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Mind Gym PLC

Mind Gym PLC - Full year results for the year ended 31 March 2020

RNS Number : 6014P
Mind Gym PLC
11 June 2020
 

Mind Gym PLC

 

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

 

Full year results for the year ended 31 March 2020

 

Mind Gym (AIM:MIND), the global provider of human capital and business improvement solutions, is pleased to announce its audited results for the year ended 31 March 2020.

 

Financial highlights

 

12 months to 31 Mar 2020 (FY20)

12 months to 31 Mar 2019 (FY19)

Change

Revenue

£48.2m

£42.1m

+15%

Digitally enabled1 revenue

£14.5m

£12.0m

+21%

Gross profit margin

79.9%

80.6%

-0.7pps

Adjusted PBT2,3

£6.6m

£8.2m

-19%

Adjusted PBT2,3 margin

13.7%

19.5%

-5.8pps

Statutory PBT

£7.4m

£5.1m

+44%

Diluted EPS

5.91p

3.94p

+50%

Adjusted2,3 Diluted EPS

5.22p

6.57p

-21%

Total Dividend per share4

0.9p

2.4p

-63%

Total Cash

£16.0m

£8.3m

92%

Adjusted2,3 EBITDA cash conversion5

136%

117%

+19pps

 

1Digitally enabled revenue comprises revenue from our digital products and revenue for the delivery of virtual sessions.

 

2Adjustments include IPO transaction costs and aborted transaction advisory fees and employee share option surrender bonuses in FY19. A reconciliation of these adjustments is shown in Note 5.

 

3The definition of adjustments has been updated to remove share-based payments and the adjusted results for the year ended 31 March 2019 have been restated as a result.

 

4FY20 dividend of 0.9p reflects interim dividend only and no final dividend, FY19 includes interim dividend of 0.8p and final dividend of 1.6p

 

5EBITDA cash conversion defined as cash generated from operations/EBITDA.

 

Financial and operating highlights

 

·      Revenues up 15% to £48.2 million (FY19: £42.1 million) despite COVID-19 impact in last two months of FY20:

On a constant currency basis revenues grew 12%

Growth in US +22% and EMEA +7%

Pre-COVID-19 revenues for the 10 months to 31 January grew +22% on the prior year

February and March saw a 16% decline in revenues compared to the same period last year, as a result of COVID-19

·      Digitally enabled revenue, including live workouts delivered virtually, increased by 21% to £14.5m (2019: £12.0m) and represented 30% of total revenues (2019: 28%). Digitally enabled revenue for April and May 2020 represented 79% of mix (2019: 29%).

·      Repeat revenues (defined as revenues from clients that have purchased in the current year and in one or more of the previous three years) increased to 88% of total revenues (2019: 84%).

·      Key client strategy has delivered growth with revenue from top 25 accounts 41% (2019: 35%).

·      Gross profit margin of 79.9% (FY19: 80.6%), declined due to increases in coach fees in H1 as previously disclosed. Increase in coach capacity helped to reduce costs in H2 and improve margin.

·      Adjusted 1 PBT margin reduced to 13.7% (FY192: 19.5%) mainly due to COVID-19 impact in Q4.

·      Cash balance of £16.0m (FY19: £8.3m) due to strong cash conversion (136% versus 2019: 117%). Early mitigating action in March 2020 to reduce costs have increased resilience in a period of uncertainty and combined with additional restructuring currently being undertaken, will enable accelerated investment in new digital products.

·      Significant progress on execution of new digital strategy including the commencement of the recruitment of a new 40 strong digital team.

·      Launch of new offers in virtual working, wellness, diversity and inclusion and customer service.

·      The average number of staff during the year increased 19% to 247 (2019: 208).

 

Adapting to COVID-19

 

The extraordinary circumstances that have followed the outbreak of COVID-19 are changing the rules of work in a dramatic and lasting way.  In the short term, this has affected our clients and our performance. In the medium term, we believe it creates a strong opportunity to accelerate our existing digital offering and grow our share of the market.

 

We are reacting decisively to the changing circumstances with new propositions, stronger marketing and a disruptive digital strategy, which we initiated in December 2019. Over the course of 2020 we plan to recruit and develop a 40 strong digital team based in the UK

 

We are also making structural changes in the business, in part to rationalise costs in the current environment and in part to allow us to accelerate the digital strategy to meet new market needs. We expect these structural actions to result in a reduction of 19% of the OPEX run-rate for the current financial year.

 

Given the ongoing uncertainty around the impact of COVID-19 globally, it is too early to reinstate guidance on our financial performance. However, we would point to a number of factors which give the Board confidence in our operational and financial resilience:

 

·      Low level of bad debts: FY21 bad debt experience to date is $6k

·      Blue chip, global client base: with repeat revenues now at 88% (2019: 84%)

·      Proven ability to scale and deliver our digitally enabled offering to 100% in April 2020

·      Strong cash balance and cash conversion ratio

·      Significant progress on execution of new digital strategy

·      Successful launch of new offers in Virtual Working, Wellness, Diversity and Inclusion and Customer Service.

 

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

 

'We are pleased with the Group's overall performance despite the difficulties of the last quarter. At the end of January 2020 we were on track to exceed revenue and deliver on profit expectations.  The COVID crisis had a significant impact in February and March 2020 and the effect can be seen in the year's final numbers.

 

The strength of our digitally enabled offer has protected the business from more severe consequences of COVID-19. Further investment in digital was already underway before the onset of the pandemic and with expectations of lasting change to how people work we will look to grow this revenue stream in the year ahead.

 

The pandemic and its impact has created a challenging business environment. We are confident that we have the right strategy and are making the right investments to deliver a return to growth once the worst effects of COVID-19 pass.'

 

Enquiries:

 

Mind Gym plc

Octavius Black, Chief Executive Officer

Richard Steele, Chief Financial Officer

 

+44 (0)20 7376 0626

 

Liberum (Nominated Adviser and Sole Broker)

Bidhi Bhoma

Joshua Hughes

Euan Brown

 

+44 (0)20 3100 2200

 

 

Maitland/AMO (Public Relations Advisor)

Al Loehnis

Sam Cartwright 

 

+44 (0) 7775 684 934

+44 (0) 7827 254 561

 

 

About Mind Gym

 

Mind Gym 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.

Mind Gym 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

 

Statement of the Board Chair

 

Looking to the future with confidence

 

On behalf of the Board I am pleased, at this time of global crisis, to be able to report on a period of positive performance.

 

Despite the Coronavirus shock to global markets that had a significant impact on Mind Gym's Q4, the Group has achieved a 15% increase in revenue to £48.2 million (2019: £42.1 million).

 

Adjusted PBT for 2020 was £6.6 million (2019: £8.2 million). With the outbreak of COVID-19 so close to the end of the year, we were unable to make material cost savings during the period. However, continued strong cash generation during FY20 resulted in year-end cash of £16.0 million (2019: £8.3 million) and no bank borrowings.

 

A year in two parts

 

Pre-COVID-19

Excellent growth and cash generation in the first 10 months of the year reinforced our confidence in the business's strength. In December, the Board approved a three-year investment plan in a digital strategy and the appointment of a Chief Digital Officer to lead it, confident that it will drive Mind Gym's share of the £240 billion global corporate training market. Business leaders continued to look for support in a world of identity politics, accelerated innovation and agile working. Wellbeing, a more recent revenue stream, was rising up their agenda. At the end of January we felt very confident in performance for the year.

 

Post-COVID-19

Over the course of February and March we began to see the increasing impact of COVID-19's global spread. Mind Gym's clients were thrown into crisis mode as entire industries slowed down and like so many others we were confronted with a sudden drop in revenue. While events happened too close to the year-end to enable significant cost mitigation, the leadership team moved quickly to rationalise and adapt. We are grateful to everyone in the business for the generosity they have shown by accepting reduced hours, salary cuts or, in a small number of cases, furlough. The founders waived their salaries entirely for the first quarter of FY21. 

 

This allowed us time to make a considered assessment during this continued period of uncertainty on how to shape our business for the future, accelerating our pivot to digital. We remain vigilant and focused on strategy to ensure that our strong cash balance is applied for maximum return.

 

Dividend

It is for these reasons that we have decided as a Board not to propose a final dividend payment for the year. We believe it prudent to prioritise cash preservation at this time and to focus on investing for growth. 

 

Market opportunity

The global training market was last estimated at $240 billion and growing, the market for corporate change at $5 billion and for corporate wellness at $53 billion with a CAGR of 6.9%. Whatever the impact of COVID-19, these markets remain vast. The need for organisations to adapt their culture and working practices to the changed global environment has only increased.

 

The market is highly fragmented which means that Mind Gym, as a leading provider of fully integrated live, virtual and digital behavioural change programmes, has significant opportunity for growth despite the current challenges.

 

People and culture

The shock and stress of the last quarter across the world is well documented. We are very proud of how the Mind Gym team has responded.

 

This year's results could not have been achieved without the skill and dedication of our senior management team and our hardworking, talented employees. A spirit of generosity and collaboration was at the fore when all our people made sacrifices in Q4 to support the business through the sudden impact of the pandemic. We are hugely grateful and on behalf of the Board I thank them all.

 

Finally, I would also like to thank my fellow Board Directors whose leadership, positivity and hard work throughout this last period has been a valuable support to our leadership team.

 

Summary and outlook

While this is a time of unprecedented uncertainty for all of us, the Board believes the challenges facing our many clients presents an opportunity for Mind Gym to excel as their partner and advisor. Despite the short-term impact of COVID-19 and an unsurprisingly slow start to the year, the Group is well positioned to respond to the new market needs. This in addition to the strong cash position of the business means we look to the future with confidence.

 

Joanne Cash

Chair

 

CEO's review

 

A strategy to accelerate post-COVID growth

 

The extraordinary circumstances that have followed the outbreak of COVID-19 are changing the rules of work in a dramatic and lasting way. 

 

In the short term, this has affected our clients and our performance. In the medium term, we believe it creates a strong opportunity to accelerate our digital strategy and grow our share of the market.

 

We are already getting great interest from clients on how the new world of work affects leadership, management, inclusion, performance, wellness and a range of other behavioural areas where we have deep expertise. 

 

Mind Gym's strength in delivering live, bite-size workshops online, positions us well for our clients' immediate needs in a remote-working world. While some clients are cautious about making the switch, the sense that social distancing will be around for a while to come, combined with the data which shows that our virtual sessions are at least as effective as face-to-face, is helping convert even the more conservative clients. This provides a very valuable base to protect the core of the business from which we can build. 

 

The key to our growth is innovation.

 

We had started developing our digital strategy with an acute focus during 2019, and are now accelerating this in order to launch market-leading products that go significantly beyond traditional e-learning and provide a data-driven method to deliver mass, highly personalised, behavioural change.

