently and allow us to scale operations. The system will handle all aspects of MindGym's training logistics, from scheduling and resource management to communication and tracking outcomes. The platform will also provide a new capability for MindGym to host IP subscription materials or create learning journeys for clients. It will integrate with other business tools and systems allowing for a streamlined solution that creates for more efficient operations.

·      An AI communication coaching tool, which will be powered by MindGym IP and sold as part of an Integrated MindGym solution targeted at helping line managers have difficult performance conversations. 

Marketing strategies:

MindGym continues to build a digital marketing infrastructure that will allow us to better target new business client opportunities and increase in-bound lead-flow. These efforts will also include launch of a new client facing website to be released in Q4, which will allow MindGym to more clearly communicate to clients who we are, what we do and how we differentiate.

The Group has also focussed on ways to engage key buyers in the market, including the launch of MindGym's Talent Leaders Network, a by-invitation-only network for global heads of talent management at the world's leading organisations.  This network has been launched in London and the New York chapter will launch in January.  The network is growing and initial activities have targeted over 100 heads of talent management.

Financial Review:

Revenue

Revenue in H1 FY25 was £20.2m, broadly flat at -3% on the equivalent period in the prior year (H1 FY24: £20.9m):

·      In EMEA, performance was strong with revenues increasing by 24% to £12.1m (H1 FY24: £9.8m).  This was helped by the multi-year energy framework agreement, which has delivered revenues above expectations as a result of an extension beyond the initial 2-year term, concluding in December 2024.  Underlying performance, excluding the framework agreement, is broadly flat at -3%.  We expect to see a return to underlying growth in this region in H2.

·      In the US, revenue decreased by 27% (25% in constant currency) to £8.1m (H1 FY24: £11.1m).  This was driven by a sustained reduction in client spend, particularly in DEI initiatives.

Gross margin

Gross margin declined slightly to 84.9% (H1 FY24: 85.4%), reflecting the increase to delivery revenue mix in the period.

Administrative Expenses

Overheads of £18.0m decreased by 42% (H1 FY24: £31.0m) or 23% when excluding the adjusting items in the prior period, reflecting the savings from the prior year cost reduction exercise and operational efficiencies gained in line with the globalised strategy.  Prior period adjusting items of £7.7m included the digital asset impairment, impairment of the US office lease and restructuring costs.  The average headcount reduced from 358 to 264 in the six months to 30 September 2024, a 26% reduction.  Further savings have been implemented since the end of the H1 period, expected to deliver annualised savings of £2m. The National Insurance increase announced in the Autumn budget by HMRC comes into effect in FY26 and steps will be taken to mitigate the impact of this.

Share based payments were a credit of £0.1m, impacted by the reversal of historic charges due to reduced employee numbers and reduced likelihood of achieving stretch performance conditions.  Awards to management, including performance conditions and timebound options, were granted in August 2024.

Depreciation and amortisation increased slightly to £1.5m (H1 FY24: £1.4m), driven by the launch of the new Diagnostics product in Q2 FY25.

Profit/(loss)

The EBITDA profit for the period was £0.8m (H1 FY24: £4.1m loss excluding the impact of the exceptional items).  The loss before tax was a loss of £0.9m (H1 FY24: £13.2m loss).  The comparative period loss excluding the impact of exceptional items was £5.5m.  There were no adjusting items in the six months to 30 September 2024.

Basic loss per share in the period was 0.79p (H1 FY24: 11.34p loss).  Adjusted loss per share was 0.79p (H1 FY24: 5.61p loss).

Cash

Cash at bank at 30 September 2024 was £0.7m, a reduction of £0.7m from the year-end balance at 31 March 2024 of £1.4m.  MindGym's liquidity position is bolstered by immediate access to the recently negotiated £4.0m bank overdraft facility and combined these provide sufficient liquidity.

The Group continues to manage working capital tightly: overdue debt has fallen to 6% of trade debtors compared to 13% at the same time a year ago.

Non-adjusting post balance date event

In line with the new strategy to leverage digital partnerships to drive operational efficiencies and deliver scalable programmes, the Group signed two vendor agreements in early H2.  These vendors will replace internally developed intangible assets that are currently in use.  It is expected that the new digital partnerships will be launched in Q4.  This decision led to a potential indicator of impairment and triggered a review of all intangible digital assets. This will result in a one-off impairment charge of £4.4m which will be reflected in H2. 

Dividend

The Board continues to prioritise investment for growth over the coming years, and therefore no interim dividend will be paid for the period ended 30 September 2024.

Outlook

The Group's outlook for the full year remains unchanged, with actions taken providing greater resilience and expected to lead to improved profitability in due course.  Headline revenue in FY26 is expected to be slightly lower as a result of the anticipated conclusion of the energy framework agreement in December 2024. However, underlying revenue growth is expected in FY26 and beyond. The new go-to-market strategy focussed on introducing package subscription offers will lay the foundation for continued and sustainable growth into FY26 and beyond. The Group continues to target a medium-term EBITDA margin of 15% to 20%.

Forward-looking statements

Certain statements in this announcement constitute forward-looking statements.  Any statement in this announcement that is not a statement of historical fact including, without limitation, those regarding the Company's future expectations, operations, financial performance, financial condition and business is a forward-looking statement.  Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially.  These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this announcement and the Company undertakes no obligation to update its view of such risks and uncertainties or to update the forward-looking statements contained herein.  Nothing in this announcement should be constructed as a profit forecast.