Emerging stronger Annual Report and Accounts 2021 Contents Strategic report Investment summary Statement of the Board Chair Market overview Our business model CEO’s review Financial review Principal risks and risk management S172 statement Case study Governance Board of Directors Corporate governance report Audit and Risk Committee report Remuneration report Directors’ report Environmental, social and governance highlights Financial statements Independent auditor’s report Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the group financial statements Parent company statement of financial position Parent company statement of changes in equity Notes to the parent company financial statements Notice of AGM Directors and advisors 8 10 14 18 20 28 34 36 40 44 46 52 56 70 75 78 84 85 86 87 88 110 111 112 122 130 At a glance MindGym is an international behavioural science group delivering business improvement solutions to companies across the world. Founded in 2000 by entrepreneurs and behavioural science experts Octavius Black and Dr Sebastian It has a strong market presence with clients that include 52% of the FTSE 100 and 65% of Bailey, MindGym now has offices in London, the S&P 100 as well as governments, private New York and Singapore and a network of companies and not-for-profit organisations. coaches across the world. About 400,000 professionals in 584 organisations It provides integrated culture and behaviour change took part in a MindGym activity during the year. solutions to blue chip organisations by deploying a blend of proven, bite-size live and digital experiences using a highly scalable methodology. Visit the website for further information www.themindgym.com Stats and financial highlights of FTSE 100 52% 65% 3,000,000+ of S&P 100 Professionals have been to a live MindGym session Revenue -18% Adjusted* PBT -95% £48.2m £39.4m £49m £36.8m £24.5m £12.3m £0m £6.6m £7.0m £5.3m £3.5m £1.8m £0.0m £0.3m FY20 FY21 FY20 FY21 Diluted Adjusted* EPS -94% Diluted reported EPS 6.00p 4.50p 3.00p 1.50p 0.0p 5.22p 0.30p 5.91p 6.00p 4.50p 3.00p 1.50p 0.00p -1.50p -0.23p FY20 FY21 FY20 FY21 Adjusted* cash conversion 418% Period end cash balance +5.5% 500% 375% 250% 125% 0% 418% 136% 16.8 16.8 16.6 16.4 16.1 15.9 16.0 FY20 FY21 FY20 FY21 *An explanation of adjusted results is included on page 30, and a reconciliation of adjusted results is included on page 94 4 MindGym plc Annual Report and Accounts 2021 5 Strategic report Investment summary Statement of the Board Chair Market overview Our business model CEO’s review Financial review Principal risks and risk management S172 statement Case study 8 10 14 18 20 28 34 36 40 Investment summary The global market for human performance is estimated to be over $240bn and is highly fragmented with no dominant players. Whereas previous crises have been primarily MindGym’s existing strengths financial, the pandemic has been all about people. provide a strong foundation: COVID-19 has radically changed the world of work and the role of business in society. As a result, companies will continue to increase their investment in their employees as they adapt to new and constantly changing ways of working. At the same time, employee, customer and investor expectations of companies have altered dramatically. All three groups of stakeholders now have new expectations of employers including, for example, active promotion of diversity and inclusion, support for physical and mental health, sustainability and strict adherence to high ethical standards. The changing shape of the human capital management (‘HCM’) market and the vast • Blue chip clients, which include 52% of FTSE 100 and 65% of S&P100. Nearly 80% of revenue comes from existing clients. Three million professionals have taken part in a live MindGym experience. • A behavioural science core that underpins proprietary IP for market-leading solutions in the 10 most common HCM challenges and over 300 proven learning assets • The ability to deliver live in-person and virtual experiences with over 300 certified coaches in over 40 countries supported by a suite of digital products • A reputation built over 20 years with over 75% of revenue from repeat clients. opportunity this presents has attracted attention. Significant investment is being made in HCM • A strong cash position which both protects the Company against economic turbulence businesses both by private equity firms in and provides resources for investment. start-ups/grow-ups and by major IT companies and Systems Integrators as they work to achieve a dominant market position. We have a great base from which to build. We also have the right strategy to deliver a market-shaping proposition that will set MindGym up to be a MindGym is well placed to seize this opportunity dominant player in the HCM performance market. and become one of the market’s dominant players and we believe that we can do so within the next five years. 75%+ Revenue from repeat clients Virtual live delivery Global market for Learning and Development 100% $240bn In-person and virtual delivery MindGym has a proven track record of delivering Top-tier client relationships MindGym has strong relationships at C-suite/C-1 live bite-size workshops both in-person and level with many of the world’s leading companies. virtually. We have over 300 qualified coaches in The client list includes 52% of FTSE 100 and 65% of over 40 countries who deliver up to 400 workshops S&P 100. The Company has had historically high a week drawing from a library of 100 proven topics. In FY21, 100% of live delivery was virtual and the quality, as measured by participant feedback, exceeded that from in person. The current crisis and the coming shift to more hybrid working present a significant opportunity to support clients who are looking for live, virtual ways to reach and develop their remote workers. Distinctive digital strategy MindGym’s digital strategy is accelerating the development of market-leading products that provide a data-driven method to deliver mass, highly personalised, behavioural change. These will build on the success of our first-generation digital products which were launched in 2018 and now account for c.16% of revenue. These new digital levels of repeat purchase which has, this year, been augmented by winning significant contracts with new clients. The combination of high levels of client loyalty with a strong new business function provides strong foundations for accelerating growth. Healthy balance sheet The Company has a healthy balance sheet with £16.8m in cash and no bank borrowings at 31 March 2020 which provides security and resources to fund investment. As clients are primarily FTSE-100 and S&P-500 and no client accounts for more than 5% of revenue, there is limited exposure to bad debts. This provides support and protection. Large global market Even if COVID-19 has led to some temporary products will enable a pivot from programme based reduction, the global market is vast. MindGym activity to SaaS as the dominant source of revenue. operates in three markets: (i) the global market The launch of the first new, next-generation digital products will be in FY22. Rapid innovation unit We were able to respond quickly to changing needs and promptly launched new points of view on virtual working, wellness and other relevant topics in response to the effects of COVID-19. These are supported with packages of existing and new products. Our new research paper and supporting products on Diversity and Inclusion provides an opportunity to be seen as a leader in this $19bn market. for Learning and Development (L&D) is over $240 billion1 equivalent to over $1,200 per employee per year -roughly half of this is in behavioural areas that can be directly addressed by MindGym; (ii) The market for communications and change which is estimated at $5 billion2; (iii) global corporate wellness market which is valued at $61 billion3, and expected to reach USD 97.4 billion3 by 2027, expanding at a CAGR of 6.9%. 1 Deloitte, 2018 2 ALM, Talent and Workforce Consulting report 2017 3 Grandview Research, 2019 & 2020 We have appointed a new Chief Behavioural Science Officer and are investing to accelerate the development of market-shaping, proprietary IP in a wide range of adjacent areas. 8 MindGym plc Annual Report and Accounts 2021 Strategic report 9 Statement of the Board Chair Reflecting on all that has happened and the challenges the Group has overcome, it is hard to believe only a year has passed since the writing of the last Annual Report. Joanne Cash Board Chair I am pleased to report that despite the hard hit to COVID-19 blurred the ultimate line between revenue at the half year (down 40%), the Group professional and private, work and home recovered quickly and has ended the year with because work has had to be at home. revenue down only 18% for the year to £39.4 million (2020 £48.2 million). Reflecting on three years as Chair since MindGym was admitted to trading on AIM in June 2018, I am The fall in revenue impacted profitability, with struck by how prophetic our predictions have proved Adjusted PBT for 2021 at £0.3 million (2020 £6.6 to be about the increasing amounts of management million). However, cash generation has remained time behavioural issues would occupy, and how strong enhanced by increased up-front payments COVID-19 has accelerated some of these trends. and cash ended the year at £16.8 million (2020 £16.0 million). However, decisions not to cut costs too hard so that the business would be able to recover as demand increased again have been vindicated. Stronger than ever The strong cash balance allowed the Group to maintain adequate team numbers and infrastructure in H1 to enable it to accelerate out of the crisis while continuing crucial investment in its digital strategy. The global training market is estimated at $240bn, the corporate change market at $5bn and corporate wellness at $61bn. It remains to be seen what the full impact of the last year will have been, however early signs are that C-suite appreciation for the value driven by these budgets has increased. Governance During the year we announced the appointment of two new Non-Executive Directors, Trevor Phillips It is now well set up to embrace the ongoing opportunities presented by the success of the vaccine programmes. and Ruby McGregor-Smith, who have broadened the skills of the Board. Trevor Phillips chairs the recruitment company Green Park and a data profiling business and from May 2021 presents a The Group successfully navigated a pivot to 100% weekly show on Sky News. Ruby McGregor-Smith virtual live delivery to meet the demands of global was the Chief Executive of MITIE Group PLC and virtual working and the feedback for those virtual was on the board of PageGroup for a decade over sessions has met an even higher threshold than which time she oversaw their investment in a digital that for live, proving the merit of the Group’s proposition. Since joining, Trevor Phillips has had focus on quality. The Board’s confidence in and oversight of MindGym’s ESG activity and Ruby commitment to the Group’s digital strategy McGregor-Smith has chaired the Remuneration and investment has been reinforced. and Nomination Committee. Increasing demand It has been an historical year globally and a significant Our non-executives are highly proactive and supportive, providing constant rigorous and attentive oversight. During the most financially one for the Group’s market. Over the past 12 months, challenging months of COVID-19, the Executive businesses found themselves the focus of social as provided the Board with weekly updates and I well as market changes. From Black Lives Matter chaired a bi-weekly remote meeting. This regular to mental health, CEOs were expected to lead on governance enabled an agile review of activity issues far from their traditional remit. and in particular capital investment in digital. Annual Report and Accounts 2021 Strategic report 11 r i a h C d r a o B e h t f o t n e m e t a t S Having spent ten years as a director of MindGym The Board wishes to thank every member and seven years as Board Chair navigating the of the team for their hard work, resilience business through our early years of rapid expansion, and care for clients over this last long year. a successful IPO and initial period as a quoted company, this feels like the right time to implement our board succession plan. I shall not be seeking re-election as Chair at the AGM and I am delighted that Ruby McGregor-Smith, who was appointed to our board in November 2020, has been nominated to succeed me as Chair. As we drive forward our digital strategy, I believe that Ruby’s prior experience as a CEO of a FTSE 250 business, delivering growth at scale is what is needed to realise the Group’s potential. People and culture It has been a challenging year for everyone. The loss of the day-to-day enjoyment and spontaneity of office life has exacerbated the isolation of the pandemic and the pressures of working life. Despite this, our remarkable team has driven the recovery narrated in this report. The Group is undergoing a major digital transformation which would be challenging in normal times. However, we ended the year strong and confident with greater opportunity than ever to drive market share. None of this would have been possible without our talented Executive and colleagues. It is a testament to the MindGym spirit that both our Board members and our employees accepted salary reductions until the end of Q1 and we are delighted to have ended the year in a position to repay these. Finally, I would like to thank my fellow Board Directors, a fantastic group of professionals for whom no ask is ever too much and whose leadership, work ethic and challenge provide the Executive with the development and confidence so key to the Group’s success. Dividend The Board’s positive strategy at this stage is to conserve cash to invest for growth. The digital strategy has been vindicated by the events of the last year, so we believe that prioritising investment over restoring a dividend is the right decision for the immediate future. We plan to restore dividend payments once MindGym returns to profit and generates surplus free cash. Joanne Cash Chair 10 June 2021 We ended the year strong and confident, with greater opportunity than ever to drive market share. 12 MindGym plc Market overview Learning and development – a large and growing market Over $1,200 is spent on Learning and Development The main digital players do not offer live delivery. (L&D) per employee worldwide. Estimates of the The main companies that offer live delivery have total size of the L&D market vary from $240bn quite basic digital assets. Very few companies upwards. Although internal training makes up provide live, virtual and self-paced digital at the majority of this, about 40% is still spent on high quality. external providers. MindGym has an established reputation for MindGym addresses the behavioural proportion of this market, which makes up about 50% of the providing consistent, global instructor-led, live delivery, both in person and virtual. It also has a total and includes challenges like leadership, growing reputation for strong, self-paced digital management, personal effectiveness, onboarding, learning with a library of over 90 programmes sales and customer service. which our new, next-generation digital products The preference for most clients when they initiate will only enhance. significant behavioural learning programmes The L&D market has shown steady growth over is for a blended solution which includes both the last decade until 2020 when the COVID-19 instructor-led and digital learning. The more caused companies to pause spending temporarily. integrated the live and digital are, the greater the Companies are now however reinvesting in impact on changing behaviour and the lower the training and the global market is projected effort (and so cost) for clients in aligning them. to grow at a 2 to 3% pa until 2025 (Beroe). Total L&D market size estimates (2019) $bn 427 260 ¢346bn 370 226 240 146 Internal training share External providers share1 94 144 167 Bersin by Deloitte Training Industry Beroe Inc. Average percentage of learning content by content area (Consolidated) Managerial & Supervisory Interpersonal skills New employee orientation Executive development Customer service 14% 10% 9% 7% 6% 52% Addressable by MG Sales (not including product knowledge) 6% Basic skills 1% Other 2% Product knowledge IT & systems 6% 7% Process, procedures and business practices Profession-specific or industry-specific Mandatory & compliance Source: ATD 2019 State of the Industry report 10% 10% 13% Trends in the market and impact of COVID Although the immediate impact of the pandemic led The skills considered most important in this new to a contraction in the L&D market in 2020, the crisis environment include resilience, adaptability and has pushed Human Capital Management to the top digital fluency. The world of work is undergoing of the executive agenda. Organisations have had to profound change and it is clear that ways of focus on how to manage their teams remotely and working will not return to the way they were how to help their employees manage through the before the crisis hit. Upskilling and reskilling crisis and stay productive from home. will remain essential for organisations and 64% of L&D professionals now agree that L&D has their people to adapt and thrive shifted from a ‘nice to have’ to a ‘need to have’ and Before the pandemic, there was already a trend away the proportion who believe that their CEOs are active from live instructor-led training (ILT) and towards champions of learning and that L&D has a seat at the more self-paced online learning. Lockdown has C-suite table has more than doubled since the start accelerated this transformation and forced live of the pandemic to over 60% (LinkedIn). Reflecting ILT to be replaced by virtual instructor-led training this, the proportion expecting to increase their L&D (VILT). Although we expect to see some return to budgets are now back to pre-pandemic levels. face-to-face delivery, the move to hybrid working with employees often working away from the office means that VILT is here to stay. The model for learning in the future will be based around a blended approach combining online learning and VILT: an approach which is tailored to the learner, available at the moment of need, and can be delivered at scale. 