Our current digital offer is a strong complement to our portfolio of live sessions and is largely bought by existing clients as a superior alternative to conventional eLearning.

 

Our new digital offer, based on extensive research with clients to unearth what they most want, will, we believe, be unlike anything else currently in the market. The recent, sudden shift to much more remote working is a compelling reason to accelerate this strategy and we will launch our first new-generation digital product later this year.

 

Our rapid innovation unit identifies emerging client needs and quickly develops new points of view. In response to the COVID-19 outbreak, we have launched new evidence-based points of view on wellness, working virtually and performance during a global crisis. One of our strengths is that we can configure a solution that is largely made up of existing Mind Gym products supplemented with only a few new topics. As a result, a new point of view with a supporting solution can be launched in a matter of weeks.

 

While we recognise the immediate disruption to the business from COVID-19, we strongly believe that we have the strategy and agility to emerge from the current economic turbulence stronger than ever.

 

Trading performance

The year has been made up of two parts: the first 10 months, pre-COVID, and the final two months.

 

Pre-COVID-19

In the 10 months to end of January 2020, the business was growing at 22%, ahead of our five-year CAGR of 19%. Growth was better in the US than EMEA but both regions were performing well and we were seeing demand across the range or our core areas.

 

COVID-19

We started to see the impact of COVID-19 with the postponement of the APAC deliveries for a large, face-to-face, ethics programme that we were running for a bank in late January. This was quickly followed by other clients cancelling face-to-face deliveries initially in APAC, then EMEA and then the US. 

 

The team worked hard to encourage clients to switch from live, face-to-face to live virtual. There were some considerable successes which is why the revenue outcome for FY20 was at the very top end of the expectations set in our statement on 9 March 2020. Nonetheless, many clients chose not to replace live events, such as global leadership conferences, with virtual alternatives and not to commission significant new work.

 

Q4 is normally our strongest quarter and so the timing of the outbreak had a disproportionate effect on performance. 

 

FY20 review

Overall Mind Gym delivered a positive performance for the year with 15% (2019: 14%) growth in revenue and an Adjusted PBT margin of 13.7% (2019: 19.5%). 

 

The business generated revenues from c. 650 clients and delivered learning programmes in over 90 countries, through its two main offices in the UK and US, and a small support office in Singapore. Revenues are segmented into EMEA (where APAC also reports) and US regions according to where the principal client relationship is held and/or where the majority of training takes place. In the year to 31 March 2020, EMEA generated revenues of £21.8 million, a 7% increase on the prior year representing 45% of total revenues. US revenues of £26.4 million represented a 22% year on year increase.  The ratio of US:EMEA is 55:45 (2019: 52:48).

 

Our clients are widely spread across industries which gives us greater protection in light of the fast-changing economic circumstances. For example, two of the most affected industries, passenger travel and hospitality and leisure, represent 2% and 4%. of annual revenue.  Our largest industry in US is Technology, which represents 25% of US revenue, and in EMEA is Banking which represents 23% of EMEA revenue. 

 

Overall, we are globally well represented in healthcare (9%) and technology (17%) which appear to be among the more resilient industries in the current climate. We are also delighted to be a member of the winning consortium for the UK government's Civil Service Learning three-year contract.

 

Our geographic diversity also mitigates risks. While our deliveries in APAC were the first to suffer, they also look likely to be the first to return. Even within the US, the response to COVID-19 has varied by state and overall the impact from the switch to extended remote working has been less significant than EMEA as home-working has long been a normal working practice. Our US business is structured by region (East, Central, West) and so can adapt to changes in local needs quickly. This geographic diversity gives Mind Gym better protection against a change in economic conditions in any particular region or market.

 

We have also continued our focus on cash conversion and in our second year as a public company we have improved adjusted cash conversion from 117% to 136%. Partly as a result, our cash balance at end of the year is £16 million, roughly double where it was this time last year (2019: £8 million).

 

Adjusted diluted earnings per share (EPS) have decreased by 21% to 5.22 pence (2019: 6.57 pence).

 

Deepening client relationships

A core element of our plan last year was to align our teams around key clients in order to increase the depth of relationships. We are delighted that this has worked well. Revenue from our top 25 accounts has grown to 41% (FY20) from 35% (FY19).

 

When we are brought in to deal with a priority issue such as management development or diversity and inclusion, the impact we deliver allows us to grow the client relationship and become the client's partner to address other aspects of cultural and behavioural change. Examples this year included progressing from delivering the transformation of a major client's performance management to supporting their broader management development curriculum and change agenda; addressing middle management behaviours so effectively that we have been invited to work with all senior leaders and moving from years as a trusted partner on management performance to build out a global diversity and inclusion programme. All of this helps establish Mind Gym as the client's preferred partner for all aspects of cultural and behavioural change.

 

As Mind Gym has c.650 active clients, there is significant opportunity to replicate this model across a wider client base.

 

Market-leading innovation

Part of Mind Gym's success lies in its ability to identify and address the most pertinent and challenging behavioural issues with the science that works.  These have gained record attention in our webinars and CHRO roundtables with current and potential clients as well as in the media with Mind Gym being quoted in The Times, Financial Times, The Economist, Bloomberg and many other mainstream media.

 

Remote ways of working

The swift move to lockdown meant that many organisations had to transfer large numbers of employees to fully remote working. Alongside the technology challenge there is a human one.   All affected employees needed to learn how to operate successfully in this new, fully remote world and managers, in particular, needed to master how to manage people they meet only by screen and, even then, often less frequently and in groups.

 

'@virtual work' and 'Remote control' were Mind Gym's most popular Workouts in EMEA in February and March (and 3rd and 5th in the US). In addition, the rapid innovation team developed a series of seven new Workouts specifically designed for this new world of remote working.

 

Even when lockdown is over, it is very likely that large numbers of employees will spend some or all of their time working remotely and so these new products are likely to continue to be in great demand.

 

Diversity and inclusion

In 2013 we launched a new research-based point of view on diversity and inclusion (D&I) which revealed that what drove business improvement was not diversity alone, which by itself could be value destroying, but inclusion. At the time this challenged conventional wisdom. Now, seven years later it is widely accepted.

 

D&I has continued to rise up the Board agenda with legislation and media scrutiny on, for example, women on boards, gender pay gap, and 'the pledge' a letter signed by CEOs of many of the world's largest companies committing to diversity and inclusion objectives.

 

In order to continue providing our clients with the leading advice in this area, our team of psychologists, working with our Academic Board, have launched a new, updated D&I research-based point of view with a wide range of new supporting products. The early response from CHROs and Chief Diversity Officers has been extremely positive and we have recently won a number of competitive pitches where we have replaced the incumbent advisor.

 

The recent events in US have brought the issue of inclusion and, in particular, race to the forefront. We have responded swiftly with direct support for our colleagues and coaches as well as guiding our clients on how to use the latest science so they can address everyday racism and set up constructive dialogue to counter racism and all other bigotry in business.

 

Wellness and mental strength

The market for corporate Wellness is estimated at $52.7 billion and forecast to grow to $97.4bn by 2027.  In the current environment, the importance of wellness has suddenly increased as companies fear the effects of extended lockdown on mental health and the potential legal challenge if they are perceived to have failed in their duty of care.

 

We have always had a range of products which help people improve their mental strength and wellbeing. We are in the process of developing an original, evidence-based point of view on wellness which will be supported by a range of existing and some new live and digital products. This offer has already been trailed in our new COVID-related point of view on 'The wellness precipice' and will be launched later in H1.

 

Customer service

We also launched a new customer service, research-based point of view which has been piloted with impressive results in a number of clients in both UK and US. The products are designed primarily for customer-facing employees and so, given the current lockdown, we anticipate there will be less demand for these products in the current environment, although this will return once retail and leisure industries return to anything like pre-COVID levels.

 

Distinctive digital strategy

 

Digital expansion

We were clear at the IPO that a core part of Mind Gym's strategy is to pivot to digital and this is even more the case given the recent, sudden move to extended remote working.

 

Our first eWorkouts were launched in 2018 and now pure digital makes up c.10% of revenue, while digitally enabled revenue was over 30% of the total. At the end of the year we launched Mind Gym's proprietary platform on which the full library of 91 programmes are hosted. This means that clients without their own Learning Management System, or who wish to bypass it, can now use Mind Gym's eWorkouts. It also opens up the potential for a direct-to-consumer route.

 

Phase 1 of our digital strategy has been a great success and we now plan to build on this as we embark on phase 2.

 

Our vision is to use data and technology to deliver highly personalised, integrated learning to build the human advantage that delivers business performance.

In particular to provide a digital proposition that is

·    scalable across and within organisations and can replace clients' disparate content and platforms;

·      able to deliver relevant and personalised development journeys that are at the 'speed of life';

·      able to serve content to the right person, in the right format at the right time;

·      data-driven and delivers measurable results driven by behaviour change techniques; and

·      enabling social and group dynamics at scale.

 

We appointed a Chief Digital Officer at the start of Q4 who had initially worked on a digital strategy for us as a consultant during Q3 and is now taking on responsibility for delivering it, starting on 1 March 2020.

 

The launch of our first new, next-generation products will be later this financial year (FY21) with the first revenue streams from them likely to be from early in the next financial year (FY22).

 

The team for this first phase will be 40 strong and based in UK

 

Live, virtual delivery

Our experience, built over a decade, of delivering live, virtual bite-size workshops has proved to be extremely valuable during this period of extended lockdown.

 

The mix of live delivery which is virtual has gone from 35% virtual in the 10 months to end January, to 49% in the remaining two months of the financial year. In April and May 2020, the first two months of our current financial year, 100% of live deliveries have been virtual.

 

We have increased the number of coaches who are certified to deliver virtually from 120 in January to over 160 by 1 May 2020 with the capacity to certify more if the demand requires it. We are also certifying bi-lingual coaches in a range of languages including Hebrew, Mandarin, Vietnamese and Arabic.

 

This renewed focus on virtual delivery is yielding very positive results in terms of quality as measured by participant feedback. In April, the 'Excellence' rate for virtual deliveries was 53.9%, which compares with 51.6% for face-to-face deliveries in FY20. We are, therefore, able to reassure clients that the quality of our virtual sessions is at least as good as face-to-face.

 

Infrastructure to support growth

We have been investing in a range of operational improvements to support long-term, sustainable growth and realise economies of scale.

 

In order to help increase the productivity of our Client team we have introduced a new CRM, salesforce, which will be integrated with our Marketing systems to create a more seamless process and produce data which will help redirect effort and investment to where we will get the greatest return.