14 MindGym plc Annual Report and Accounts 2021 Strategic report 15 D&I ranks number one in programmes planned for 2021 in North America and number two globally. w e i v r e v o t e k r a M Source: LinkedIn Workplace Learning Report 2021 % of L&D professionals who agree that Mar-20 Mar-21 70% 53% 35% 18% 0% L&D has a seat at the C-suite table CEOs are active champions of learning Diversity and inclusion (D&I) has become an Corporate wellness The COVID crisis has presented workers and their families with unprecedented challenges. This has raised the profile of corporate wellness. Corporate wellness addresses a wide range of issues including physical health, fitness, financial health, mental wellbeing, motivation and contribution to society. Any of these can ultimately affect employees’ engagement, performance and productivity The corporate wellness market is estimated to be about $61 billion (Grandview Research) with estimates of its growth ranging from 4.8% to 6.9% per annum (Global Wellness Institute and Grandview Research). increasingly important part of the L&D market. MindGym has always had products that help According to LinkedIn, 64% of L&D professionals improve people’s mental strength and is in the globally and 73% in North America report that D&I process of expanding this offering with new programmes are now a priority. D&I ranks number live and digital products. one in programmes planned for 2021 in North America and number two globally. MindGym well positioned to seize share as the market changes Market trend MindGym positioning Grounded in behavioural science All content sourced from peer-reviewed behavioural science; all courses designed by psychologists Blended: instructor-led and digital Integrated portfolio of 400 products consisting of instructor-led and digital Live virtual as alternative to face-to-face Over 100 proven virtual workshops ready to deliver immediately with quality greater than face-to-face Agile Bite-size Proven products ready to deploy and adapt as circumstances change from standing start to deliver in a few days Core products are 90-minute Workouts, which deliver same impact as traditional day-long sessions, and 10-minute eWorkouts Consistent quality, globally, at scale Track record with 3m+ professionals; local coaches in over 30 countries Fewer, key suppliers Established relationships; relative size; credibility as public company Proven to work Case studies that demonstrate business impact and high levels of repeat purchase from blue chip clients 16 MindGym plc Our business model Delivering the human advantage that drives business performance As business leaders look for ways to make their company fast and flexible, MindGym’s unique proposition offers an agile approach to learning and behavioural change unlike anything else in the market. This gives our clients greater impact for less investment and provides investors with a model that’s set up for sustainable growth. MindGym’s model is distinct in ways that bring enormous value to clients so they can achieve far more and yet spend rather less than they would with conventional partners. It makes the business hard to copy and easier to scale, which further increases the appeal for investors and it allows employees to spend their time doing what they excel at rather than being bent out of shape to fit into roles that don’t suit them, making it easier to attract and keep great talent. The behavioural change and learning market is made up of a few very large, well-established players and a lot of very small ones. MindGym has managed to break the mould to become a mid-sized player, at least in part due to this business model. This model provides the foundations to accelerate growth. HCM market norm Bespoke, highly customised solutions Gains for clients Gains for investors Proven, productised behavioural science assets are easily configured, and re-configured, into customised programmes • Minimal up-front investment • Up running in days, or a few weeks • Greater guarantee of success • Easier to adapt as needs change • Easier to scale with improved margins • Long-lasting products with greater return on innovation investment The same person sells, leads project, oversees designs and delivers to senior groups Separate teams for client relationship, design (where needed), delivery and project management – agile resourcing means most capable person does the work • Always get the best person • Easier to scale team for the task • Don’t pay for members of project team when not needed • Minimal risk of employees leaving to set up a replica Client assignments start with extensive needs analysis and solutions are based on orthodox management practices Clients start with psychology- based template from which, together, we build a prototype to test and refine – soup to nuts in less than a month • Proven to work and based on science • Speed to value – weeks vs months • Alternative to old-fashioned methods that have not delivered • Distinctive in the market • Hard to replicate so barrier to competition • Gains attention from C-suite Network of associates who have been selected on relationships and past experiences 300 qualified coaches in over 30 countries who have been through a robust certification process • Consistent quality across the world • Variable cost base for all live delivery • Local cultural adaptation • Readily service global clients as standard • Deliver where my people are, with minimal travel costs • Easy to increase supply by geography Fees based on consultants’ time Fees based on products • In everyone’s interests • Robust gross margin to move quickly • In control of costs – know what I’m getting CEO's review We predicted at the IPO in 2018 that the people agenda would gain prominence in the C-suite. The extraordinary circumstances of the last 15 months have accelerated this trend. Octavius Black Chief Executive Officer Human capital is now centre stage, both in the short term as companies responded to a global lockdown and in the medium term by changing the rules of work in a dramatic and lasting way. At the same time, the expectations of business and its role in society have altered significantly. There were new demands on companies both to speak out about racism in society and to address racial inequality within. Care for employees’ mental and physical health has become mainstream, with over 50,000 current job vacancies in corporate wellbeing. The phenomenon of business leaders resigning more often for behavioural transgressions than financial underperformance, which first occurred in 2018, continues with a flurry of high-profile departures in 2020. Even before these changes, the market for human performance was large (c. $300bn), growing (c. 5-10% pa), profitable and highly fragmented (no one has more than 0.5% market share). Now, as working culture and behaviour is constantly MindGym is well placed to create this new-to- market proposition. We have a reputation built over 20 years, client relationships with the world’s top companies, extensive scientific IP, the full range of proven distribution channels, and the track record of successfully pivoting to fully digitally enabled. Our priority now is to invest in the areas that will deliver sustainable growth and turn MindGym into the global enterprise partner for ambitious companies who want to make the most of their people. Trading performance – a year of two halves The year has been made up of two halves: the first six months when clients were focused on the operational consequences of COVID, and the second half when they started to turn attention to areas where MindGym can support, such as performance, engagement, inclusion and leadership. scrutinised, the market looks set to expand even Although our four year and 10-month revenue faster and in new, exciting ways. Global technology companies and consultancies, as well as private equity firms, are investing heavily in the market for human performance, generating unicorn valuations in businesses that have yet to declare a profit and aggregating digital services to offer ‘one stop’ solutions. The market is in flux and this creates an opportunity not just to grow with the market, but to reshape clients’ expectations and provide them with a proposition that delivers greater behavioural CAGR of 20% has been interrupted by the pandemic, we are pleased that the business saw a significant turnaround in the second half that sets us up well for the year ahead. H1 The impact of global lockdown and remote working would have been more serious without MindGym’s strong virtual and digital products. Within the first few weeks of H1, 183 MindGym coaches were trained and qualified to deliver virtual sessions. change, increased performance and less risk, MindGym’s portfolio of eWorkouts, which are pure while also reducing costs. Our strategy is to integrate in-person/virtual/ digital in a single proposition across the full range digital, provided immediate solutions to clients and revenues subsequently grew from £1.9m (H1 FY20) to £2.1m (H1 FY21). of human performance mindsets and skills, using Management’s attention in H1 was focused on: machine learning to hyper-personalise the user’s experience and real-time organisational data to optimise return on investment. 1) Keeping the business in a stable state to be set up for growth as some semblance of normality returned 2) Continuing to bring new insights to clients so they would value our support when they were ready to re-engage 3) Adapting and accelerating the digital strategy We asked all employees to make a salary sacrifice. We adopted the UK government’s furlough scheme in Q1 and conducted a restructuring in Q2 to bring costs more in line with revenue. Annual Report and Accounts 2021 Strategic report 21 w e i v e r s ' O E C In H1 2021, our revenue shrank at -40% on the same The users rate the virtual experience as highly as period last year, with low points in June and July in-person and the level of repeat business shows of -50% and -54% on the same months in the that clients are delighted. With a return to some previous year, and as a result we declared an office working in sight, we anticipate a rebalancing adjusted loss before tax of £1.3 million to in-person delivery, which we are very well placed (H1 2020: £3.9 million profit). H2 The investment in innovation and marketing in H1, to deliver with over 300 qualified coaches in 40 countries, while maintaining our strong position in virtual delivery. Our clients are widely spread across industries, along with the decision to retain the team needed which gives us greater protection in light of the for a return to growth, began to pay dividends in fast-changing economic circumstances. Our largest H2 and, significantly, saw a return to growth far industry in EMEA is financial services and in the sooner than we had anticipated. The attention we had given clients during the worst of the pandemic paid off as they came to MindGym for support on the move to hybrid working, the new role of the manager, ethics and a renewed focus on combatting racism, which we were able to address US is healthcare. Overall, we are globally well represented in financial services, healthcare and technology, which appear to be among the more resilient industries in the current climate. with the rapid development of new products. Financial services In addition, some client projects that had been postponed pending a return to live were successfully converted to virtual. As a result, the business returned to growth faster than expected, delivering +2% revenue growth in H2 (+6% at constant currency) and making an H2 adjusted profit before tax of £1.6 million, even after repaying employees’ H1 salary sacrifice. Industrial Healthcare Services Technology FMCG and retail Government and non-profit Other Total EMEA Americas Global 41% 19% 5% 6% 9% 7% 11% 2% 18% 28% 14% 16% 23% 15% 18% 12% 11% 4% – 13% 11% 9% 7% 1% 100% 100% 100% FY21 review Overall, MindGym delivered a better performance for the year than we had anticipated at the nadir of the pandemic, reversing a significant decline in revenue and a loss in H1 with a return to growth and profitability in H2. The year ended at -18% (2020: 15%) growth in revenue and a small adjusted profit before tax, delivering an adjusted PBT margin of 0.8% (2020: 13.7%). The business generated revenues from c. 600 clients and delivered learning globally, 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 2021, EMEA generated revenues of £17.2 million, 21% down on the prior year and representing 44% of total revenues. US revenues of £22.1 million represented a 16% year-on-year decrease. The ratio of US:EMEA is 56:44 (2020: 55:45). In the last year, MindGym successfully pivoted from largely in-person delivery to become a fully digitally enabled business. Our geographic diversity also mitigated risks. While our deliveries in APAC were the first to suffer from COVID-19, they were also among 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 homeworking 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 MindGym better protection against a change in economic conditions in any particular region or market. We have continued our focus on cash conversion, and in our third year as a public company we have improved adjusted cash conversion from 136% to a one-off high of 418%. Our blue chip client base has ensured that we have virtually no bad debts and an increased number of our clients have chosen to pre-pay for services, which is a clear demonstration of commitment to the business. For these and other reasons, despite a digital capex spend of £2.8 million, our cash balance at end of the year was £16.8 million, roughly the same as the prior year end (2020: £16.0 million). Adjusted diluted earnings per share (EPS) decreased by 94% to 0.30 pence (2020: 5.22 pence). Our vision Our vision is to use data and technology to deliver highly personalised, integrated learning to build the human advantage that delivers business performance. This will enable companies to • Deliver global behaviour change at scale at the ‘speed of life’ • Use machine learning to deliver hyper-personalised development • Respond to changing business priorities immediately and without additional cost • Continuously improve their return on investment with consistent, real-time data • Replace disparate existing content and platforms • Make significant cost savings Deepening client relationships Our clients include 52% of the FTSE 100 and 65% of the S&P 100. Our strategy is to build long-lasting relationships with existing clients and to win significant new ones. In previous years, we have predominantly grown existing clients. The challenges in the last year presented new opportunities and we are delighted to have several significant new clients, alongside deepening our relationships with existing ones. For the first time, five of our top 25 clients were new clients to MindGym. This shows how we can complement our long-term client relationships with winning new ones, which will help accelerate growth in a post-COVID environment. Market-leading innovation Part of MindGym’s success lies in its ability to identify and address the most pertinent and challenging behavioural issues with the science that works. These are presented to the market as a ‘point of view’ (‘PoV’), which ultimately takes the form of a published research paper and assisting products, which tend to be bite-size workshops with supporting digital assets. In addition, we create topic-specific webinars and mini-PoVs on current issues. These are all proprietary intellectual property. In the last year, we gained record attention in our webinars and CHRO round tables with current and potential clients, as well as in the media with MindGym being quoted in The Times, Financial Times, The Economist, Bloomberg and many other mainstream media. 