 

We have also instigated a project 'Operational Blueprint' which will bring greater role clarity and more efficient workflow across the business. 

 

As a result of both these initiatives, we anticipate realising significant economies of scale when we return to pre-COVID growth rates.

 

Strong leadership

A key priority for the year was to bring new leaders with impressive track records and the appetite to lead the business through the next phase of growth.

 

We are delighted to have appointed four highly experienced new members to the Mind Gym Executive team. These include:

 

·      President, Americas, who was formerly President and CHRO of Kindercare;

·     Chief Commercial Officer, EMEA who was formerly the head of the leadership development practice at Korn Ferry;

·      Chief Digital Officer, former Digital COO at HSBC, who shaped our new digital strategy as a consultant in Q3 and accepted the role to deliver it in Q4; and

·      Chief People Officer, former CHRO at TalkTalk.

 

These strong additions to our Executive team gives us the confidence not only that we have the right strategy but that we also have the capability to execute on it.

 

Post year-end changes

As we build the business of the future with a much stronger digital mix, we have always recognised that we will need a different mix of skills in the team.

 

The changes brought by COVID-19 have accelerated this shift as we altered overheads in response to the new economic circumstances. 

 

In the first quarter of FY21, we introduced a range of temporary measures including salary sacrifice, part-time working and the UK government's Furlough scheme.  As the economic trend has become more defined we have commenced a process to replace these temporary measures with more long term changes to the team which better reflects the mix of talents we will need for the next phase.

 

The overall effect of all these measures is a reduction in OPEX people-related overheads by 19%. It is expected that the majority of the investment in the digital team will be capitalised as software development costs while the digital products are being developed.

 

Corporate social responsibility

At the heart of Mind Gym's values is the mission to improve lives by changing the way our participants think and behave. We also believe that businesses serve a vital role in their communities and our social responsibility lies at the heart of our culture.

 

We are very proud that 2020 is the 10-year anniversary of our first Parent Gym programme. Recognising the impact that parenting has on a child's life chances, and the minimal attention paid to parenting capability by governments, we piloted a six-week parenting programme in 2009. Over 10 years the programme has continued to be delivered by Parent Gym-trained volunteers in over 100 state primary schools a term across the UK, fully funded by Mind Gym.

 

Mind Gym employees are actively involved in many aspects of its work, including the design of the programme and some of our people cite it as one of the reasons they chose to work for Mind Gym. A series of independent academic evaluations of the programme are further proof to clients of the impact Mind Gym delivers. It has been shown to be 'effective in aiding the positive development of aspects of parenting behaviour, namely parents' self-efficacy, parenting satisfaction and mental well-being, when delivered in community settings' (Warwick University 2019).

 

One of the most challenging impacts of COVID-19 has been the closure of the nation's schools through which, historically, we have connected with and delivered the Parent Gym programme to parents. However, it is testament to our employees' commitment that we have at the time of writing converted the material to a digital programme; created an online support community for parents and embarked on partnerships with a number of family-focused charities to ensure they also have access to the programme. All of this will ensure that throughout this period of uncertainty, parents will continue to be able to access the programme and its positive effects for their families and their mental health.

 

I would like to pay particular thanks to our Chair who not only came up with the idea of Parent Gym but has led it into the force that it has become. I also greatly appreciate our investors who share our values and have been fully supportive of this philanthropic venture.

 

Summary and outlook

We are pleased with the Group's overall performance despite the difficulties of the last quarter. At the end of January 2020, we were on track to exceed revenue and deliver on profit expectations.  The COVID crisis had a significant impact in February and March 2020 and the effect can be seen in the year's final numbers.

 

The strength of our digitally enabled offer has protected the business from more severe consequences of COVID-19. Further investment in digital was already underway before the onset of the pandemic and with expectations of lasting change to how people work we will look to grow this revenue stream in the year ahead.

 

The pandemic and its impact has created a challenging business environment. We are confident that we have the right strategy and are making the right investments to deliver a return to growth once the worst effects of COVID-19 pass.

 

Octavius Black

Chief Executive Officer

 

Financial review

Another year of continued growth and strong cash generation

 

The group achieved double-digit top line growth and doubled its cash balance in the year while continuing to invest in future growth including senior hires and digital.  The balance sheet provides resilience during the continued COVID-19 uncertainty and an opportunity to accelerate our digital investments.

 

Revenues

In the year ended 31 March 2020, revenues grew 15% (12% on a constant currency basis) to £48.2 million (2019: £42.1 million). The EMEA region generated revenues of £21.8 million, delivering a 7% year-on-year increase. In the US, revenues of £26.4 million were generated representing a 22% (17% on a constant currency basis) year on year increase.

 

 

 

Year to
31 March 2020

Year to
31 March 2019

Change

 

£000

£000

%

EMEA

21,807

20,390

7%

US

26,442

21,743

22%

GLOBAL

48,249

42,133

15%

 

Repeat revenues (defined as revenues from clients that have purchased in the current year and in one or more of the previous three years) increased to 88% of total revenues (2019: 84%).

 

Revenue growth on a five-year compound annual growth basis is 19%.

 

Digital revenues in the year increased by 1% to £4.3 million (2019: £4.2 million) representing 9% of total revenues (2019: 10%). Digitally enabled revenue, including live Workouts delivered virtually increased by 21% to £14.5m (2019: £12.0m) and represented 30% of total revenues (2019: 28%).

 

Gross profit

Gross profit in the period increased by 14% to £38.6m (2019: £33.9m). Gross profit as a percentage of revenue in the period decreased by 0.7 percentage points on the prior period to 79.9%. At a Group level there was minimal change in revenue mix and therefore no material impact on Gross profit.

 

Revenue mix by type compared to previous year

 

FY20

FY19

% change

Live delivery

57%

59%

-2%

Design

15%

15%

0%

Licensing and certification

12%

11%

1%

Digital

9%

10%

-1%

Other (e.g. project management)

2%

3%

-1%

Advisory

5%

2%

3%

Total

100%

100%

 

 

Gross profit margin in the US (81.7%; 2019: 81.3%) was higher than in EMEA (77.8%; 2019: 79.8%) due principally to product mix. EMEA saw an increase in revenue in APAC where we initially offer higher coach fees to incentivise coaches to travel while we build our coach network to meet increasing demand.

 

 

Year ended 31 March 2020

Revenue type

EMEA

US

Global

Live delivery

58%

55%

57%

Design

13%

16%

15%

Licensing and certification

14%

12%

12%

Digital

8%

10%

9%

Other

1%

2%

2%

Advisory

6%

5%

5%

Total

100%

100%

100%

 

Adjustments to PBT

The Group uses Adjusted PBT to provide a better understanding of the underlying profitability of the business. Adjusted PBT excludes certain costs as detailed in Note 7 to the group financial statements.

 

The definition of adjusted items has been updated to remove the share-based payment charge, and the adjusted results for the year ended 31 March 2019 have been restated as a result.

 

Total Adjustments amounted to a credit of £0.8 million in the year to 31 March 2020 and comprises the reversal of a provision for employee option surrender costs charged to the income statement in the prior year. Adjustments in 2019 were £3.1 million and mostly resulted from the Group's IPO in June 2018.

 

Adjustments to PBT

 

31 March 2020

31 March 2019

 

£'000

£'000

Transaction-related costs

-

1,500

Employee options surrender (credit)/costs

(765)

1,577

 

(765)

3,077

 

After Adjustments the Group reported profit before taxation of £7.4 million (2019: £5.1 million).

 

Profitability

Adjusted PBT in the year to 31 March 2020 reduced 19% to £6.6 million (2019: £8.2 million). Adjusted PBT as a percentage of revenue was 13.7% (2019: 19.5%). The principle reason for the decrease was the impact on revenue in the last two months of the year which due to COVID-19 did not allow sufficient time to re-align the cost base. The Group also invested to support the growth of the business particularly in senior roles and in digital. Our digital expenditure in the year involved extensive research as we built the team to develop our new digital offering. It is anticipated that from April 2020 these future costs will be capitalised. Overheads before adjustments rose 24% to £31.9 million (2019: £25.7 million). Staff costs represents 75% (2019: 76%) of overheads increasing 24% on the year. The average number of staff during the year increased 19% to 247 (2019: 208). Operating profit as a percentage of revenue was 7% in the US and 25% in EMEA. The lower adjusted EBIT margin in the US is due to the royalty re-charges from the UK to the US. 

 

Taxation

The taxation charge for the year was £1.5 million (2019: £1.2 million) which represents an effective rate ('ETR') of 20.2% of profit before tax. The ETR on profit excluding adjustments was 21.4%.

 

 

 

FY20

 

 

 

FY19

 

 

Adjusted

Adjustments

Reported

 

Adjusted

Adjustments

Reported

 

£'000

£'000

£'000

 

£'000

£'000

£'000

PBT

6,633

765

7,398

 

8,207

(3,077)

5,130

Tax

(1,420)

(73)

(1,493)

 

(1,621)

442

(1,179)

PAT (earnings)

5,213

692

5,905

 

6,586

(2,635)

3,951

ETR %

21.4%

9.5%

20.2%

 

19.7%

14.3%

23.0%

 

Earnings per share

Adjusted diluted earnings per share decreased by 21% to 5.22 pence (2019: 6.57 pence). Reported, basic earnings per share grew by 46% to 5.93 pence (2019: 4.08 pence).

 

Dividends

The Board is not recommending a final dividend for the year ended 31 March 2020.  An interim dividend of 0.9p per share interim dividend was paid in January 2020.

 

Cash flow and balance sheet

Cash generated from operations increased by £3.1 million or 41% to £10.6 million (2019: £7.5 million) mainly due to improvements in working capital and the impact of one-off costs in the prior year. Cash conversion, defined as cash generated from operations as a percentage of EBITDA was 124% (2019: 142%). Adjusted cash generated from operations increased by £0.8 million to £10.6 million increasing adjusted cash conversion to 136% (2019: 117%). Adjusted cash conversion is defined as cash generated from operations before transaction-related payments and employee option surrender payments.

 

Adjusted EBITDA is defined as Adjusted PBT excluding net finance costs, depreciation of property, plant and equipment and the amortisation of intangible assets.

 

Cash conversion

 

 

 

31 March

31 March

 

2020

2019

 

£'000

£'000

 

 

 

Adjusted cash generated from operations

10,615

9,816

Transaction related costs

-

(1,500)

Employee options surrender costs

-

(810)

Cash generated from operations

10,615

7,506

 

 

 

Adjusted EBITDA

7,818

8,376

 

 

 

Reported EBITDA

8,583

5,299

 

 

 

Adjusted cash conversion (Adjusted cash from operations /Adjusted EBITDA)

136%

117%

 

 

 

Cash conversion (cash from operations /EBITDA)

124%

142%

 

 

Over the year we reduced the time taken to invoice clients and improved the collection of overdue receivables. The number of days revenue tied up in Trade receivables and Accrued income fell by 32 days to 68 days (2019: 100 days). Overdue debt as a percentage of total trade receivables fell to 20% at the year-end (2019: 23%) with the amount of overdue debt reducing £0.7 million to £1.7 million (2019: £2.4 million).