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, eight years later, it is widely accepted. inclusion 22 MindGym plc Annual Report and Accounts 2021 Strategic report 23 w e i v e r s ' O E C D&I has continued to rise up the Board agenda with Leading in a hybrid world 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. It received increased focus following the murder of George Floyd and the increased influence of Black Lives Matter. In 2020, we launched a consultation edition of our new research paper ‘The inclusion solution’ with a foreword by Trevor Phillips OBE, Founding Chair of the Equalities and Human Rights Commission (and Non-Executive Director at MindGym Plc). This challenged the value of many of the orthodox approaches, such as unconscious bias training, and offered a scientific alternative. We now have 57 learning assets which address 17 topics relevant to D&I. The response from CHROs and Chief Diversity Officers has been universally positive, with several citing it as the most insightful report they have read on this widely documented topic. As a result, we have won several competitive tenders with new clients when pitched against their established incumbents, as well as increasing the depth of our relationship with existing clients. The market for D&I training is estimated to be $8 billion in the United States alone and is growing. We see the publication of this report in Q1 FY22 as an opportunity to provide market leadership in this area, as well as increasing our credibility across the C-suite. Wellness and mental strength The market for corporate wellness is estimated at $61 billion and forecast to grow to $97.4bn by 2027. There are over 50,000 vacancies for corporate Management and leadership development is the most consistently purchased topic. Our current PoV ‘The return of the manager: this time it’s personal’ was published in 2016. The recent, dramatic changes in the world of work, including the shift to remote and hybrid working, calls for a refreshed approach. We are conducting an in-depth review with our Academic Board and will publish a fully updated PoV with supporting products later this year. Accelerating innovation We are delighted to announce the appointment of Dr Janet Ahn as our first Chief Behavioural Science Officer in January 2021. Janet was formerly a tenure track professor at William Paterson University and completed her PhD at New York University. Janet will lead a new team with responsibility for the development of MindGym’s evidence-based points of view and products. This will lead to a significant increase in quality and speed of innovation. Whereas it has previously taken up to two years from initiation to the publication of a new point of view in a White Paper, we plan to reduce this to between 9 and 12 months. A new point of view lasts for up to eight years before it needs to be refreshed and so this will greatly help build a strong foundation of proprietary IP across a wide range of universal Human Capital challenges. Distinctive digital strategy Digital expansion The recent, sudden move to extended remote working and the clear signs that hybrid working is here to stay has reinforced the value in our digital strategy. wellbeing roles. In the current environment, the Our first eWorkouts were launched in 2018. Now pure importance of wellness has increased as companies digital makes up 16% of revenue (up from 9% in FY20). fear the effects of extended lockdown on mental We now have a library of 85 eWorkouts and in the last health and the potential legal challenge if they year, we have converted 31 to make them AA rated for are perceived to have failed in their duty of care. accessibility, and translated four into four languages We have always had a range of products that help people improve their mental strength and wellbeing. We are in the process of developing an original, (French, German, Spanish and simplified Mandarin). Digitally enabled revenue, which includes virtual delivery, was 77% of total revenue. evidence-based point of view on wellness, which Phase 1 of our digital strategy has been a great will be supported by a range of existing and some success. Last year we embarked on phase 2, which new live and digital products. This offer has already is the next stage in our digital transformation. been trailed in our new COVID-related point of view on ‘The wellness precipice’ and will be launched later in the year. In the coming year, we will launch two new products, which are the next steps towards realising this vision. Both will be offered on a SaaS basis, which is consistent with how we have successfully grown our eWorkout, digital revenue. One of the new products is pure digital and the other With the success of the vaccination programmes is digitally enabled. Both products have had positive in our main markets, we anticipate a return to live, feedback from beta trials, with participants face-to-face delivery in the coming year. If there is reporting that they have implemented insights and a return of leadership conferences and all company improved their skill levels. We expect the first, gatherings, as we expect in H2, this will create digitally enabled, product to be revenue-generating additional opportunity. by the end of H1 and the second, pure digital, product to be revenue-generating by the end of H2. We have plans in place to provide a refreshed and improved live, in-person delivery experience for Our investment in this digital transformation in the when clients request it. last year was slightly less than we had planned (£3m against a budgeted £4m) as it has taken longer to recruit the talent we want. Nonetheless, the delivery of the new products is on schedule, which is a great tribute to the excellent team who have joined in the last 12 months and helps position the business as an attractive place for top-class digital talent. 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 that is virtual has gone from 32% virtual in FY19 and 37% in FY20 (when we first experienced the effects of COVID) to 100% in FY21. Infrastructure to support growth We continue to invest in a range of operational improvements to support long-term, sustainable growth and realise economies of scale. As part of the digital transformation, we have designed a new Target Operating Model that we plan to implement during the coming year. This will provide clear accountabilities and the structure that we need to deliver on the in-person/virtual/digital aggregated proposition in a way that is seamless for clients and realises operating efficiencies. At the end of FY20, we introduced a new CRM, Salesforce, which, this year, we have integrated with our Marketing systems to create a more seamless process and produce data that helps We have increased the number of coaches who are redirect effort and investment to where we will certified to deliver virtually from 120 to 200, with the get the greatest return. These are two of the many operational improvements that will set the business up to scale efficiently. capacity to certify more if the demand requires it. We have also certified bilingual 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 the year the ‘Excellence’ rate for all deliveries was 56.1%, which compares with 50.1% 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. 24 MindGym plc Annual Report and Accounts 2021 Strategic report 25 w e i v e r s ' O E C Strong leadership In FY20, we added experienced new members to the MindGym Executive team including: • President, Americas, who was formerly President and CHRO of Kindercare and, before that, Ann Inc. • Chief Commercial Officer, EMEA, formerly the head of the leadership development practice at Korn Ferry, EMEA • Chief Digital Officer, former Digital COO at HSBC These strong additions are now established and bringing great value to the business. This year we have added further to our leadership strength with the appointment of a Chief Behavioural Science Officer who has joined the Executive team. We have also added experienced new hires to our extended leadership team, including a new Chief Commercial Officer, Americas, a new Head of Creative, Americas and a new Chief Technology Officer. This strength and depth in leadership helps reduce founder dependence and provides the foundations for long-term, sustainable growth. ESG MindGym has been a proud proponent of ESG from Over 10 years, the programme has continued to be delivered by ParentGym-trained volunteers in over 100 state primary schools a term across the UK, fully funded by MindGym. At the market rate for MindGym’s comparable products, this is equivalent to a donation of c. £3.5m pa. MindGym 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 MindGym. A series of independent academic evaluations of the programme are further proof to clients of the impact MindGym 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 wellbeing, 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 ParentGym programme to parents. However, it is testament to our employees’ commitment that we have 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 before the term was coined. Our business mission have access to the programme. is to help people use their minds more effectively so they can get more out of life and give more to others. In the last year hundreds of thousands of professionals have been to a MindGym experience and committed to take action to improve their lives and those of their colleagues. We also believe that businesses serve a vital role in their communities and our social responsibility lies at the heart of our culture. Each year we publish new research, that we share openly at no cost, to help company bosses make better decisions about how they run their businesses and so contribute to the social gains that are central to the ‘S’ of ESG. All of these steps help make companies more sustainable and contribute to a richer and healthier society. Our work is not restricted to companies. We are very proud of ParentGym. 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 and ran our first fully-fledged ParentGym programme in 2010. I would like to pay particular thanks to our Chair who not only came up with the idea of ParentGym, but has also led it into the force that it has become. I am also greatly appreciative of our investors who share our values and have been fully supportive of this philanthropic venture. Governance I would like to express immense thanks to Joanne Cash who, as MindGym’s Chair, has been instrumental in shaping the transformation of the business over the last decade. Joanne’s strategic foresight, forensic analysis and robust leadership have been critical to our success in developing from a small, private company into a fast-growing listed business and creating our ability to shape the agenda both within and beyond the corporate sphere. Joanne also launched ParentGym, now in its eleventh year of providing invaluable guidance to parents both in socially deprived parts of the UK and within our clients, and so changing lives for tens of thousands of people for generations to come. We are all immensely proud of what ParentGym has already achieved. It is a further tribute that Joanne, one of only a few Our mission is to help people use their minds more female Chairs of an AIM company, has built one of effectively. This is not only good for our clients, but the most diverse Boards on the market. While we also helps participants get more out of life and give will greatly miss Joanne as Chair, I am very grateful more to others. The tragic death of George Floyd in that she has agreed to remain on the Board as a 2020 exemplifies how our proposition has never Non-Executive Director, so we will all continue been more important or relevant. Our D&I revenues to gain from her insight. climbed 77% in FY21 on the previous year as ESG I am also delighted that Ruby McGregor-Smith continues rightly to gain attention. has accepted the role of Chair. Ruby’s experience We have had a strong first quarter with revenue as CEO growing Mitie into a FTSE 250 company, as anticipated to be well ahead of Q1 last year, which well as her breadth of insight as Chair of the British suffered from the pandemic, but also up on the Chamber of Commerce, will bring immense value as previous pre-COVID year. While there is still global we enter MindGym’s third decade and deliver on our and economic uncertainty, we and our clients have strategy to become a global leader in the market for adapted quickly, and we anticipate building on the momentum of H2 in the year ahead. We are well placed to at least match our FY20 pre-COVID revenues in FY22 and return to profitability in FY23. Octavius Black Chief Executive Officer 10 June 2021 Human Performance. Summary and outlook We are pleased with how the Group responded to the extraordinary circumstances of the last year with a clear plan to deliver highly topical, fresh insight to clients and accelerate our pivot to virtual and pure digital delivery. We are already seeing the results with a much faster than anticipated return to revenue growth and 51% increase in our pure digital business, which now represents 16% of revenue, up from 9% last year. While our repeat revenues remained high at 78%, we were delighted to see significant revenue wins from new clients as they responded to our propositions in a virtual world. This recovery in revenue is before we start to see the return from our continuing digital capex, with the launch of two new, market-leading digital products in FY22. We anticipate that even with the return to live, in-person delivery, the majority of our business will be digitally enabled (which includes virtual) and our pure digital mix will also continue to grow. As the core business returns to profitability, we will invest those profits, primarily in digital, proprietary IP and marketing. This will form the basis for long-term, sustainable growth and puts us in a better position than ever to become one of the dominant players in this vast, growing and highly fragmented market. 26 MindGym plc Annual Report and Accounts 2021 Strategic report 27 Financial review Following the initial COVID-19 downturn, a recovery of revenues in the second half enabled continued investment for future growth while maintaining a resilient balance sheet. Richard Steele Chief Financial Officer Following the initial COVID-19 downturn, a recovery of revenues in the second half enabled continued investment for future growth while maintaining a resilient balance sheet with cash at bank of over £16 million and investing £2.8m of capital expenditure in new digital products. Revenues In the year ended 31 March 2021, revenues declined 18% (16% on a constant currency basis) to £39.4 million (2020: £48.2 million). EMEA region revenues declined 21% to £17.2 million (2020: £21.8 million). In the US, revenues of £22.1 million (2020: £26.4 million) were down 16%, and down 12% on a constant currency basis. Year to 31 March 2021 Year to 31 March 2021 Revenue mix by type compared to previous year Fy21 FY20 % change Live delivery 55% 57% Design 13% 15% Licensing and certification 8% 12% Digital 16% 9% Other (e.g. project management) 6% 2% -2% -2% -4% 7% 4% Advisory Global 2% 5% -3% 100% 100% Gross profit Gross profit as a percentage of revenue increased from 79.9% in the prior year to 87.4% due to the increased proportion of digital and to certain costs EMEA US Global £000 £000 Change % of live sessions being saved when they are delivered 17,241 21,807 -21% virtually. This partially offset the revenue fall, and gross profit for the year therefore declined by 11% 22,142 26,442 -16% to £34.4 million (2020: £38.6million). 39,383 48,249 -18% Gross profit margin in the US (87.7%; 2020: 81.7%) As governments introduced lockdown restrictions in response to the COVID-19 pandemic and clients pressed pause to fathom their business needs and responses, we saw cancellations of many programmes and of all face-to-face deliveries by clients across Europe, the USA and Asia. Despite rapidly transitioning to delivering all live sessions remotely, revenue for H1 was 40% down on the prior year. was slightly higher than in EMEA (87.0%; 2020: 77.8%) due principally to product mix. Year ended 31 March 2021 Revenue type EMEA US Global Live delivery 60% 52% 55% Design 13% 13% 13% Licensing and certification 6% 9% 8% Revenues started to improve year on year from August as clients increasingly adapted to COVID-19. In October to December 2020, revenues were almost Digital Other back at pre-COVID levels at only -2% decrease on the Advisory 15% 17% 16% 4% 2% 7% 2% 6% 2% previous year. Overall H2 revenue was 6% higher on a constant currency basis than in H2 FY20. A number of new client wins in the second half resulted in repeat revenues for the year (defined as revenues from clients that have purchased in the current year and in one or more of the previous three years) falling to 78% of total revenues (2020: 88%). Pure digital revenues from our suite of 85 eWorkouts in the year increased by 51% to £6.4 million (2020: £4.3 million) representing 16% of total revenues (2020: 9%). Digitally enabled revenue, including live virtual deliveries increased 102% on the previous year to £30.5m, representing 77% of total revenue compared to 32% last year. Total 100% 100% 100% We expect some return to face-to-face delivery when our clients are ready. We plan in FY22 to differentiate the pricing of live and virtual delivery further to take account of the increased costs of live and so protect the gross profit in absolute terms. A return to face-to-face will however reduce the gross profit margin in percentage terms. Annual Report and Accounts 2021 Strategic report 29 w e i v e r l a i c n a n i F Profitability and investment During H1 21, we took measures in response to Adjustments to PBT The Group uses Adjusted PBT to provide a better COVID-19 to reduce ongoing costs while continuing understanding of the underlying profitability of to invest to support a return to growth. People costs the business. Adjusted PBT excludes certain costs as reduced by £1.1 million before restructuring costs detailed in Note 6 to the group financial statements. of £0.7 million. Measures taken included a temporary pay reduction, furloughing some employees and deciding not to pay a final dividend for FY20. We, however, continued to invest in the Group’s digital strategy and initiated our investment in a marketing function. During H2 21, we increased our investment in marketing and operations. Administrative expenses in FY21 included £1.3 million on digital and operations including implementation of a CRM system. As part of our plan to build a more strategic and data-driven marketing function that will drive Adjustments in the year to 31 March 2021 comprised £0.7 million of restructuring costs, including redundancy payments and related consulting and legal costs. Adjustments in 2020 were a £0.8 million credit on the reversal of a provision for employee option surrender costs. Adjustments to PBT £000 £000 31 March 2021 31 March 2020 future growth, we also increased our expenditure Restructuring costs 662 - on marketing by £0.6 million. This included development and design costs for a new website to be launched in FY22. As a result, overheads before adjustments rose 6.5% to £34.0 million (2020: Employee options surrender credit - (765) 662 (765) £31.9 million). In February 2020, we signed After Adjustments, the Group reported a loss before a lease on a new office in New York, which had taxation of £0.4 million (2020: profit of £7.4 million). a £0.3m increased impact on depreciation as a right-of-use asset. The average number of staff during the year increased 2% to 251 (2020: 247), however, staff numbers at the end of the year were 276 (2020: 255) including 35 in the new digital team. Staff costs (before Adjustments) represented 76% of overheads (2020: 75%) increasing 9% on the year. This includes £0.8m repayment to staff that took temporary deduction in H121. As a result, Adjusted PBT in the year to 31 March Taxation There was a tax credit for the year of £0.1 million (2020: charge of £1.5 million) which represents an effective rate (‘ETR’) of 34.8% of profit before tax. The ETR on profit excluding adjustments was 2.8%. FY21 Adjusted Adjustments Reported £'000 £'000 £'000 2021 reduced 95% to £0.3 million (2020: £6.6 Profit/(loss) before tax 306 (662) (356) million). Adjusted PBT as a percentage of revenue was 0.8% (2020: 13.7%). Operating profit as a percentage of revenue was 4% in the US but -6% in EMEA. The negative margin in the EMEA is largely due to a reduction in the royalty charges from the UK to the US. Tax credit/(charge) PAT (earnings) (9) 297 133 124 (529) (232) ETR % 2.8% 20.0% 34.8% FY20 Adjusted Adjustments Reported £'000 £'000 £'000 Profit/(loss) before tax 6,633 765 7,398 Tax credit/(charge) (1,420) (73) (1,493) PAT (earnings) 5,213 692 5,905 ETR % 21.4% 9.5% 20.2% In FY21, the ETR is distorted by both £0.2 million of adjustments to tax in respect of prior periods and by the mix of profits by jurisdiction. The Group incurred Cash conversion a tax charge on taxable profit in the USA where the combination of federal and state taxes gives a rate of approximately 28% but benefited from a tax credit on a loss in the UK where the tax rate is 19%. Adjusted cash generated from operations Restructuring costs Employee options surrender costs 31 March 2021 31 March 2020 £000 £000 6,594 10,615 662 - - - Earnings per share Adjusted diluted earnings per share decreased by 94% to 0.30 pence (2020: 5.22 pence). On a reported Cash generated from operations 5,932 10,615 Adjusted EBITDA 1,579 7,818 basis, there was a loss per share of 0.23 pence (2020: Reported EBITDA basic earnings per share of 5.93 pence). Dividends The Board has taken the decision to allocate excess cash to investment in digital. No dividend has therefore been paid or proposed for the year ended 31 March 2021. An interim dividend of 0.9p per share was paid in January 2020 and represented the total dividend in respect of FY20. Cash flow and balance sheet Reported EBITDA was £0.9 million, 89% down on the FY20 EBITDA of £8.6 million. An increase of £4.9 million in payables, however, resulted in cash generated from operations of £5.9 million, which was 44% down on the £10.6 million cash generated from operations in the prior year. The working capital benefit resulted in cash conversion, defined as cash generated from operations as a percentage of EBITDA, of 647% (2020: 124%). Adjusted cash generated from operations was £6.6 million (2020: £10.6 million) resulting in Adjusted cash conversion of 418% (2020: 136%). Adjusted cash conversion excludes the effect of restructuring costs and is defined as cash generated from operations before the cash effect of Adjustments as a percentage of Adjusted EBITDA. Adjusted EBITDA is defined as Adjusted PBT excluding net finance costs, depreciation of property, plant and equipment and the amortisation of intangible assets. Both Cash conversion and Adjusted cash conversion are unusually high this year as the cash inflow from the working capital improvements dwarfs the relatively low EBITDA. Adjusted cash conversion (Adjusted cash from operations/ Adjusted EBITDA) 917 8,583 418% 136% Cash conversion (cash from operations/EBITDA) 647% 124% Over the year, we again reduced the time taken to invoice clients and improved the collection of overdue receivables. March 2021 was our highest recorded revenue month, with revenue £1.9m higher than in March 2020. This resulted in the number of days revenue tied up in Trade receivables and Accrued income increasing by 21 days to 89 days (2020: 68 days). Taking account of the monthly revenue profile, the days sales tied up in Trade receivables however fell. Overdue debt as a percentage of total trade receivables fell to 11% at the year end (2020: 20%) with the amount of overdue debt reducing £0.7 million to £1.0 million (2020: £1.7 million). We saw deferred income increase by 98% to £4.6 million (FY20: £2.3 million) as clients secured budgets for their following financial year. Tax paid in the year was £0.5 million (2020: £0.6 million received). Capital expenditure was £3.2 million (2020: £0.7 million) which included £2.8 million of costs capitalised on developing our new digital products and £0.2m on fitting out the new New York office. Lease payments on our offices in the UK and the USA were £1.1 million (2020: £0.6m). No dividends were paid in the year whereas in FY20 the Group paid £2.5 million of dividends in cash comprising the £1.6m final FY19 dividend and the £0.9 million interim dividend for the year ended 31 March 2020. At the year end, the Group had cash of £16.8 million (2020: £16.0 million) and net cash of £13.7 million (2020: £11.6 million) after deducting the lease liability included on the balance sheet. 30 MindGym plc Annual Report and Accounts 2021 Strategic report 31 w e i v e r l a i c n a n i F Going concern The Board has reviewed scenario analyses to help Adjusted performance measures This announcement contains certain financial assess their forward-looking assessment of the measures that are not defined or recognised under viability of the Group. The Directors are confident IFRS, including Adjusted PBT and Adjusted earnings that the Group has adequate resources to continue per share. These adjusted measures exclude the in operational existence for the foreseeable future. effect of Adjustments. The Group use these measures The Board have reviewed scenarios including a for planning and budgeting and for its internal range of revenues and the cost reduction actions assessment of the operational performance of each that could be taken to mitigate a downturn. business. Given the term Adjusted is not defined This is supported by a strong balance sheet, under IFRS, the Adjusted measures may not be cash management and financial controls. comparable with similarly titled measures used by Financial risk management The Group has a diverse portfolio of approximately 600 clients across many industrial sectors and countries. The largest client accounted for less than 6% 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 other companies. Reconciliations of the Adjusted measures to their IFRS equivalents are shown on the face of the Consolidated Statement of Comprehensive Income, in Note 4 Segmental analysis and in Note 11 Earnings per share. Richard Steele Chief Financial Officer options to hedge currency risk. 10 June 2021 Key performance indicators Key performance indicators (KPIs) 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. 32 MindGym plc Principal risks and risk management Risk management process The Group has an established process for the Key risks The principal risk areas identified are listed below. identification and management of risk. Risks are identified by both senior management and by the Digital strategy investment Board and are assessed and prioritised taking The Group is investing in a transformational digital account of both their likelihood and impact. proposition. There is a risk that this project could Each risk area is assigned to a member of overrun or fail to meet the expected return on the senior management team and appropriate mitigating actions are put in place. The risk investment, leading to a loss of profit and increased cash consumption for the Group. assessment is reviewed by the Audit and Risk Committee. A Chief Digital Officer is in place to drive the digital strategy and a skilled team is being recruited. During the year, the Board reviewed the nature A Digital Steering Committee has been established and extent of the principal risks that the Group to provide formal governance over the programme. is willing to take to achieve its objectives. This committee monitors progress against approved In determining its risk appetite, the Board project and financial milestones and reviews a recognises that the corporate learning and digital risk register at regular digital strategy development market the Group operates in review meetings. is a large and growing and changing market. It considers the risk appetite of the Group in Recruiting of key staff the context of the regulatory environment, Our future growth and success depends on sectors where it operates. This includes: attracting key staff with the appropriate skills. • Innovation of our proposition using the latest behavioural science research • Developing and extending our product offer to encompass the latest digital technology • Building awareness and quality lead generation through data-driven marketing The Group manages this by benchmarking and paying competitive salaries and benefits. It has invested in its talent acquisition to provide the best opportunity to attract the right talent and partners with specialist external search firms and agencies when deemed necessary. It offers an attractive talent acquisition referral plan for employees. • Improving systems and processes Retention of key staff to scale cost effectively The Group is a stimulating place to work and • Attracting and retaining world-class talent offers exceptional leadership and development programmes. We actively encourage all employees to learn and develop and frequent training of its product offering to all employees. We have also introduced a long-term incentive plan and employee share incentive plan to encourage retention and we continue to develop and formalise our Human Resources practices. Contractual arrangements with coaches The Group’s coaches are self-employed, contracting with the Group as contractors or consultants often through companies. There is a risk that if there were a change in employment or tax legislation, some coaches could be regarded as employees. Any such reclassification would result in additional costs to the Group. The Group keeps the operating practices and legislation relating to coaches under regular review. Changes to the legislation governing off-payroll working (IR35) came into force in April 2021. The Group has performed extensive preparations on the implementation of IR35 in the UK and is satisfied that the UK coaches fall outside of this legislation. Economic downturn in the corporate learning and development market Management seeks to keep up to date with macro- economic factors which could affect the Group and decides strategically how to respond to them. A further economic downturn, whether caused by a pandemic or other crisis, may impact the Group’s future revenue as it may cause clients to cancel, reduce or postpone existing bookings and not secure potential new revenue. Deteriorating economic conditions could also impact clients’ ability to pay or pay on time. The Group seeks to mitigate this risk by diversifying across both different industries and different geographical markets. The Group’s offering includes counter-cyclical offerings to assist with the challenges clients face during an economic downturn. The Group’s strong balance sheet and net cash position helps protect against cyclical downturns. Brand reputation Throughout its 20-year history, the Group has built a strong reputation for the quality of its products and services and has approximately 600 clients in any one year, with repeat revenues of c.80%. The Group has a series of policies and controls to protect its reputation including a strong legal function to protect its intellectual property. The Group has a strong culture of integrity. We provide our staff with regular training and communication in issues such as Black Lives Matter and diversity, equity and inclusion and have established an internal DEI Steering Committee. Staff are encouraged to speak up and a whistleblowing process is in place for staff to report any wrongdoing in confidence. Information systems and security breaches The Group is reliant on its IT systems and a major failure could disrupt its ability to continue servicing its clients. As the Group processes sensitive personal data as part of its business, a security breach could result in data becoming public which could damage the Group’s reputation and expose it to liability. Furthermore, the digital strategy investment is likely to result in different types of personal data being gathered and used in different ways. The Group operates a central IT function that is responsible for managing all its IT systems and monitoring threats. The General Data Protection Regulation (GDPR) came into effect on 25 May 2018 impacting any organisation that processes the personal data of EU individuals. GDPR is the most significant revision of data privacy to date and represents the beginning of a trend which other nations are starting to follow. To mitigate these risks, MindGym has appointed a General Counsel to ensure that all areas of the business adhere to these regulations on a continuous basis. This role oversees our robust security programme and the series of internal policies, processes and practices in place across the organisation to ensure that personal data is protected and processed appropriately. 