 

There was a net tax receipt in the year of £0.6 million (2019: £0.6m paid) as £1.2 million of tax recoverable was received from the UK tax authorities in respect of the tax relief on the exercise of EMI options at the IPO in June 2018. Corporation tax payments in respect of the year ended 31 March 2020 were £0.6 million.

 

Capital expenditure was £0.7 million (2019: £0.4 million). Lease payments of £0.6m are separately identified within cash flows from financing activities for the first time under the newly adopted IFRS 16, Leases accounting standard.

 

The Group also paid £2.5 million (2019: £4.0 million) of dividends in cash in the year comprising the £1.6m final FY19 dividend and the £0.9m interim dividend for the year ended 31 March 2020.

 

At the year end, the Group had cash of £16.0 million (2019: £8.3 million) and net cash of £11.6m (2019: £8.3 million) after deducting the lease liability now included on the balance sheet.

 

Financial impact of COVID-19

The Group experienced a dramatic slowdown in revenues as a response to COVID-19 in the last two months of the financial year. In the 10 months to 31 January 2020, revenues of £40.1 million (2019: £32.8 million) were +22% increase on the year.  In February and March 2020 revenues of £8.1 million (2019: £9.3 million) were -13% on the year.  The slowdown was particularly prevalent in the EMEA region which includes APAC where the virus originated. Approximately 40% of revenues in the 10 months to January 2020 were generated from live, face-to-face sessions. Many of these sessions were cancelled or postponed and where possible converted to virtual sessions. This included the cancellation of an extensive programme with a top 5 client. In addition, there was a considerable impact on pipeline opportunities as clients' priorities changed.

 

There was a minimal impact on the cost base. Fixed overhead remained unchanged and there was an additional £0.1 million incurred on coach fees and associated travel costs that had been booked and subsequently cancelled at short notice.

 

It is difficult to accurately assess the financial impact directly associated to COVID-19, though assuming the run rate of revenue to 31 January had continued, it is estimated that revenue for the full year to 31 March 2020 would have been £3.2 million higher at £51.4 million. The impact on Adjusted PBT is estimated to be £2.2 million above the reported £6.6 million. The impact has not been treated as an adjustable item in the accounts.

 

Mitigating actions in response to COVID-19

The Board rapidly undertook actions to mitigate the financial impact of COVID-19 including:

·      Working with clients and coaches to switch live face-to-face coaching sessions to virtual Webex sessions;

·      Promoting our digital proposition as an alternative to live sessions;

·      Innovating and marketing our product offering to respond to COVID-19;

·      Accelerating and adapting our existing digital investment strategy;

·      Implementing a cost reduction strategy from 6 April 2020 to 30 June 2020 affecting all employees by being furloughed, reducing hours or 20% salary cut;

·      Improved the reporting and monitoring of credit control management. Our client base is typically large corporates and there is very little either historic or current impact from bad debts; and

·      To strengthen the cash position further, it is proposed to not pay a final dividend for the year ending 31 March 2020.

Going concern

The Board has reviewed extensive scenario analyses to help assess their forward-looking assessment of the viability of the Group. The Directors are confident that the Group has adequate resources to continue in operational existence for the foreseeable future. The Board have reviewed various scenarios including a range of revenue and cost reductions, which all include a continuation of digital investment. This is supported by a strong balance sheet, cash management and financial controls.

 

Impact of adoption of new accounting policies

The Group adopted IFRS 16, Leases on 1st April 2019 and has applied the modified retrospective approach by measuring the right-of-use asset at an amount equal to the lease liability at the date of transition and therefore comparative information has not been restated. The impact of the adoption on Adjusted and Statutory Profit before Tax is immaterial, although Adjusted EBITDA increased by £0.6 million in the period. The impact of the adoption on the balance sheet is set out in Note 4. 

 

Financial risk management

The Group has a diverse portfolio of approximately 650 clients across many industrial sectors delivering coaching sessions in over 90 countries. The largest client accounted for less than 3% of Group revenue in the year.

 

The Group has translational foreign currency exposure arising on the consolidation of overseas company results into Sterling. Where possible the exposure is naturally hedged, for example by matching US Dollar revenues with US Dollar costs in the US subsidiary. The Group does not currently use forward exchange contracts or currency options to hedge currency risk.

 

Key performance indicators

Key performance indicators (KPI's) relate to sales, profit and cash flow. The sales of the business are tracked through monthly reviews of future confirmed and forecasted revenues against targets approved by the Board and against prior year by region and globally. The profitability of the business is managed through the review of revenues and product mix, gross profit margin and overheads against budget. Cashflow is reviewed on a Group basis aided by rolling cash flow forecasts. Working capital is reviewed using debtor days, overdue debt as a percentage of total debtors, and combined debtor, accrued income and deferred income ('net revenue') days.

 

Adjusted performance measures

This announcement contains certain financial measures that are not defined or recognised under IFRS including Adjusted PBT and Adjusted earnings per share. These adjusted measures exclude the effect of Adjustments. The Group use these measures for planning and budgeting and for its internal assessment of the operational performance of each business. Given the term Adjusted is not defined under IFRS, the Adjusted measures may not be comparable with similarly titled measures used by other companies. Reconciliations of the Adjusted measures to their IFRS equivalents are shown on the face of the Consolidated Statement of Comprehensive Income, on Note 5 Segmental Analysis and in Note 12 Earnings per share.

 

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.

 

Richard Steele

Chief Financial Officer

 

MIND GYM PLC    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                                                                                                                                                    

 

 

Year to

31 March 2020

Year to

31 March 2019

 

Note

£'000

£'000

Continuing operations

 

 

 

Revenue

5

48,249

42,133

Cost of sales

 

(9,680)

(8,192)

 

38,569

33,941

Administrative expenses

 

(31,147)

(28,811)

 

Operating profit

5, 6

7,422

5,130

Finance income

10

51

-

Finance costs

10

(75)

-

 

Profit before tax

 

7,398

5,130

 

 

 

 

Adjusted profit before tax

 

6,633

8,207

Transaction related costs

7

-

(1,500)

Employee options surrender credit/(costs)

7

765

(1,577)

 

 

 

 

Total adjustments

7

765

(3,077)

 

Profit before tax

 

7,398

5,130

 

Tax on profit

11

(1,493)

(1,179)

 

5,905

3,951

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

Exchange translation differences on consolidation

 

88

38

 

88

38

 

 

5,993

3,989

 

 

 

 

Earnings per share (pence)

12

 

 

Basic

 

5.93p

4.08p

Diluted

 

5.91p

3.94p

Adjusted earnings per share (pence)

12

 

 

Basic

 

5.24p

6.80p

Diluted

 

5.22p

6.57p

 

MIND GYM PLC    CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

 

31 March

2020

31 March

2019

 

Note

£'000

£'000

Non-current assets

 

 

 

Intangible assets

14

95

445

Property, plant and equipment

15

4,395

139

Deferred tax assets

11

85

637

Other receivables

17

567

-

 

 

5,142

1,221

Current assets

 

 

 

Inventories

16

73

53

Trade and other receivables

17

10,131

12,661

Current tax receivable

 

-

1,196

Cash and cash equivalents

 

15,952

8,294

 

 

26,156

22,204

 

Total assets

 

31,298

23,425

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

18

8,921

8,832

Lease liability

24

914

-

Provisions

19

-

767

Redeemable preference shares

20

50

50

Current tax payable

 

384

146

 

 

10,269

9,795

Non-current liabilities

 

 

 

Lease liability

24

3,472

-

 

 

 

 

Total liabilities

 

13,741

9,795

 

Net assets

 

17,557

13,630

 

Equity

 

 

 

22

1

1

Share premium

 

112

112

Share option reserve

 

684

340

Retained earnings

 

16,760

13,177

 

Equity attributable to owners of the parent Company

 

17,557

13,630

 

The financial statements were approved and authorised for issue by the Board of Directors on 10 June 2020 and were signed on its behalf by

 

Richard Steele

Chief Financial Officer

 

MIND GYM PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                                                                                                                                                    

 

 

Share capital

Share premium

Share option reserve

Retained earnings

Total equity

 

Note

£'000

£'000

£'000

£'000

£'000

 

At 1 April 2018

 

1

-

408

11,780

12,189

 

Profit for the period

 

-

-

-

3,951

3,951

 

Other comprehensive income:

 

 

 

 

 

 

Exchange translation differences on consolidation

 

-

-

-

38

38

 

-

-

-

3,989

3,989

Exercise of options

 

-

112

(408)

408

112

Credit to equity for share-based payments

23

-

-

340

-

340

Tax relating to share-based payments

11

-

-

-

793

793

Dividends

13

 

 

 

(3,793)

(3,793)

 

At 31 March 2019

 

1

112

340

13,177

13,630

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

-

5,905

5,905

 

Other comprehensive income:

 

 

 

 

 

 

Exchange translation differences on consolidation

 

-

-

-

88

88

 

-

-

-

5,993

5,993

Credit to equity for share-based payments

23

-

-

344

-

344

Tax relating to share-based payments

11

-

-

-

77

77

Dividends

13

-

-

-

(2,487)

(2,487)

 

At 31 March 2020

 

1

112

684

16,760

17,557

 

MIND GYM PLC    CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                                                                                                                   

 

 

Year to

31 March 2020

Year to

31 March 2019

 

Note

£'000

£'000

Cash flows from operating activities

 

 

 

Profit for the financial period

 

5,905

3,951

 

Adjustments for:

 

 

 

Amortisation of intangible assets

14

444

93

Depreciation of property, plant and equipment

15

717

76

Net finance costs

10

24

-

Taxation charge

11

1,493

1,179

(Increase)/decrease in inventories

 

(20)

208

Decrease/(increase) in trade and other receivables

 

2,279

(862)

(Decrease)/increase in payables and provisions

 

(571)

2,521

Share-based payment charge

23

344

340

Cash generated from operations

 

10,615

7,506

Net tax received/(paid)

 

638

(615)

Net cash generated from operating activities

 

11,253

6,891

 

Cash flows from investing activities

 

 

 

Purchase of intangible fixed assets

 

(94)

(213)

Purchase of tangible fixed assets

 

(556)

(137)

Interest received

 

51

-

Net cash used in investing activities

 

(599)

(350)

 

Cash flows from financing activities

 

 

 

Cash repayment of lease liabilities

 

(565)

-

Issuance of ordinary shares

22

-

112

Issuance of preference shares

20

-

50

Dividends paid

13

(2,487)

(3,993)

Net cash used in financing activities

 

(3,052)

(3,831)

 

Net increase in cash and cash equivalents

 

7,602

2,710

Cash and cash equivalents at beginning of period

 

8,294

5,542

Effect of foreign exchange rate changes

 

56

42

Cash and cash equivalents at the end of period

 

15,952

8,294

 

Cash and cash equivalents at the end of period comprise:

 

 

 

Cash at bank and in hand

 

15,952

8,294

 

MIND GYM PLC    NOTES TO THE GROUP FINANCIAL STATEMENTS

                                                                                                                                                                   

1.   General information

The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31 March 2020 or 31 March 2019. Statutory accounts for the year ended 31 March 2019 were approved by the Board of Directors on 24 June 2019 and delivered to the Registrar of Companies. Statutory accounts for the year ended 31 March 2020 have not yet been delivered to the Registrar. The reports of the auditor 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.