34 MindGym plc Annual Report and Accounts 2021 Strategic report 35 Section 172 statement In accordance with their duty to do so under Information is provided to the Board through Section 172(1) of the Companies Act 2006 reports and through presentations at in-person (Section 172(1)), the Company’s Directors, or virtual meetings. As a result of these activities, individually and collectively, have acted the Board has an overview of the outcomes of the in a way that they consider, in good faith, stakeholder engagement, and other factors, is most likely to promote the success of the enabling the Directors to comply with their duties Company for the benefit of its members under s172 of the Companies Act 2006. as a whole. Examples of how they have done so, including For more details on how the Board operates, including a summary of its key activities during having regard to the likely consequences of any the year, see page 46. decision in the long term; the interests of our employees; the need to foster relationships with key stakeholders; and how the Company maintains a reputation for high standards, appear throughout this Annual Report. The following statement provides an overview of how the Board has performed its duties. As a dynamic and fast-growing Group, day-to-day Our people and culture We are a people business and employee engagement is a priority for us. The Board believes culture to be an important factor in retaining and developing key talent. Our high standards of business conduct are the direct result of a culture that focuses not only on achieving high levels of performance, but doing decision-making and stakeholder engagement so in a way that is sustainable and has high levels is often delegated to employees through our of integrity. governance framework, and therefore naturally occurs at an operational level. However, the Board regularly receives and discusses information from across the Group to help it understand the impact of the Group’s operations as well as the interests and views of key stakeholders. Over the period from April to July 2020, as the Group adapted to the COVID-19 pandemic, the Board received weekly updates from all member of the senior leadership team and met bi-weekly. We have continued to support our philanthropic programme ParentGym which the Group funds to deliver behavioural training to parents in some of the country’s most deprived areas. This is cited by some employees as a reason for joining MindGym and for others its reviews by Warwick University verifying its impact confirms the value of what we do. This year the Group undertook a comprehensive employee engagement survey conducted across all territories. The feedback was presented to Directors and their feedback informed the Company’s response to the team. We are a people business and employee engagement is a priority for us. The Board continues to be impressed by MindGym’s commitment to its people’s wellbeing, including: • Transparent communications with employees about strategy and performance to help ensure alignment. • Sharing of information by departments and individuals at the regular Monday Morning Meetings, where there is regular attendance Investors/shareholders The Board believe that becoming listed on AIM in June 2018 has been beneficial to the Company, and it values regular dialogue with investors to ensure their ongoing knowledge and understanding of the Group’s strategy which is focused on achieving long-term sustainable growth both for the business and its shareholders. from executive Board members. We recognise that strong and ongoing shareholder • A community messaging platform as well as regular newsletters from the People and Psychology teams. • Regular events, continued virtually during the lockdown, including yoga, meditation, social drinks, quizzes and many others to communicate the importance to the Group of our people’s sense of belonging. • A constant programme of workouts and behavioural tools to support our team’s development and wellness. This year the Board also approved the second award of a Sharesave (SAYE) in the UK and Employee Stock Purchase Plan (ESPP) in the US to align the interests of employees with those of our shareholders and build employee engagement. Clients We seek to grow our business dynamically and communication is important and the Board regularly receives updates from investors. The Board is committed to ensuring that shareholders are treated fairly with regard to the level of disclosure provided, while being mindful of the commercially sensitive aspects of the business. The Executive Directors provide ongoing shareholder communication through regular shareholder meetings normally after full-year and interim-year results have been announced, in addition to regulatory announcements. Investor relations and a review of the share register are standing items on the Board’s agenda. Feedback from meetings with investors is shared with the Board. Non-Executive Directors are available to discuss any matters raised by shareholders. For more information on how we engage with our shareholders and act in their interests, see page 51. ambitiously, but we are aware also of ensuring that this is done sustainably with capacity. As we acquire Suppliers Our suppliers, and in particular our accredited coach new clients, and grow our relationship with existing network, play a key part in enabling us to deliver a ones, we seek to do this by delivering business leading level of service to our clients. We seek to impact. The Group has built exceptional business choose the best products and services to meet acumen over 20 years and is able to provide clients our requirements, and then develop long-term with a high-value service that yields incremental relationships with the suppliers that provide them to build relationships that allow for open review of interests and mutual value over time. value as the relationship matures. The Executive Directors meet with clients on a frequent basis. They are heavily involved in a wide range of customer-facing activities from attending CHRO round tables to hosting webinars, as well as client review meetings. The Board regularly receives updates on client feedback and sales throughout the year, which supports and informs its strategic decision-making. In addition, the Board receives regular updates on our quality metrics which are a reliable indicator of high client satisfaction. 36 MindGym plc Annual Report and Accounts 2021 Strategic report 37 Long-term decision-making As the world embraces AI and machine learning, we believe that companies who differentiate will be those who can harness their human advantage – their people. Behavioural science companies can help with issues ranging from performance management to inclusion and diversity. A focus on continued innovation and additions to our core product offering ensures we retain our competitive edge. Time and again we have anticipated social and business trends in our points of view, as with the recent examples of Ethics and Wellness. Our investment in digital product development again anticipates solutions to drive human advantage which will expand and deepen our customer relationships into the future. Consideration of the long-term consequences of decisions also forms the foundation of our approach to managing risks. More information on this can be found under the Principal risks and risk management section of our report on page 34. We consider ourselves to be a long-term focused business and further details of this can be found in the following sections of our report: • Investment summary (page 8) • Market overview (page 14) • Our business model (page 18) t n e m e t a t s 2 7 1 n o i t c e S Community and environment As mentioned above under culture, the Group is Considering stakeholders The Board considers the views of its stakeholders very proud of the work it has done to support others when making decisions on what would be most through the ParentGym programme. This is an likely to promote the success of the Company for established part of the Group’s commitment the benefit of its members as a whole. The principal to social responsibility. Established in 2009, considerations taken into account for certain ParentGym provides free parenting classes in strategic decisions made during the year areas of social deprivation and is funded entirely ended 31 March 2021 are set out below. by MindGym. During the current period of lockdowns, the Group has created an online version of the programme to continue to support families in need. The Board regularly receives updates on the activities of ParentGym. The Company takes its environmental responsibility seriously. There has been a trend to working from home which will be accelerated by the COVID-19 lockdowns. This will lead to increasing numbers of virtual deliveries and the continued digitalisation of L&D and wellness markets will improve the Company’s environmental footprint. Board decision Considerations The Board approved the Group’s new • The need to develop the Group’s offering to maximise digital strategy and the associated long-term growth. investment. • Driving future revenue growth in the long-term interest of shareholders and employees. The Board considered and approved the application for furlough support under • The need to protect the short-term financial position of the Group to safeguard its long-term future for the the UK Coronavirus Job Retention benefit of shareholders and employees. Scheme and the application of temporary Group wide salary cuts in response to COVID-19. • Maintaining the ability to continue investing to drive long-term growth. • Protecting jobs which continue to be viable in the medium term. • Sharing the salary sacrifice fairly between directors and employees. The Board considered and approved the repayment of amounts previously • Fairness to employees given that the Group for the full year ended 31 March 2021 made a small Adjusted profit deducted under the temporary before tax. salary cuts. The Board made a decision not to pay any • Maintaining the link between remuneration bonus linked to Group results for FY21. and the Group’s financial performance. 38 MindGym plc As the world embraces AI and machine learning, we believe that companies who differentiate will be those who can harness their human advantage – their people. Case study The challenge Having acquired a number of businesses (Jelf, JLT, Bluefin), the executive team at Marsh was motivated The Marsh team wanted to better understand the health of their own company culture and ensure to take a closer look at their culture and ensure that they were leading the industry across key metrics they integrated the best aspects of each business. including performance, diversity, inclusion Spurred on by Lloyd’s of London’s decision to and ethics. launch the largest ever culture survey conducted in the insurance sector, Marsh sought to conduct a similarly sweeping and rigorous review. The solution Results Phase 1: Research MindGym carried out rigorous research to uncover The survey also identified some inconsistencies the current state of Marsh’s culture. This involved: and areas for improvement: 1) Conducting a total of five interviews to develop hypotheses about Marsh’s culture to inform an online culture survey. 2) The dispensing of a comprehensive online culture survey sent to all employees to identify strengths and 'cultural hotspots' – the topics that needed most attention. The key topics of the survey were Leadership, Inclusion, Ethical behaviour, Respect, Performance, Customer-centricity and Commercial behaviours. Marsh selected inclusion as the first area of focus. The survey revealed that Marsh was heading in the right direction with some positive inclusive behaviours already being shown – in particular, role-modelling by senior leadership. • Employees lacked the confidence to speak up or call out exclusive behaviours they observed. • There were insufficient levels of psychological safety for employees to admit or acknowledge mistakes. • It was felt that 'who you know' got you ahead, as opposed to fair and equitable practices. To gather further behavioural examples, Marsh decided to run a focus group to triangulate these findings with the Colleague Council Committee (representatives from across the business). Phase 2: Behavioural interventions With the diagnostic phase complete, MindGym and Marsh designed a behaviour change programme to start shifting and embedding inclusive behaviours across the business. The programme began with a kick-off event (a 60-minute Virtual Go Large) for all managers on the topic of inclusion, co-facilitated by Marsh’s CEO and a MindGym coach. The event: • Revealed the high-level findings from the survey • Shared pre-recorded videos of employees telling personal and vulnerable stories of when they’d been included or excluded • Focused on the key behaviours required to enable inclusion as a manager Following this kick-off, all managers attended a two-hour deep-dive session called Leading inclusively. The session helped all people leaders understand their unique position as role models for inclusive behaviour, and how to create an environment of psychological safety, uncover subtle exclusion and effectively manage bias. In total, this session was run 76 times to 810 managers over a 4-month period. Managers also received an Activation ePack to help them talk about inclusion with their direct reports and start shifting team norms. Phase 3: The next chapter This is just the first chapter in what Marsh sees as a 'cultural journey'. Looking ahead, MindGym will This was the first time in Marsh’s recent history partner with Marsh to build on the positive that all managers had come together along with behavioural shifts taking place across the business senior leadership, signalling Marsh’s commitment – continuing to build psychological safety, helping to the change. individuals manage work pressures and de-biasing people decisions. From 2020 to 2021, positive responses across all culture segments have increased significantly, ranging from 7% to 21%. Given the particular focus on inclusion, Marsh has been pleased to report 16% more people agreeing that diverse opinions are being sought out, and that the organisation fosters an inclusive and respectful culture for everyone. Culture: +21% Ethical behaviour: +7% Leadership: +15% Performance: +11% Inclusion: +13% Customer- centricity: +9% Respect: +11% Commercial behaviours: +10% ' From a partnership perspective, MindGym has struck exactly the right balance between being strategic and pragmatic, listening and challenging, speed and accuracy. Critically, their scalable and cost-effective approach to the tricky topic of culture change has started to deliver significant and measurable results across the business.' Steve Woodhouse Human Resources Director, Marsh, UK & Ireland 40 MindGym plc Annual Report and Accounts 2021 Strategic report 41 Governance Board of Directors Corporate governance report Audit and Risk Committee report Remuneration report Directors’ report Environmental, social and governance highlights 44 46 52 56 70 75 Board of Directors Joanne Cash Joanne Cash is the Board Chair at MindGym. Sebastian Bailey Dr Sebastian Bailey is the Co-founder and A former barrister, Joanne was called to the bar in 1994 Executive Director of MindGym. Sebastian has led and practised as a human rights barrister until 2010. the development of MindGym’s products since its She co-founded ParentGym in 2009 and joined the Board of MindGym in 2011 becoming Board Chair in inception, from the portfolio of 90-minute Workouts to the latest digital eWorkouts. Sebastian conducted the 2014. Previous roles include Vice-Chair of the Fawcett definitive academic research on how to maximise the Society and Board Advisor to Women2Win. Joanne transfer of learning, which underpins MindGym’s read English Literature at Lady Margaret Hall, proposition. Sebastian co-authored the four MindGym Oxford University. Committee membership: Member of the Remuneration and Nomination Committee books. Sebastian gained a PhD from Bristol University with a thesis entitled ‘Maximising transfer: How learning translates into action in organisations’. Octavius Black Octavius Black is the Co-founder and CEO of Richard Steele Richard Steele joined MindGym as Chief Financial MindGym, which he co-founded in 2000. Octavius Officer in March 2018. From 2012 until January 2018, co-authored MindGym’s four books and has written in The Times, Financial Times and The Sunday Telegraph. Prior to founding MindGym, Octavius was a director Richard served as Finance Director of Cook Trading Limited, the frozen ready meal retailer. Prior to this, he was Finance Director at the retailer White Stuff of the organisational communications consultancy Limited from 2007 to 2012. Richard has also held Smythe Dorward Lambert and prior to that he was a variety of finance roles within Principles Retail an analyst at Booz Allen Hamilton. Octavius read Limited and Easy Group and started his career Philosophy, Politics and Economics at The Queen’s College, Oxford University. at Tate and Lyle plc where he qualified as an accountant and worked for 10 years from 1989. Sally Tilleray Sally Tilleray is the Senior Independent Non-Executive Ruby McGregor-Smith Ruby McGregor-Smith is Independent Non-Executive Director on the MindGym Board. Sally served as Director on the MindGym Board. Ruby is the President Group Chief Operating Officer and Finance Director at of the British Chambers of Commerce and a member of Huntsworth plc, the international public relations and the House of Lords. She also chairs the Air Operators healthcare communications group, from 2004 to 2014. Association, is a Non-Executive Director at the Sally is an experienced marketing services agency Department of Education and the Tideway Tunnel executive and has been Non-Executive Chairman at and Senior Advisor at Mace Group. Ruby was the Chief Cognito Europe since 2016 and became Non-Executive Executive of MITIE Group PLC, the strategic outsourcing Chairman of digital agency, Kagool during 2020. In July company, employing over 65,000 people predominantly in 2019 she became a Non-Executive Director of NAHL plc, the UK. She is one of a small number of women who have the AIM-listed consumer legal focused marketing and held the position of Chief Executive in the FTSE 100 and services business. From 1999 to 2003, she held the role of FTSE 250 and is the first Asian woman to be appointed CFO Europe for Predictive Inc., an IT network consulting in such a role within that group of companies. She was business which undertook an IPO on Nasdaq in 2000. recognised as a top 50 female world business leader by Committee membership: Chair of the Audit and Risk Committee and member of the Remuneration and Nomination Committee. the FT in 2013. Ruby was also an Independent Non- Executive Director of PageGroup, appointed to the Board in May 2007. She chaired the Audit Committee, was a Member of Nomination and Remuneration Committees and also latterly their Senior Independent Director. Committee membership: Chair of the Remuneration and Nomination Committee and member of the Audit and Risk Committee. Trevor Phillips Trevor Phillips is Independent Non-Executive Director David Nelson David Nelson is Non-Executive Director on the MindGym on the MindGym Board. Trevor is a writer and television Board. David is an advisor to the Chairman and CEO, and producer. He is the Co-founder of the data analytics therefore not regarded as independent. David qualified as consultancy Webber Phillips, and Chairman of Green a chartered accountant in 1987 and has been a partner of Park Interim and Executive Search. He is the Chairman Dixon Wilson since 1990, serving as Senior Partner from of the global freedom of expression campaign charity 2008 to 2018. David is a Non-Executive Director of a Index on Censorship, a Senior Fellow at the Policy number of family-owned companies. He is an advisor Exchange think tank and a Vice-President of the Royal to UK-based families and their businesses, advising Television Society. He was the President of the John Lewis Partnership Council until 2018, and founding on financial and tax matters in the UK and overseas. He is also a trustee of a number of UK trusts. David is chair of the Equality and Human Rights Commission. a Non-Executive Director on the board of Daily Mail Committee membership: Member of the Audit and Risk Committee and the Remuneration and Nomination Committee. and General Trust plc (LSE: DMGT). Committee membership: Member of the Audit and Risk Committee and the Remuneration and Nomination Committee. 44 MindGym plc Annual Report and Accounts 2021 Governance 45 Corporate governance report Chair’s corporate governance statement As Board Chair, I am responsible for leading the Board and ensuring that we maintain the highest standards of corporate governance throughout the Company’s operations and particularly at Board level. As a Board, we recognise that applying sound governance principles is essential to the long-term success of the company in delivering on its strategy and improving shareholder value. The Company has adopted the Quoted Company Alliance’s Corporate Governance Code for small and mid- sized quoted companies (the ‘QCA Code’). I am therefore pleased to introduce our Corporate Governance Statement which summarises our approach to governance, provides information about how the Board and its committees operate, and describes how we have complied with the principles of the QCA Code. Deliver growth The Board is responsible for setting the strategic aims and objectives of the Group, and our strategy and business model is articulated on pages 8–40 of this Annual Report. In the course of implementing our strategy, the Board takes into account the expectations of our shareholders and wider stakeholders (principally our employees and customers). Given the size of the Group, all matters relating to customers and key employees are dealt with at Board level. The Board also has responsibility for the Company’s internal control and risk management systems. We regularly review the risks and opportunities of the business, and work with management to ensure that appropriate and effective mitigation strategies are adopted. Compliance with the QCA Code The Board believes that it applies the 10 principles of the QCA Code, and that the policies, procedures and systems we have implemented to date provide a firm foundation for our governance structure. The Board will continue to keep the governance structure under review to ensure it develops in line with the growth and strategic development of the Company. Dynamic management framework The challenges presented by the COVID-19 pandemic, including social distancing, travel restrictions and the requirement for COVID-safe working environments, have had an impact on the Board’s activities during the year. However, the business reacted quickly to adapt our ways of working remotely, and the Board was able to continue to effectively support the Executive team in making important decisions. Both the Board and the Board Chair’s performance were positively evaluated during the year. The Board’s review was conducted by the Chair and the review of the Chair by Sally Tilleray in her role as Senior Independent Director, using anonymous feedback. We are very proud of our Board, which is now one of We are committed to ensuring that the Group operates the most diverse among listed businesses, applying according to the highest ethical standards and the the criteria of gender, ethnicity, socio-economic Board has primary responsibility for fostering and background and expertise. MindGym is also one embedding this culture. The Directors believe that of only a handful of listed businesses chaired the main determinant of whether a business behaves by a woman. During the year, we were delighted that Trevor Phillips OBE and Ruby McGregor-Smith joined the Board in October and November 2020 respectively. ethically is the quality of its people, and the Board has responsibility for ensuring that individuals employed by the Group demonstrate the highest levels of integrity. The Board seeks to lead by example in its own interactions and open Journalist and broadcaster Trevor Phillips also and constructive debate is encouraged at has extensive business experience. He currently Board meetings. chairs recruitment company Green Park and is the Co-founder of the data business WeberPhillips. Formerly Chair of the John Lewis Partnership he is also Recruitment Chairman of the Index on Censorship, a Senior Fellow at the Policy Exchange think tank, VP of the Royal Television Society and founding Chair of the Equality and Human Rights Commission. The Company has a unique culture informed by our people’s passion for what we do. In normal circumstances, the Non-Executive Directors and I regularly attend the Company’s offices and other Company events and we will consider when it will be appropriate to resume this as the lockdown in the UK eases. The Board recognises the importance of promoting that culture and monitoring how it is Ruby McGregor-Smith is the President of the British embedded across the business as the Company Chambers of Commerce and chairs the Air Operators grows and a result of this, one of our independent Association. She is a Non-Executive Director at the Non-Executive Directors, Trevor Phillips, has been Dept of Education and the Tideway Tunnel and appointed as the Board member to oversee the Senior Advisor at Mace Group. As a Non-Executive monitoring and promotion of culture, on behalf of Director at Michael Page she oversaw their digital the Board. More work will be carried out in this area transformation. She was Chief Executive of the during the next financial year and we will provide MITIE Group plc and is one of a small number more information on this in the 2022 Annual of women who have held the position of Chief Report and Accounts. Executive in the FTSE 100 and FTSE 250 and is the first Asian woman to be appointed in such a role. She was recognised as a top 50 female world business leader by the FT in 2013. Build trust During the year, the Board has continued to review and develop the Group’s corporate governance We have worked with management to ensure that framework. The following report describes the quality and timeliness of the information we the work of the Board and its committees receive supports effective Board debate, and that during the year. the Non-Executive Directors are able to develop their knowledge and understanding of the business through open access to senior management staff. We recognise the importance of communicating effectively with our shareholders and other stakeholders, in particular, to demonstrate Board meetings are scheduled at regular intervals how the Company is governed and performing. throughout the year, and the Directors receive key reports from the Executive team on business performance and key operational metrics. In order to monitor the ongoing impact of COVID-19, the Board received key reports weekly and met fortnightly until July 2020. The Board is also updated regularly on regulatory and governance developments. We will continue to monitor our application of the QCA Code, and revise our governance framework, as appropriate, as the Group evolves. Joanne Cash Board Chair 10 June 2021 46 MindGym plc Annual Report and Accounts 2021 Governance 47 Composition of the Board t r o p e r e c n a n r e v o g e t a r o p r o C The composition of the Board has been structured to ensure that no one individual can dominate its decision-making processes. The Board currently comprises the Board Chair, three Executive Directors, three independent Non-Executive Directors, and one Non-Executive Director who is not considered by the Board to be independent. Its composition is therefore in line with the QCA Code. As a provider of behaviour change solutions to blue chip organisations across the globe, and an AIM- quoted company, MindGym plc requires a range of skills, capabilities and competencies to be How the Board operates The Board is responsible for the proper management of the Company by formulating, reviewing and approving the Company’s strategy, and setting the Company’s values and standards. Certain matters are specifically reserved for decision by the Board, and these are set out in a formal Schedule of Matters Reserved for the Board which is reviewed annually. The matters reserved include decisions relating to: • Approval of the Group’s strategic aims and objectives represented on the Board, including experience in • The structure and capital of the Group behavioural science, consultancy, public markets, governance and audit, and business operations. The Board is confident that its members have the appropriate balance of experience, skills, personal qualities and capabilities in order to meet this • Financial reporting, financial controls, risk management and dividend policy • Approval of significant contracts and expenditure above agreed delegated authority limits requirement and to deliver the strategy of the Group • Effective communication with shareholders for the benefit of the shareholders over the medium • Any changes to Board and committee to long term. Biographical details for all Directors, membership or structure including a summary of their relevant experience is provided on page 44. The independent Non-Executive Directors collectively bring a balance of skills and experience which mean they are able to provide constructive support and challenge to the Executive Directors. The Non-Executive Directors are expected to attend such external events and seminars as necessary to ensure that their knowledge of relevant financial reporting and corporate governance requirements are up to date. The Senior Independent Non-Executive Director (SID) acts as a sounding board for the Chairman and serves as an intermediary for the other Directors when necessary. The SID is also available to shareholders should they wish to discuss concerns they have failed to resolve through the normal channels of Chairman, Chief Executive Officer or Executive Directors or for which such contact is inappropriate. The Company Secretary also ensures, through regular updates to the Board, that Directors are aware of developments in corporate governance practice and legislative and regulatory changes which may impact on the Company. Day-to-day management of the Group is the responsibility of the CEO and Executive Directors. Board meetings The Board will normally meet on at least six occasions each year, and has met formally on eleven occasions during the year. The Board also held a dedicated strategy session in September 2020. Individual Director attendance at Board and Committee meetings during the year is shown in the table below: The Directors are expected to attend all meetings of the Board and the committees on which they sit, and the Non-Executive Directors are expected to devote sufficient time to the Company to enable them to fulfil their duties as Directors. The time commitment required of all Non-Executive Directors is currently a minimum of two days per month. The Board is satisfied that the Chair and each of the Non- Executive Directors is able to devote sufficient time to the business, and they each maintain open communication with the Executive Directors and senior management between the formal Board meetings. Director Joanne Cash Octavius Black Sebastian Bailey Richard Steele Dido Harding1 David Nelson Sally Tilleray Trevor Phillips2 Ruby McGregor-Smith3 Board (out of 11 meetings) Audit Committee (out of 5 meetings) Remuneration and Nomination Committee (out of 4 meetings) 11 11 11 10 5 11 11 3 2 N/A N/A N/A N/A 2 5 5 2 1 4 N/A N/A N/A 2 4 4 2 1 1. 