 

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.

 

2.   Summary of significant accounting policies

Basis of preparation

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

 

The consolidated financial statements are presented in Sterling. All values are rounded to £1,000 except where otherwise indicated.

 

The principal accounting policies in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated.

Going concern

The Group meets its day-to-day working capital requirements from the cash flows generated by its trading activities and its available cash resources. As at 31 March 2020 the Group had £16.0 million of cash and £4.4m of lease liabilities. Adjusted cash conversion in the year ended 31 March 2020 was 136% (2019: 117%).

 

The Group prepares cash flow forecasts and re-forecasts regularly as part of the business planning process.  The Directors have reviewed forecast cash flows for the forthcoming 12 months for the Group from the date of the approval of the financial statements and consider that the Group will have sufficient cash resources available to meet its liabilities as they fall due.  These cash flow forecasts have been analysed in light of the COVID-19 outbreak and expected medium term economic impact, and subject to stress testing, scenario modelling and sensitivity analysis, which the Directors consider sufficiently robust.  As described in the Financial review, the Group was significantly impacted by COVID-19 but has been protected from more severe consequences by our digitally enabled revenue. The sensitivity analysis has assessed the impact of various degrees of downturn in medium term revenues generated.  The Directors note that in a downturn scenario the Group also has the option to rationalise its cost base including cuts to discretionary capital and overhead expenditure. The Directors consider that the required level of change to the Group's forecast cash flows to give rise to a material risk over going concern are sufficiently remote.

 

As a result of these assessments performed, the Group's strong cash position and clients predominantly comprising blue-chip corporates, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.

New standards and interpretations applied for the first time

The Group adopted the following new or amended IFRSs and IFRIC interpretations from 1 April 2019:

·      IFRS 16, Leases

·      IFRIC 23, Uncertainty over Income Tax Treatments

The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and continued to be reported under IAS 17 and IFRC 4. The details of accounting policies under IAS 17 and IFRC 4 are disclosed separately as they are different from those under IFRS 16.

The impact of the adoption of IFRS 16 is set out in Note 3, the adoption of IFRIC 23 did not have a material impact on the financial statements.

New standards and interpretations not yet applied

At the date of authorisation of these financial statements the following standards and interpretations were in issue but not yet effective for the financial period and have not been applied. The Directors plan to adopt these standards in line with their effective dates.

 

Applicable from

Amendments to References to the Conceptual Framework in IFRS Standards

1 April 2020

Amendments to IFRS 3 Business Combinations

1 April 2020

Amendments to IAS 1 and IAS 8: Definition of Material

1 April 2020

Amendments to IFRS 9, IAS 37 and IFRS 7: Interest Rate Benchmark Reform

1 April 2020

Amendments to IAS 1: Classification of Liabilities as Current or Non-current

1 April 2022*

*Not yet endorsed for use in the EU.

The Directors anticipate that the adoption of these standards and amendments will have no material impact on the financial statements.

Basis of consolidation

The consolidated financial statements incorporate those of Mind Gym plc and its subsidiary undertakings (i.e. entities that the Group controls 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.

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Where necessary, amounts reported by subsidiaries have been adjusted to conform with the Group's accounting policies.

Foreign currency translation

The Group's presentation currency is Pound Sterling. The results and financial position of subsidiaries that have a functional currency different from Sterling are translated into Sterling as follows:

·      Assets and liabilities are translated at the closing rate at the balance sheet date; and

·      Income and expenses are translated at average rates of exchange prevailing during the year.

All resulting exchange differences are recognised in equity.

Foreign currency transactions are initially recorded at the exchange rate ruling at the date of the transaction. Foreign exchange gains and losses resulting from settlement of such transactions and from the translation at exchange rates ruling at the balance sheet date of monetary assets or liabilities denominated in foreign currencies are recognised in profit or loss.

 

Revenue recognition

Revenue is recognised when control over a product or service is transferred to a customer. Due to the short-term nature of the trade receivables, the Group measures them at the original transaction price invoiced without discounting.

The Group generates revenue from business-to-business customers by satisfying the following performance obligations:

·     Delivering coach-led face-to-face and virtual training sessions. Revenue is recognised at a point in time on the date of delivery of the session.

·     Developing training programmes customised to specific needs. Revenue is recognised at a point in time on the completion of all development work or, at the end of a stage of work when the contract provides an enforceable right to payment on completion of a stage.

·     Licensing digital training modules to clients. When non-cancellable digital modules are provided to the client and hosted on the client's servers, revenue is recognised at a point in time on the date the modules are provided to the client. Where the client has a right to cancel, revenue is recognised at the start of each committed period. When digital modules are hosted on the Group's servers, revenue is recognised over time across the life of the agreement.

·     Training and certifying client staff to act as coaches. Revenue is recognised at a point in time on the date of delivery of the certification course.

Any advance consideration received from clients represents a contract liability and is disclosed in Note 18 under the heading deferred income. When the performance obligation has been satisfied but the income has not yet been invoiced, the amount represents a contract asset and is disclosed in Note 17 as accrued income.

The incremental costs of obtaining a contract principally consist of commissions paid to the Group's sales team. The sales team earn commission over time as the revenue they have generated is recognised. Commission costs are therefore not capitalised.

Share-based payments

Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the Consolidated Statement of Comprehensive Income over the vesting period. Non-market performance conditions are taken into account by adjusting the number of equity instruments expected to vest at each Statement of Financial Position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market performance conditions are factored into the fair value of the options granted. The cumulative expense is not adjusted for failure to achieve a market performance condition.

The fair value of the award also takes into account non-vesting conditions. These are either factors beyond the control of either party (such as a target based on an index) or factors which are within the control of one or other of the parties (such as the Group keeping the scheme open or the employee maintaining any contributions required by the scheme).

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to Consolidated Statement of Comprehensive Income over the remaining vesting period.

Defined contribution pension plan

The Group operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. Once the contributions have been paid the Group has no further payment obligations.

The contributions are recognised as an expense in the Statement of Comprehensive Income when they fall due.

 

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The current tax payable is based on taxable profit for the year. Taxable profit differs from accounting profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the period-end date.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is not recognised on temporary differences arising from the initial recognition of goodwill or other assets and liabilities in a transaction, other than a business combination, that affects neither the accounting nor the taxable profit.

Deferred tax is measured on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised, or deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

Tax is charged or credited in the Consolidated Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity.

Intangible assets

Externally acquired intangible assets are initially recognised at cost. Expenditure on internally developed assets is capitalised if it can be demonstrated that it is technically feasible to develop the product for it to provide expected future economic benefits, adequate resources are available to complete the development, there is an intention to complete the project and expenditure on the project can be measured reliably.

After recognition intangible assets are measured at cost less any accumulated amortisation and impairment losses. Intangible assets are amortised over their estimated useful lives as follows:

·              Internally developed software

1 to 5 years

The assets' residual values, useful lives and amortisation methods are reviewed and adjusted prospectively if appropriate at each reporting date.

Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Subsequent costs are included in the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group. All other repairs and maintenance costs are charged to profit or loss during the period in which they are incurred.

Assets are depreciated to their estimated residual value using the straight-line method over their estimated useful lives as follows:

·              Leasehold improvements

over the period of the lease

·              Fixtures, fittings and equipment

2 to 5 years

The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate at each balance sheet date.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the Consolidated Statement of Comprehensive Income.

 

Impairment of property, plant and equipment and intangible assets

At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset, for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Leases - policy applicable from 1 April 2019

Lease identification

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identifiable asset for a period of time in exchange for consideration.

 

Right-of-use asset

The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

 

The right-of-use asset is depreciated on a straight-line basis over the shorter of the estimated useful life of the asset and the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability.

 

Lease liability

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable.

 

The lease liability is measured at amortised cost using the effective interest method.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies the low-value assets recognition exemption to leases of assets below £5,000. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

 

As a lessor

When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

 

When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset.

 

Amounts due from lessees under finance leases are recognised as finance lease receivables at the amount of the Group's present value of the lease receipts. The finance lease receivable is subsequently measured by increasing the carrying amount to reflect interest on the finance lease receivable (using the discount rate used at commencement) and by reducing the carrying amount to reflect the lease payments received.

 

Leases - policy applicable before 1 April 2019

A lease is classified at the inception date as a finance lease or an operating lease.

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.

Operating lease payments (net of any lease incentives received) are recognised in the Statement of Comprehensive Income on a straight-line basis over the term of the lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

Inventories

Inventories comprise pack materials used in the delivery of courses and are stated at the lower of cost and net realisable value. Cost is based on the cost of purchase on a first in, first out basis. Work in progress and finished goods include labour and attributable overheads. Net realisable value is the estimated selling price less costs to complete and sell.

At each reporting date, inventories are assessed for impairment. If stock is impaired, the carrying amount is reduced to its realisable value. The impairment loss is recognised immediately in profit or loss.

Financial instruments

Financial instruments are recognised when the Group becomes party to the contractual provisions of the instrument. The Group only enters into basic financial instruments and does not have any hedging instruments.

Financial assets and liabilities are offset, with the net amounts presented in the Financial Statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Financial assets - Loans and receivables

All of the Group's financial assets fall into the loans and receivables category. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets included in loans and receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method, less any impairment losses.

Financial assets are assessed for indicators of impairment at each reporting date.

A provision for impairment of trade receivables is made for expected lifetime credit losses based on past experience and general economic factors. Further provisions are made against specific trade and other receivables when there is objective evidence that one or more loss events that occurred after the initial recognition of the financial asset, have had an impact on the estimated future cash flows of the financial asset. The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. Impaired debts are derecognised when they are assessed as uncollectible.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the Group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities - Other financial liabilities

All of the Group's financial liabilities fall into the other financial liabilities category. Such financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability to the net carrying amount on initial recognition.