2. 3. Resigned from the Board on 16 October 2020 Appointed to the Board on 16 October 2020 Appointed to the Board on 23 November 2020 During the year, the Board agreed to allocate more time to Board meetings to ensure sufficient discussion time is given to all agenda items. Board activity during the year There are a number of standing and routine items included for review on each Board agenda. These include reports from the CEO and CFO, product and talent updates, corporate governance updates, and consideration of reports from the Board committees. In addition, key areas put to the Board for consideration and review during the year included: • Approval of the Annual Report and Accounts • Approval of full and half-year results • Final and interim dividend approvals • Full-year results investor roadshow feedback • Review of D&O insurance Board committees The Board is supported in its work by two Board committees, the Audit and Risk Committee and the Remuneration and Nomination Committee. More information about the composition and activities of the committees is set out in the Audit and Risk Committee report on page 52 and the Remuneration and Nomination Committee report on page 56. Each Board committee has approved Terms of Reference setting out its responsibilities. The Terms of Reference are reviewed at least annually. The Terms of Reference are available on the Company’s website (www.uk.themindgym.com/investors). The committees are authorised to obtain, at the Company’s expense, professional advice on any matter within their Terms of Reference • Review of the Company risk register and to have access to sufficient resources to and risk appetite statement carry out their duties. • Approval of expenditure to deliver the Digital Strategy proposal • Review of the Company’s share dealing procedures • Review of Commercial Strategy • Review of the Group’s budget • Review of Group policies including the Modern Slavery Statement • Environmental, Social and Corporate Governance factors • The impact of COVID-19 and scenario modelling External advisors The Board seeks advice and guidance on various matters from its Nomad (Liberum) and its lawyers (Winston & Strawn London LLP). The Board also uses the services of an external company secretarial provider, Prism Cosec, who assists the Chair in preparing for and running effective Board meetings, including the timely dissemination of appropriate information. 48 MindGym plc Annual Report and Accounts 2021 Governance 49 t r o p e r e c n a n r e v o g e t a r o p r o C Board evaluation Both the Board and the Board Chair’s performance Conflicts of interest At each meeting of the Board or its committees, were positively evaluated during the year. The Board’s the Directors are required to declare any interests review was conducted by the Chair and the review of in the matters to be discussed and are regularly the Chair by Sally Tilleray in her role as Senior reminded of their duty to notify any actual or Independent Director, using anonymous feedback. potential conflicts of interest. The Company’s We are very proud of our Board which is now one of the most diverse among listed businesses, applying the criteria of gender, ethnicity, socio-economic background and expertise. MindGym is also one of only a handful of listed businesses chaired by a woman. During the year we were delighted that Trevor Phillips OBE and Ruby McGregor-Smith joined the Board in October and November 2020 respectively. Articles of Association provide for the Board to authorise any actual or potential conflicts of interest if deemed appropriate to do so. Internal controls The Board has ultimate responsibility for the Group’s system of internal controls, and for the ongoing review of their effectiveness. Internal control systems can only identify and manage risks and cannot eliminate them entirely. As a result, such Journalist and broadcaster Trevor Phillips also has controls cannot provide an absolute assurance extensive business experience. He currently chairs against misstatement or loss. The Board recruitment company Green Park and is the co- considers that the internal controls which founder of the data business WeberPhillips. have been established and implemented are Formerly Chair of the John Lewis Partnership appropriate for the size, complexity and risk he is also Recruitment Chairman of the Index on profile of the Company and Group. The main Censorship, a Senior Fellow at the Policy Exchange elements of the Group’s internal control think tank, VP of the Royal Television Society system include: and founding Chair of the Equality and Human Rights Commission. • Close management of the day-to-day activities of the Group by the Executive Directors, and in Ruby McGregor-Smith is the President of the British particular of the financial controls by the CFO Chambers of Commerce and chairs the Air Operators Association. She is a Non-Executive Director at the Dept of Education and the Tideway Tunnel and Senior Advisor at Mace Group. As a Non-Executive Director at Michael Page she oversaw their digital transformation. She was Chief Executive of the MITIE Group plc and is one of a small number of women who have held the position of Chief Executive in the FTSE 100 and FTSE 250 and is the first Asian woman to be appointed in such a role. She was recognised as a top • Specific financial controls, including with respect to purchasing and payments, payroll and expenses, and to ensure that appropriate accounting records are maintained • Approval at Board level required for any decisions relating to the assets or investments of the Company • An annual budgeting process requiring approval by the Board 50 female world business leader by the FT in 2013. • Board-approved Bribery and Anti- Corruption Policy and Share Dealing Code • Regular risk reviews The Board continues to review the system of internal controls to ensure it is fit for purpose and appropriate for the size and nature of the Company’s operations and resources. 50 MindGym plc Relations with shareholders and stakeholders The Group maintains communication with institutional shareholders through individual meetings with Executive Directors, particularly following publication of the Group’s financial results. The Group also communicates with the market generally using a Regulatory Information Service provider for regulatory news releases, which are also made available on the Company’s website in accordance with AIM Rule 26. Shareholders and investors will have the opportunity to meet Board members at general meetings (including, in normal circumstances, at the Annual General Meeting (see below)), investor meetings and webcasts at which shareholders and stakeholders will be able to ask questions of management. The Board believes that, other than shareholders, the Group’s key stakeholders are its staff and customers. Given the size of the Group, all matters relating to customers and key employees are dealt with at Board level. More information on the ways in which we engage with our key stakeholders is provided on page 36 of the strategic report. Annual General Meeting The Company’s 2021 Annual General Meeting (‘AGM’) is scheduled to take place at 9am on Thursday 15 July 2021 at the Company’s registered office at 160 Kensington High Street, London, W8 7RG. The Notice of AGM (the ‘Notice’), including the resolutions to be proposed, is set out on pages 122 to 128 of this Annual Report. The Notice sets out additional arrangements for the AGM in light of the COVID-19 pandemic and the Government’s social distancing measures. We will communicate any further changes to the arrangements if necessary. Audit and Risk Committee report Responsibilities and composition The Audit and Risk Committee has the primary responsibility of monitoring the quality of internal controls to ensure that the financial performance of the Group is properly measured and reported on and to ensure the Group’s key risks are identified and monitored. It receives and reviews reports from the Group’s management and external auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Group. The Audit and Risk Committee meets not less than twice in each financial year and has unrestricted access to the Group’s external auditors. The Audit and Risk Committee comprises at least two members of whom both shall be independent Non-Executive Directors. Where possible, one member will be a member of the Remuneration and Nomination Committee. The chair of the Audit and Risk Committee is appointed by the Board. The chair of the Audit and Risk Committee is Sally Tilleray and its other members are David Nelson, Ruby McGregor-Smith and Trevor Phillips. Sally Tilleray, Ruby McGregor- Smith and Trevor Phillips are independent Non- Executive Directors and David Nelson has recent and relevant financial experience with competence in accounting or auditing. Activities during the year The Committee met five times during the year and once following the year end to consider the financial statements. Meetings may be attended by the Executive Directors and the Group’s external auditors. Time is allowed for the Committee to discuss issues with the external auditors without the Executive Directors being present. The Committee operates under formal terms of reference and these are reviewed annually. The main work undertaken by the Committee during the past year is detailed below. Significant issue/accounting judgement identified How it was addressed The Committee considered the extent to which software development costs should be capitalised in accordance with the criteria in IAS 38 Intangible Assets. The Committee considered whether it was appropriate to continue to prepare the Annual Report and Accounts on a going concern basis. The Committee reviewed and discussed with management and the external auditor as to whether: • Development costs met the capitalisation criteria under IAS 38 • Cost capitalised were in relation to projects that were technically and commercially viable • Costs capitalised could be reliably measured The Committee is satisfied with the judgements and estimates applied by management in determining the value of the costs capitalised. The Committee reviewed and discussed with management: • Management’s budget for FY22 and medium-term plan • A range of downside scenarios modelled by management • Potential mitigating cost saving actions • the risks and uncertainties facing the business The Committee concluded that the Group has sufficient cash to enable it to continue to meet its liabilities for the foreseeable future even under a reasonable worst-case scenario, and therefore that it is appropriate to regard the Group as a going concern. The Committee considered the adequacy of the provision for impairment of trade receivables. The Committee reviewed and discussed with management and the external auditor the estimates made by management in determining the provision for impairment of trade receivables. The Committee concluded that the provision for impairment was appropriate. Financial reporting The Committee reviewed the half-year and annual financial statements. As part of this review, the Committee discussed the financial statements with the external auditor and management and considered the appropriateness of the accounting principles, the reasonableness of significant financial reporting judgements, the clarity of disclosures in the financial statements and the effectiveness of internal control over financial reporting. The Committee reviewed and challenged the external auditor’s report on these matters and considered the risk of error in revenue recognition. During the year, the Committee considered the impact and risk of COVID-19 on the Group’s revenue, particularly in relation to the preparation of the Group’s financial statements on a going concern basis. An extensive downside revenue scenario modelling exercise was undertaken and reviewed by the Committee. In fulfilling its responsibility for monitoring the integrity of financial reports to shareholders, the Committee considered and reviewed the accounting principles, policies and practices adopted in the preparation of public financial information and examined documentation relating to the Annual Report, Interim Report, preliminary announcements and other related reports. The Committee gave due consideration as to whether the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group’s position and performance, business model and strategy and can confirm that this is the case. Significant issues considered in relation to the financial statements Significant issues and accounting judgements are identified by the finance team and the external audit process and then reviewed by the Audit and Risk Committee. The significant issues considered by the Committee in respect of the year ended 31 March 2021 are set out in the table on the left. External auditors The Committee oversees the relationship with the external auditors, and monitors all services they provide and the fees payable to them, to ensure that potential conflicts of interest are considered and that an objective and professional relationship is maintained. In particular the Committee reviews and monitors the independence and objectivity of the external auditors and the effectiveness of the audit process. At the outset of the audit process, the Committee receives from the auditors a detailed audit plan, identifying their assessment of the key risks and their intended areas of focus. This is agreed with the Committee to ensure coverage is appropriately focused. During the year, the external auditor undertook non-audit work in relation to a review of the interim financial statements, tax compliance and employment tax advice. The fees for this work are detailed in Note 7 to the group financial statements. During the year, the Committee continued to keep the nature, extent and cost of non-audit services under review and intends to reduce the amount of non-audit work undertaken by the external auditor in the next financial year. The Committee has recommended to the Board that BDO be reappointed as the external auditor and the Directors will be proposing the reappointment at the 2021 Annual General Meeting. 