Financial liabilities are derecognised when the Group's contractual obligations expire or are discharged or cancelled.

 

Cash and cash equivalents

In the Statement of Cash Flows, cash and cash equivalents comprise cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.  In the Statement of Financial Position, bank overdrafts are shown within borrowings in current liabilities.

Dividends

Dividend income is recognised when the right to receive payment is established.

Dividends payable are recognised when paid, or as a liability in the period in which the dividends are approved by the shareholders of the Company.

 

3.   Change in accounting policy

The Group has adopted IFRS 16, Leases from 1 April 2019.

IFRS 16, Leases introduces changes to lessee accounting by removing the distinction between operating and finance leases. It requires the recognition of a right-of-use asset and a lease liability at the lease commencement for virtually all leases.

The Group's operating leases impacted by IFRS 16 include real estate and office equipment leases.

The Group has elected to account for lease payments as an expense on a straight-line basis over the life of the lease for:

Leases with a term of 12 months or less and containing no purchase options; and

Leases where the underlying asset has a value of less than £5,000.

For other existing operating leases, the Group has applied the modified retrospective approach by measuring the right-of-use asset at an amount equal to the lease liability at the date of transition and therefore comparative information has not been restated. The Group has also applied the following practical expedients:

Apply a single discount rate to a portfolio of leases with reasonably similar characteristics;

Exclude initial direct costs from the measurement of right-of-use assets at the date of initial application for leases where the right-of-use asset was determined as if IFRS 16 had been applied since the commencement date;

Reliance on previous assessments on whether leases are onerous as opposed to preparing an impairment review under IAS 36 as at the date of initial application; and

Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term remaining as of the date of initial application.

 

The accounting policy adopted by the Group under IFRS 16 is set out in Note 2 above.

When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using its incremental borrowing rate at 1 April 2019. The rate applied to the UK lease is 3.5% and the rate applied to the US lease is 4.5%.

 

The change in accounting policy impacted the opening balance sheet as follows:

 

 

At 31 March 2019

IFRS 16

adjustment

At 1 April

2019

 

£'000

£'000

£'000

Non-current assets

 

 

 

Intangible assets

445

-

445

Property, plant and equipment

139

1,794

1,933

Deferred tax assets

637

-

637

 

1,221

1,794

3,015

Current assets

 

 

 

Inventories

53

-

53

Trade and other receivables

12,661

(92)

12,569

Current tax receivable

1,196

-

1,196

Cash and cash equivalents

8,294

-

8,294

 

22,204

(92)

22,112

 

Total assets

23,425

1,702

25,127

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

8,832

(107)

8,725

Lease liability

-

563

563

Provisions

767

-

767

Redeemable preference shares

50

-

50

Current tax payable

146

-

146

 

9,795

456

10,251

Non-current liabilities

 

 

 

Lease liability

-

1,246

1,246

 

 

 

 

Total liabilities

9,795

1,702

11,497

 

Net assets

13,630

-

13,630

 

 

 

 

 

The impact of the adoption on Adjusted and Statutory profit before tax is immaterial, although Adjusted EBITDA is increased by £0.6 million in the year.

 

A reconciliation of the prior year disclosed future operating lease commitment to the lease liability recognised under IFRS 16 is set out below.

 

 

£'000

Operating lease liability disclosed as at 31 March 2019

 

2,018

Impact of discounting using the incremental borrowing rate

 

(138)

Rent prepayment as at 31 March 2019

 

(61)

Recognition exemption for leases with less than 12 months of lease term

 

(10)

Lease liability recognised under IFRS 16 at 1 April 2019

 

1,809

 

 

 

4.   Use of judgements and estimates

In preparing these consolidated Financial Statements, management has made judgements and estimates that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

 

Judgements

Judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements are:

 

Going concern

As noted in Note 2, the financial statements have been prepared on a going concern basis, following detailed scenario testing and review.

 

Assumptions and estimation uncertainties

Assumptions and estimation uncertainties at 31 March 2020 that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year are:

 

Provisions against trade receivables and accrued income

 

A provision is initially made against trade receivables and accrued income for expected lifetime credit losses. Historic credit losses have been low and the provision rate is based on experience over the last two years. Balances are reviewed on a regular basis and provisions are increased to reflect any increase in credit risk where appropriate. The review takes into account factors such as the age of the debt, current economic indicators for the industry of the customer, recovery since the reporting date and discussions with the customer. Provisions are raised where debtors are not considered recoverable in full or in part. Provisions are released when subsequent information supports the recovery.

 

Share-based payments

 

The Group has share-based payment remuneration for employees under a Long-Term Incentive Plan. The fair value of share options at the date of grant is estimated using the Black-Scholes model based on certain assumptions. These assumptions are set out in Note 22 and include expected share price volatility, dividend yield, expected life and the numbers of options expected to vest.

 

5.   Segmental analysis

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is responsible for allocating resources and assessing performance of the business. The chief operating decision-maker has been identified as the Board. The Group has two operating segments: EMEA (comprising the United Kingdom and Singapore) and America (comprising the United States and Canada).

Both segments derive their revenue from a single business activity, the provision of human capital and business improvement solutions.

The Group's business is not highly seasonal and the Group's customer base is diversified with no individually significant customer.

 

Segment results for the year ended 31 March 2020

 

Segment result

 

EMEA

America

Total

 

£'000

£'000

£'000

Revenue

21,807

26,442

48,249

Cost of sales

(4,832)

(4,848)

(9,680)

Administrative expenses

(16,525)

(14,622)

(31,147)

Profit before inter-segment charges

450

6,972

7,422

Inter-segment charges

5,064

(5,064)

-

Operating profit - segment result

5,514

1,908

7,422

Finance income

 

 

51

Finance costs

 

 

(75)

Profit before taxation

 

 

7,398

 

Adjusted profit before tax

 

EMEA

America

Total

 

£'000

£'000

£'000

Operating profit - segment result

5,514

1,908

7,422

Employee options surrender costs

-

(765)

(765)

Adjusted EBIT

5,514

1,143

6,657

Finance income

 

 

51

Finance costs

 

 

(75)

Adjusted Profit before taxation

 

 

6,633

 

Management do not report segmental assets and liabilities internally and as such an analysis is not reported.

 

The mix of revenue for the year ended 31 March 2020 is set out below.

 

EMEA

America

Group

Delivery

58.2%

54.6%

57.2%

Design

12.8%

16.2%

14.9%

Digital

7.5%

10.0%

8.9%

Licensing and certification

14.4%

12.6%

12.0%

Other

1.2%

1.8%

1.6%

Advisory

5.9%

4.8%

5.4%

 

The vast majority of the Group's contracts are for the delivery of services within the next 12 months. The Group has therefore taken advantage of the practical expedient in paragraph 121(a) of IFRS 15 not to disclose information about remaining performance obligations.

 

Segment results for the year ended 31 March 2019

 

Segment result

 

EMEA

America

Total

 

£'000

£'000

£'000

Revenue

20,390

21,743

42,133

Cost of sales

(4,128)

(4,064)

(8,192)

Administrative expenses

(15,231)

(13,580)

(28,811)

Profit before inter-segment charges

1,031

4,099

5,130

Inter-segment charges

3,899

(3,899)

-

Operating profit - segment result

4,930

200

5,130

Finance costs

 

 

-

Profit before taxation

 

 

5,130

 

Adjusted profit before tax

 

EMEA

America

Total

 

£'000

£'000

£'000

Operating profit - segment result

4,930

200

5,130

Transaction related costs

1,426

74

1,500

Employee options surrender costs

26

1,551

1,577

Adjusted EBIT

6,382

1,825

8,207

Finance income

 

 

-

Finance costs

 

 

-

Adjusted profit before taxation

 

 

8,207

 

The mix of revenue for the year ended 31 March 2019 is set out below.

 

EMEA

America

Group

Delivery

59.2%

58.1%

58.7%

Design

16.5%

13.3%

14.9%

Digital

10.2%

10.2%

10.2%

Licensing and certification

8.1%

13.2%

10.6%

Other

3.9%

3.3%

3.6%

Advisory

2.1%

1.9%

2.0%

 

The vast majority of the Group's contracts are for the delivery of services within the next 12 months. The Group has therefore taken advantage of the practical expedient in paragraph 121(a) of IFRS 15 not to disclose information about remaining performance obligations.

 

6.   Operating profit

Operating profit is stated after charging:

 

31 March 2020

31 March 2019

 

£'000

£'000

Coach costs

6,030

5,171

Staff costs (Note 9)

23,786

19,194

Amortisation of intangible assets

444

93

Depreciation of property, plant and equipment

717

76

Operating lease rentals - land and buildings

-

645

Operating lease rentals - plant and machinery

-

34

Short-term and low value lease expense

132

-

Impairment of trade receivables

254

49

 

7.   Adjustments

 

31 March 2020

31 March 2019

 

£'000

£'000

Transaction related costs

-

1,500

Employee options surrender costs

(765)

1,577

 

(765)

3,077

 

Adjusted items for the year ended 31 March 2019 have been restated to exclude share-based payments.

Transaction-related costs in the year ended 31 March 2019 consist of advisory fees related to the Company's successful Initial Public Offering ('IPO') and admission to the AIM market in June 2018.

Employee options surrender costs in the year ended 31 March 2019 relate to compensation paid to non-UK resident employees in consideration for surrendering Enterprise Management Initiative ('EMI') options which vested on the IPO. This included an amount included within provisions at 31 March 2019 in respect of compensation paid to a non-UK resident employee. The employee left the business in October 2019 and as a result the compensation will no longer be payable and the provision was released in the year ended 31 March 2020. 

 

Credits in respect of prior year adjustments to the tax charge of £151,000 have been treated as an adjusting item in the year ended 31 March 2020.

The cash cost of Adjustments was £nil (2019: £2,310,000).

8.   Auditor remuneration

 

31 March 2020

31 March 2019

 

£'000

£'000

Fees for audit of the Company and consolidated financial statements

66

59

Fees for audit of the Company's subsidiaries pursuant to legislation

15

12

Total audit fees

81

71

Tax compliance services

58

73

Tax advisory services

37

84

Corporate finance services

-

250

Other services

10

10

Total fees payable to the auditor

186

488

 

9.   Employees

Staff costs were as follows:

 

31 March 2020

31 March 2019

 

£'000

£'000

Wages and salaries

20,613

16,673

Social security costs

2,006

1,612

Pension costs - defined contribution plans

823

569

Share-based payments

344

340

 

23,786

19,194

 

The average number of Group's employees by function was:

 

31 March 2020

31 March 2019

Delivery

183

153

Support

64

55

 

247

208

 

Key management personnel include all directors and a number of senior managers across the Group who together have responsibility and authority for planning, directing and controlling the activities of the Group. The compensation paid to key management personnel for services provided to the Group was:

 

 

31 March 2020

31 March 2019

 

£'000

£'000

Salaries, bonuses and other short-term employee benefits

1,952

1,679

Post-employment benefits

59

57

Share-based payments

262

314

Total compensation

2,273

2,050

 

10.  Net finance costs

 

31 March 2020

31 March 2019

 

£'000

£'000

Finance income

 

 

Bank interest receivable

51

-

 

 

 

Finance costs

 

 

Lease interest (IFRS 16)

(75)

-

 

(24)

-

 

11.  Tax

The tax charge for the year comprises:

 

 

31 March 2020

31 March 2019

 

£'000

£'000

UK current tax

1,117

1,288

UK adjustment in respect of prior periods

(44)

(126)

Foreign current tax

257

257

Foreign adjustment in respect of prior periods

(107)

-

Total current tax charge

1,223

1,419

Deferred tax - current year

270

(245)

Deferred tax - adjustment in respect of prior periods

-

5

Total deferred tax credit

270

(240)

Total tax charge

1,493

1,179

 

Tax on items charged/(credited) to equity:

 

31 March 2020

31 March 2019

 

£'000

£'000

Current tax credit on share-based payments

(373)

(2,402)

Deferred tax charge on share-based payments

296

1,609

Total tax credit in equity

(77)

(793)

 

The tax charge for the year can be reconciled to accounting profit as follows:

 

31 March 2020

31 March 2019

 

£'000

£'000

Profit before tax

7,397

5,130

Expected tax charge based on the standard rate of tax in the UK of 19% (2019: 19%)

1,406

975

Differences in overseas tax rates

165

14

Expenses not deductible for tax purposes

11

280

Adjustments to tax in respect of prior periods

(151)

(121)

Other tax adjustments

62

31

Total tax charge

1,493

1,179

 

The main categories of deferred tax assets recognised by the Group are:

 

 

Tax losses

Share-based payments

Other

Total

 

£'000

£'000

£'000

£'000

At 1 April 2018

-

1,914

94

2,008

Credited to income

-

50

190

240

Credited/(charged) to equity

296

(1,914)

9

(1,609)

Exchange differences

-

-

(2)

(2)

At 31 March 2019

296

50

291

637

Credited/(charged) to income

-

35

(305)

(270)

Credited/(charged) to equity

(296)

-

-

(296)

Exchange differences

-

-

14

14

At 31 March 2020

-

85

-

85

 

A deferred tax credit was recognised in equity in the year ended 31 March 2018 in respect of the anticipated exercise of EMI options in the next financial year. The EMI options exercised in the year ended 31 March 2019 generated a tax deduction that relieved the UK current year tax payable and gave rise to a tax loss, part of which was carried back resulting in a current tax receivable, and part of which was carried forward. These losses have been fully utilised in the year ended 31 March 2020.

 

Net deferred tax assets have been recognised on the basis that sufficient taxable profits are forecast to be available in the future for them to be utilised.

 

12.  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 23). Adjusted earnings per share removes the effect of transaction related costs, employee option surrender costs and one-off taxation credits.

 

31 March 2020

31 March 2019

Weighted average number of shares in issue

99,493,210

96,915,040

Potentially dilutive shares (weighted average)

445,571

3,405,218

Diluted number of shares (weighted average)

99,938,781

100,320,258

 

 

 

 

 

31 March 2020

31 March 2019

 

 

Basic eps

Diluted eps

 

Basic eps

Diluted eps

 

£'000

pence

Pence

£'000

pence

pence

Net profit attributable to shareholders

5,905

5.93

5.91

3,951

4.08

3.94

Exclude:

 

 

 

 

 

 

Adjustments

(765)

(0.76)

(0.76)

3,077

3.18

3.07

Tax on adjustments

73

0.07

0.07

(442)

(0.46)

(0.44)

Adjusted net profit after tax

5,213

5.24

5.22

6,586

6.80

6.57

 

13.  Dividends

 

 

Per share

31 March 2020

31 March 2019

 

Pence

£'000

£'000

Pre-IPO dividend on F ordinary shares (paid May 2018)

38.983

-

2,300

Pre-IPO dividend on G ordinary shares (paid May 2018)

11.864

-

700

Interim FY19 dividend on ordinary shares (paid Jan 2019)

0.80

-

793

FY19 Final dividend on ordinary shares (paid Aug 2019)

1.60

1,592

-

Interim FY20 dividend on ordinary shares (paid Jan 2020)

0.90

895

-

 

 

2,487

3,793

Final dividend proposed

 

-

1,592

 

For dividends paid before 21 June 2018, per share amounts have been restated for the 10:1 share split and so are expressed in amounts per new share.

 

The Board has not proposed a final dividend therefore the interim dividend paid in January 2020 represents the total dividend for the year of £895,000 (0.90 pence per share) (2019: £2,385,000, 2.40 pence per share).

 

14.  Intangible assets

 

Patents

Development costs

Total

 

£'000

£'000

£'000

Cost

 

 

 

At 1 April 2018

63

1,620

1,683

Additions

-

213

213

At 31 March 2019

63

1,833

1,896

Additions

-

94

94

At 31 March 2020

63

1,927

1,990

 

Amortisation

 

 

 

At 1 April 2018

63

1,295

1,358

Amortisation charge

-

93

93

At 31 March 2019

63

1,388

1,451

Amortisation charge

-

444

444

At 31 March 2020

63

1,832

1,895

 

Net book value

 

 

 

At 31 March 2019

-

445

445

At 31 March 2020

-

95

95

 

 

 

 

 

 

15.  Property, plant and equipment

 

Right of use asset

Leasehold improvements

Fixtures, fittings and equipment

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

At 1 April 2018

-

236

1,085

1,321

Additions

-

-

137

137

Disposals

-

(2)

(5)

(7)

Exchange differences

-

-

24

24

At 31 March 2019

-

234

1,241

1,475

Adoption of IFRS 16

1,794

-

-

1,794

Additions

2,922

20

536

3,478

Disposals

(654)

-

(37)

(691)

Exchange differences

132

-

32

164

At 31 March 2020

4,194

254

1,772

6,220

 

Depreciation

 

 

 

 

At 1 April 2018

-

231

1,009

1,240

Depreciation charge

-

-

76

76

Disposals

-

(2)

-

(2)

Exchange differences

-

-

22

22

At 31 March 2019

-

229

1,107

1,336

Depreciation charge

591

-

126

717

Disposals

(187)

-

(37)

(224)

Exchange differences

(25)

-

21

(4)

At 31 March 2020

379

229

1,217

1,825

 

Net book value

 

 

 

 

At 31 March 2019

-

5

134

139

At 31 March 2020

3,815

25

555

4,395

 

 

 

 

 

 

16.  Inventories

 

31 March 2020

31 March 2019

 

£'000

£'000

Finished goods

73

53

 

Write-downs of inventory amounted to £16,000 (2019: £146,000).

The cost of inventories recognised as an expense and included in cost of sales amounted to £2.0 million (2019: £1.7 million).

 

17.  Trade and other receivables

Current assets

 

31 March 2020

31 March 2019

 

£'000

£'000

Trade receivables

8,235

10,405

Less provision for impairment

(303)

(114)

Net trade receivables

7,932

10,291

Net investment in sub-lease

162

-

Other receivables

305

497

Prepayments

645

601

Accrued income

1,087

1,272

 

10,131

12,661

 

Non-current assets includes £289,000 of prepayments in respect of property deposits and £278,000 of net investment in sublease that will be recovered in over one year's time. There were no non-current other receivables in the year ended 31 March 2019.

The maturity analysis of the net investment in sub-lease is set out in Note 24.

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

 

31 March 2020

31 March 2019

 

£'000

£'000

Not past due

6,549

8,023

Past due 0-30 days

1,027

1,177

Past due 31-60 days

266

461

Past due 61-90 days

177

275

Past due more than 90 days

216

469

 

8,235

10,405

The movement in the allowance for impairment losses was:

 

31 March 2020

31 March 2019

 

£'000

£'000

At the beginning of the period

114

130

Charges

254

19

Utilisation of provision

(70)

(40)

Foreign exchange adjustment

5

5

At the end of the period

303

114

 

The Group has applied the simplified approach to measuring expected credit losses, as permitted by IFRS 9, and recognises a loss allowance based on the lifetime expected credit loss.

 

18.  Trade and other payables

 

31 March 2020

31 March 2019

 

£'000

£'000

Trade payables

1,997

2,203

Other taxation and social security

833

982

Other payables

673

467

Accruals

3,075

3,214

Deferred income

2,343

1,966

 

8,921

8,832

 

19.  Provisions

 

31 March 2020

31 March 2019

 

£'000

£'000

At the beginning of the year

767

-

Charge for the year

-

767

Released in the year

(765)

-

Foreign exchange

(2)

-

At the end of the year

-

767

 

At 31 March 2019, the Company held a provision in respect of compensation paid to a non-UK resident employee in consideration for surrendering EMI options which vested on the IPO. The employee left the business in October 2019 and as a result the compensation will no longer be payable. 

 

20.  Redeemable preference shares

 

The Company allotted and issued 50,000 redeemable preference shares of £1.00 each to Octavius Black in June 2018. The shares are fully paid up. Under the Articles of Association, the Company may redeem the preference shares at their nominal amount at any time specified by either the Directors or the preference share holder. The preference share capital, however counts towards the £50,000 minimum share capital required under the Companies Act 2006 and cannot therefore be redeemed unless the Company increases its other share capital. The preference shares are non-voting, give no rights to dividends or interest and entitle the holder to the return of the nominal value on a winding up.

 

21.  Financial instruments and financial risk management

Financial instruments by category

Trade and other receivables (excluding prepayments), Cash and cash equivalents and Trade and other payables are initially measured at fair value and subsequently held at amortised cost.

 

31 March 2020

31 March 2019

 

£'000

£'000

Net trade receivables

7,932

10,291

Other receivables

594

497

Cash and cash equivalents

15,952

8,294

Financial assets at amortised cost

24,478

19,082

Trade payables

1,997

2,203

Other payables

673

467

Lease liabilities

4,386

-

Financial liabilities at amortised cost

7,056

2,670

 

The Group holds no assets or liabilities which are held at fair value through income statement or OCI.

As the trade and other receivables and trade and other payables have a maturity of less than one year, the notional amount is deemed to reflect the fair value.

Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure.

 

The Group's sources of funding currently comprise cash flows generated from operations, and equity contributed by shareholders. The Group has no borrowings and is not subject to any externally imposed capital requirements.

 

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders to the extent allowed by the Company's articles or issue new shares.

 

Financial risk management

 

The Group's risk management is overseen by the Audit and Risk Committee. The Group is exposed to a variety of financial risks which result from its operations including credit risk, liquidity risk and foreign currency risk. Since the Group has no debt it is not significantly exposed to interest rate risk. The Group has not entered into any derivative transactions such as interest rate swaps or forward foreign exchange contracts.

 

There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks, or the methods used to measure them from previous periods unless otherwise stated in this note.

 

Credit risk

Credit risk arises principally from the Group's trade receivables from customers and monies on deposit with financial institutions.

 

Credit risk on trade receivables is considered to be relatively low as the Group's customers mainly consist of large credit-worthy organisations. Credit exposure is spread over a large number of customers and so there is no significant concentration of credit risk. Outstanding and overdue balances are regularly reviewed and resulting actions are put in place on a timely basis. The Group establishes an allowance for impairment. This is based on a review of individual balances taking into account the results of credit control communications and our knowledge about the customer relationship. See Note 17 Trade and other receivables for further information on ageing and impairment of Trade receivables.

 

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties are accepted, and management maintain a close relationship with the Group's banks.

 

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

 

 

31 March 2020

31 March 2019

 

£'000

£'000

Trade receivables

7,932

10,291

Other receivables

594

497

Cash and cash equivalents

15,952

8,294

At the end of the period

24,478

19,082

 

Liquidity risk

The Group ensures, as far as possible, that it has sufficient funds to meet foreseeable operational expenses. Cash flow forecasting is performed by Group Finance who monitor rolling forecasts of the Group's liquidity requirements. Such forecasting takes into consideration expected cash receipts, regular spending and payment of taxes such as VAT, payroll and corporate income tax.

 

Currently, the Group's liquidity risk is low as it is in a cash-generating position with a surplus of cash in all entities. All Group liabilities in the current and prior year are due within three months of the reporting date, apart from operating lease liabilities. The maturity of the operating lease commitments is set out in Note 24.

 

Foreign currency risk

The Group operates internationally and is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than Sterling. The currencies giving rise to this risk are primarily the US Dollar and the Euro. Where possible the exposure is mitigated by a natural hedge. For example, US Dollar revenues are partially matched by US Dollar costs in the US subsidiary.

 

The Group holds cash in the UK in Sterling, Euro and USD bank accounts and in the USA in US Dollar and Canadian Dollar bank accounts.

 

Trade receivables and Cash and cash equivalents are analysed by currency as follows:

 

 

GBP

USD

EUR

Other

Total

 

£'000

£'000

£'000

£'000

£'000

At 31 March 2020

 

 

 

 

 

Net trade receivables

3,914

3,465

445

108

7,932

Cash and cash equivalents

13,283

2,137

212

320

15,952

 

 

 

 

 

 

At 31 March 2019

 

 

 

 

 

Net trade receivables

5,016

4,402

634

239

10,291

Cash and cash equivalents

5,732

2,062

284

216

8,294

 

The Group does not currently use forward foreign exchange contracts or currency options to hedge currency risk.

 

22.  Share capital

 

 

31 March 2020

31 March 2020

31 March 2019

31 March 2019

 

 

Cost

 

Cost

 

Number

£'000

Number

£'000

Ordinary shares of £0.0001 At 1 April

99,493,210

1

8,860,000

1

Effect of 10:1 share split

-

-

79,740,000

-

Exercise of options (Note 22)

-

-

10,762,375

-

Issue of new shares to EBT

-

-

130,835

-

Ordinary shares of £0.00001 At 31 March

99,493,210

1

99,493,210

1

 

On 21 June 2018, a share sub-division was entered into, whereby 8,860,000 shares with a nominal value of £0.0001 were exchanged for 88,600,000 E-ordinary shares with a nominal value of £0.00001. On this date, the total share capital remained unchanged at £886.

 

On 22 June 2018, an additional 10,762,375 ordinary shares were allotted and issued to option holders with a nominal value of £0.00001, bringing the total share capital to £994 and giving rise to share premium of £112,000.

 

An Employee Benefit Trust ('EBT') was established in the prior year in connection with the Group's Share Incentive Plan. The movements in own shares held by the Employee Benefit Trust and the market value of the shares held at the year-end are shown below.

 

 

31 March 2020

31 March 2020

31 March 2019

31 March 2019

 

 

Cost

 

Cost

 

Number

£'000

Number

£'000

As at 1 April

130,835

-

-

-

Issue of new shares to EBT

-

-

130,835

-

Ordinary shares of £0.00001 At 31 March

130,835

-

130,835

-

Market value at 31 March

 

131

 

166

 

23.  Share-based payments

The Group awards options to selected employees under a Long-Term Incentive Share Option Plan ('LTIP'). The options granted to date vest subject only to remaining employed up to the vesting date. Unexercised options do not entitle the holder to dividends or to voting rights.

 

The Group operates the Mind Gym plc Share Incentive Plan (SIP). An initial award of £1,000 of free shares was granted in October 2018 to all employees at the IPO price of 146 pence. The shares are held in an employee benefit trust and vest after three years subject only to remaining employed up to the vesting date. The holder is entitled to dividends over the vesting period.

 

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

 

Before the IPO, the Group also granted options to certain employees under Enterprise Management Incentive plans ('EMI plans'). All such options were exercised or forfeited on the IPO.

 

The total share-based payments expense was:

 

 

31 March 2020

31 March 2019

 

£'000

£'000

Equity settled share-based payments

344

340

 

The movements in the number of share awards and share options and the weighted average exercise price of awards are:

 

 

31 March 2020

 

31 March 2019

 

Number

Weighted average exercise price £

Number

Weighted average exercise price £

 

 

 

 

 

Outstanding at the beginning of the period

1,606,434

0.90305

13,526,391

0.00971

Granted during the period

1,105,380

0.58583

1,620,819

0.89504

Forfeited during the period

(528,557)

1.37231

(2,778,401)

0.00074

Exercised during the period

-

-

(10,762,375)

0.01040

Outstanding at the end of the period

2,183,257

0.62884

1,606,434

0.90305

Exercisable at the end of the period

2,055

 

nil

 

Weighted average fair value of awards granted (£)

0.55

 

0.67

 

 

The range of exercise prices and weighted average remaining contractual life of share awards and share options outstanding at 31 March were:

 

 

31 March 2020

31 March 2019

 

£'000

£'000

£ nil

484,255

116,000

£0.00001

579,536

496,812

£1.04000

622,656

-

£1.46000

496,810

993,622

 

2,183,257

1,606,434

Weighted average remaining contractual life (years)

7.9

8.7

 

Share options awarded under the LTIP, SAYE and ESPP are valued using the Black-Scholes model. Shares awarded under the SIP are valued directly by reference to the share price at date of grant. Shares awarded in the year ended 31 March 2018 under the EMI plans were valued using the Black Scholes model and adjusted by a 30% discount for lack of marketability. The principal assumptions used in these valuations were:

 

 

Date of grant

Share price at grant

Exercise price

Expected life

Expected volatility

Dividend yield

Risk-free rate

Fair value

 

 

£

£

years

%

%

%

£

 

 

 

 

 

 

 

 

 

EMI plans (weighted average)*

FY 2018

5.82

0.01

2

24.5%

0.0%

1.0%

4.21

LTIP (2 year vesting)

27 Apr 2018

1.24

Nil

2

n/a

1.4%

n/a

1.20

LTIP (3 year vesting)

27 Apr 2018

1.24

Nil

3

n/a

1.4%

n/a

1.19

LTIP (2 year vesting)

25 Jun 2018

1.46

1.46

10

19%

1.4%

1.0%

0.28

LTIP (3 year vesting)

25 Jun 2018

1.46

1.46

10

19%

1.4%

1.0%

0.28

SIP

8 Oct 2018

1.67

Nil

n/a

n/a

n/a

n/a

1.67

SAYE

30 Sep 19

1.22

1.04

3

19%

1.4%

1.0%

0.25

ESPP

30 Sep 19

1.22

1.04

1

19%

1.4%

1.0%

0.20

LTIP (3 year vesting)

31 Mar 20

1.00

Nil

3

n/a

n/a

n/a

0.96

LTIP (4 year vesting)

31 Mar 20

1.00

Nil

4

n/a

n/a

n/a

0.95

LTIP (5 year vesting)

31 Mar 20

1.00

Nil

5

n/a

n/a

n/a

0.93

 

* share price and fair value of FY 2018 grants are expressed in amounts per old share and not adjusted for the share split.

 

24.  Lease liabilities

The future aggregate minimum lease payments under non-cancellable operating leases under the prior year accounting policy:

 

 

31 March 2019

 

 

£'000

Less than one year

 

585

Between 1 and 5 years

 

1,433

More than 5 years

 

-

 

 

2,018

 

There are no significant variable leases costs or lease term judgements. The maturity analysis of the contractual undiscounted cash flows are:

 

 

 

31 March 2020

 

 

£'000

Less than one year

 

1,087

Between 1 and 5 years

 

3,750

More than 5 years

 

-

Total undiscounted lease liabilities at 31 March 2020

 

4,837

 

Lease liabilities included in the statement of financial position at 31 March 2020:

 

 

 

31 March 2020

 

 

£'000

Current

 

914

Non-current

 

3,472

 

 

4,386

The related right-of-use asset is disclosed in Note 15.

 

A reconciliation of the movement in the lease liability in the year is as follows:

 

 

 

31 March 2020

 

 

£'000

Adoption of IFRS 16

 

1,809

Lease payments

 

(565)

Finance cost

 

75

New leases entered into during the year

 

2,922

Exchange differences

 

145

 

 

4,386

 

The Group sub-leased its New York office in March 2020.  The Group has classified the sub lease as a finance lease, because the sub-lease is for the whole of the remaining term of the head lease.

 

The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the reporting date. The related net investment in sub-lease is disclosed in Note 17.

 

 

 

31 March 2020

 

 

£'000

Less than one year

 

179

One to two years

 

201

Two to three years

 

87

Total undiscounted lease payments receivable

 

467

Unearned finance income

 

(27)

Net investment in the lease

 

440

 

There were no cash receipts or interest income recognised in the year.

 

25.  Controlling party

The Group was controlled by O. Black and J. Cash by virtue of their joint shareholding in the Company throughout the period.

 

There were the following related party transactions during the year and balances at the end of the year:

·      The payment of dividends to O. Black and J. Cash on their shareholding in the Company;

·      Key management compensation as disclosed in Note 9.


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.
 
END
 
 
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