52 MindGym plc Annual Report and Accounts 2021 Governance 53 t r o p e r e e t t i m m o C k s i R d n a t i d u A Risk management and internal control The Committee has oversight of the internal financial controls and the risk management systems. During the year the Committee reviewed the principal business risks to ensure that they are being adequately captured and reported to the Board. Details of these risks are set out in Principal risks and risk management on page 34. The Committee also considered the Company’s whistleblowing policy which sets out the formal process by which an employee of the Group may, in confidence, raise concerns about possible improprieties in financial reporting or other matters. During the year under review, there were no reported incidents. During the year, the Committee held a dedicated risk session. As a result, the Group’s Risk Framework was enhanced and includes the identification of the Group’s threats and opportunities, a risk appetite statement, a policy and internal controls framework. The Committee also reviewed the risk register, the delegated authority framework, the Group’s insurance arrangements and management’s process in implementing and maintaining control systems during the year. The Committee has considered whether the Group’s internal controls processes would be significantly enhanced by an internal audit function and has taken the view that, given the size of the Group, the internal controls in place and the significant executive involvement in the Group’s day-to-day business, that an internal audit function is not required. The Committee will, however, keep this under review. The Committee is satisfied that the internal controls systems, which have been established, are operating effectively. Sally Tilleray Chair Audit and Risk Committee 10 June 2021 54 MindGym plc Remuneration report The report is split into three main areas: Contents The statement by the Chair of the Remuneration Committee The Directors' Remuneration Policy The Annual Report on Remuneration 56 60 64 Membership The members of the Remuneration Committee and meetings attended are: Director Meetings attended (out of 7 meetings) Ruby McGregor-Smith (Chair) Joanne Cash Sally Tilleray David Nelson Trevor Phillips Former members: Dido Harding (Chair) 1/1 4/4 4/4 4/4 2/2 2/2 Statement from the Chair On behalf of the Board, I am pleased to present my first Directors’ Remuneration report for the year ended 31 March 2021, having taken over from Baroness Dido Harding on 23 November 2020. Dido had chaired the Committee since 2018 and I would like to take the opportunity on behalf of the Board to thank her for her stewardship. MindGym listed on the Alternative Investment Market (‘AIM’) on 28 June 2018 and has adopted the requirements of the Quoted Companies Alliance (QCA) code. To improve transparency with investors and alignment with best practice, the Remuneration Committee (the ‘Committee’) has presented a separate Remuneration policy and Annual report on remuneration. The aim of the Remuneration Committee he Remuneration Committee is committed to structuring senior executive remuneration that is competitive, incentivises and rewards good performance, and that will support the Group’s growth and profitability ambitions, thereby creating value for shareholders. In addition, the Committee This report sets out the Remuneration policy and reviews and considers remuneration of the wider the remuneration paid to the Directors for the year workforce and monitors related policies, satisfying in the context of the Group’s Remuneration Policy itself that incentives and rewards are aligned with which can be found on page 60 of this report. the Group’s strategy and culture. The Remuneration Committee is appointed by the Board and comprises three Independent Non-Executive Directors and one other Non- Executive Director who is not considered to be independent Our approach to remuneration The Remuneration policy is designed to: • Include a competitive mix of base pay and both short and long-term incentives, with an appropriate proportion of the package determined by stretching targets linked to the Group’s performance • Promote the long-term success of the Group, in line with our strategy and focus on profitability and growth • Provide appropriate alignment between the interests of shareholders and executives and where appropriate, the wider workforce In addition, over the past 12 months, the Committee has continued to observe the impact of the COVID-19 pandemic on the world of work and the impact this has had, not only on Executive Directors, but also on the wider workforce. In direct response to the pandemic over the year: • Pay awards linked to promotions or additional responsibilities were delayed for the wider workforce from April to July 2020. • The annual bonus scheme was scaled back by 50% for all eligible participants, with no bonus payments being made to Executive Directors for the year. • The committee determined that target setting in respect of LTIP awards made to the CFO, members of the Executive Leadership Team and other members of the leadership team in March 2021 should be delayed for up to six months. • Employees reduced their pay over a three- month period between April and June 2021 (with repayments being made in June 2021). Looking forward, the Committee is pleased to note that merit-based pay awards will be made to the wider workforce in the year ending 31 March 2022, the annual bonus plan is expected to operate as normal, albeit with a reduced number of Group Aligning remuneration to Group strategy Over the course of the first half of the year to 31 January 2021, the Group continued to be impacted by the ongoing lockdown as, the world over, workforces had to adjust to a new normal of remote working and stringent cost control. As businesses were forced to reassess how to lead remote workforces through uncertain times, many turned to MindGym for support to help navigate the new landscape. As a result, the Group successfully navigated a pivot to 100% digital and digitally enabled revenue generation to meet the demands of global virtual working, with strong client feedback surpassing that of live sessions in the past, resulting in revenue recovery over the second half of the year. While the effects of the pandemic have undoubtedly impacted on our overall results, with Revenue down by 18% and Adjusted profit before tax at £0.3million for the year, we are hugely reassured by our strong performance in the final quarter, with Revenue 9% up on the same period in the prior year. Our remuneration arrangements are designed to support management in its growth plan and strategy, and to enable the Group to be flexible and agile, considering the fast pace of our growth in a normal trading environment. The Group’s ability to pivot to digitally enabled revenue growth has reinforced the Board’s commitment to the Group’s digital strategy and investment. The Board believes in the importance of aligning the interest of its employees to those of the Group and its shareholders. As a result, in the year ended 31 March 2021, the Committee made awards under its new Long-Term Incentive Plan, which was approved by shareholders at the July 2020 AGM, to members of the executive and senior leadership teams. The measures relating to these awards are set out on page 66 of the report. In addition, employees continue to participate in Sharesave (SAYE) in the UK and the Employee Stock Purchase Plan (ESPP) metrics and employees will continue to have the in the US. opportunity to participate in all employee share plans (Sharesave (SAYE) in the UK and the Employee Stock Purchase Plan (ESPP) in the US) during the first half of the year. 56 MindGym plc Annual Report and Accounts 2021 Governance 57 t r o p e r n o i t a r e n u m e R Context of business performance Over the first half of the year, the Group, like many others, continued to experience the negative impact Annual bonus for the year ended 31 March 2021 Maximum Bonus potential for the year ended of a world in ongoing lockdown, but through the resilience and flexibility of its products and services, including a renewed digital strategy, the Group has been well placed to begin to meet the demands of increasingly remote workforces across the Globe. Our provision of data-driven and more personalised learning experiences have translated into strong revenue performance in the last quarter and a renewed focus on the opportunity that a post- lockdown world provides for the Group. 31 March 2021 reduced by 50% in direct response to the COVID-19 pandemic. For the CFO and members of MindGym’s Executive team, performance was measured against on a combination of Revenue and PBT targets as well as performance against strategic KPIs. For all other eligible members of the Group, performance was based on personal objectives. The Committee carefully considered performance against all annual bonus targets for the year ended 31 March 2021, and in making their decision, took As we continue to grow, we are mindful of keeping into consideration: our pay arrangements appropriate for a Group of MindGym’s size and complexity. In addition to the usual considerations, once again this year, the Committee discussed the impact of the COVID-19 pandemic and ongoing shareholder experience when determining both its decision on the payout for the annual bonus for FY21 and our approach to remuneration matters for the year ahead. Remuneration policy during the year Over the course of the year ended 31 March 2021, • Shareholder experience: dividend suspended and share price performance balanced by strong business resilience over the course of the year. • Employee experience: minimal workforce redundancies countered by base pay cuts across all employees (which the Group expects to repay in Q1 of FY22). • Government support: utilisation of the Government’s Coronavirus Job Retention Scheme and other such schemes. (£216,000 of funding has been received by the Group during the year.) No additional Government funding or loans the Committee has reviewed existing remuneration were received by the Group. arrangements to ensure that there has continued to be a strong link between both the Remuneration policy and the business strategy, particularly during the ongoing pandemic. • Action taken regarding Executive remuneration during the year: pay reductions for Executive and Non-Executive Directors as well as other members of the Executive Leadership Team for a three-month period. It was noted that formulaic bonus outcomes for the year reflected business performance and resilience over the past 12 months and would have resulted in a bonus payment of 28% of the maximum bonus opportunity for Richard Steele. Taking all of the above into consideration, however, the Committee determined that to align with shareholder experience, with no dividends having been paid in the year, no bonus should be paid to Executive Directors for the year ending 31 March 2021. 58 MindGym plc Remuneration policy for the year ending 31 March 2022 The Committee is resolute in its aim to ensure that remuneration arrangements continue to motivate and retain all Directors and employees. Over the course of the year ending 31 March 2022, the Committee intends to undertake a review of variable remuneration for Executive Directors and members of the Executive Leadership Team to ensure that all remuneration arrangements continue to be aligned with the strategic Key messages for 2020–21 • Protecting jobs throughout the COVID-19 pandemic • Payment of all employee Thank You gesture Our priorities for 2021–22 • Retention of our employees in the aftermath of the COVID-19 pandemic • Repayment of base pay reductions objectives of the Group. • Simplified approach to annual bonus measures The Remuneration Committee is aware of ongoing developments in corporate governance and best practice in executive remuneration and intends to review its executive remuneration arrangements to align with these where appropriate for the business. The Remuneration policy is set out on pages 60 to 63 and details of how this policy will be implemented for the financial year ahead is set out on pages 64 to 69. I hope that you will find this report helpful and informative and agree that the determinations made by the Committee are appropriate and in the long-term interests of both the Group, its employees and our shareholders. I look forward to your support at our AGM on 15 July 2021 and encourage you to submit any questions you may have regarding the work of the Committee in advance. Ruby McGregor-Smith Chair of the Remuneration Committee 10 June 2021 t r o p e r n o i t a r e n u m e R The Directors’ Remuneration Policy Remuneration policy table This section of the report sets out the Remuneration policy for Executive Directors. Remuneration approach The aim of the Remuneration policy is to support The objective of this Remuneration policy is to the Group in: attract, motivate and retain high quality individuals who will contribute fully to the success of the Group. To achieve this objective, the Group provides competitive pay to all employees. • Aligning individual and business performance with the interests of shareholders through the delivery of clear and stretching targets • Strengthening the link between employee Executive Directors’ remuneration is set to output and the delivery of shareholder value create an appropriate balance between both fixed and performance-related elements. Remuneration is reviewed each year in light of the Group’s business objectives and designed to support the growth strategy. It is the Committee’s intention that remuneration should reward achievement of objectives and that these are aligned with shareholders’ interests over the medium term. . • Attracting, motivating and retaining high quality talent • Enabling the Group’s remuneration strategy to be tailored to its changing circumstances The Group passionately believes that remuneration should be structured in a fair and competitive way, in order to incentivise individuals to achieve the highest levels of performance and takes a consistent approach throughout the Group. Packages are designed to be competitive with fixed remuneration set at market competitive levels. Variable rewards, which are linked to objectives based on the performance of the Group, are designed to reward exceptional performance. Remuneration components We currently define our main fixed and performance related elements of remuneration as follows: • Base pay, benefits and pension contribution (fixed) • Annual performance bonus (variable) • Long-Term Incentive Plan Component Aim and link to strategy Operation, opportunity and performance measures Further detail Fixed Base pay To attract and retain talent by ensuring base pay is competitive in the market Paid monthly in cash. Reviewed annually. Any increase typically takes effect from 1 June annually. Fixed Core benefits Designed to be competitive in the market Fixed Pension Designed to be competitive in the market Variable Annual bonus Designed to focus Executive Directors on the business priorities for the financial year ahead and to align the individual’s remuneration with the delivery of shareholder value and the delivery of the strategic plan. Variable Share-based incentive plans (LTIP) Designed to reward Executives over the longer term while aligning an individual’s interests with those of shareholders Group and individual performance considered when setting Executive Director base pay Core benefits typically include: • Private medical insurance for Executive Directors and their immediate family • 25 days holiday • Life assurance Benefits may vary by role. A defined contribution pension scheme, or a cash payment in lieu of pension contribution in certain circumstances. The Group will make up to 5% base pay contribution. Cash payments in lieu of pension contributions may be made to Executive Directors, but these will be subject to normal tax and NI deductions. Base pay is the only element of remuneration that is pensionable. Group contributions for all participating employees are made at a minimum of 5% base pay and all employees can join the Group’s defined contribution pension scheme. Group contributions will be reviewed over time, to ensure compliance with minimums set under auto-enrolment guidelines. Performance is measured on an annual basis for each financial year. Payment typically made in cash in July each year. The bonus scheme is based on a combination of financial and non-financial measures, which are reviewed annually to ensure they remain appropriate and align with the business strategy. Such measures include Revenue, PBT and Quality. At the end of the year the Committee determines the extent to which these were achieved. Performance measures and their weightings may vary from one year to another. Clawback (of any bonus paid) may be applied where the Committee deems it necessary to do so, including in the event of gross misconduct or a material misstatement. Awards of shares, priced or nil-cost options or cash may be made to participants. Award levels and performance conditions are reviewed before each award cycle to ensure they remain appropriate. Malus (of any unvested LTIP) and clawback (of any vested LTIP) may be applied where the Committee determines is necessary, including in the event of gross misconduct or a material misstatement. The Remuneration Committee retains the ability to exercise discretion to adjust payments up or down in exceptional circumstances where they feel this course of action is appropriate. The bonus scheme pays at the following levels: • Maximum awards for Executive Directors are equivalent to 50% of base pay. Vesting of LTIP awards is subject performance conditions determined by the Committee. Awards do not vest until at least the third anniversary of the date of grant and may have a deferral element. If employment ceases during the vesting period, awards will by default lapse in full unless the Remuneration Committee exercises its discretion. In line with the rules of the MindGym LTIP the Remuneration Committee has discretion over all aspects of the plan including but not limited to performance conditions, formulaic LTIP outcomes (both upwards and downwards) vesting conditions and cancellation of the scheme. 60 MindGym plc Annual Report and Accounts 2021 Governance 61 t r o p e r n o i t a r e n u m e R Malus and clawback For up to three years following the payment of an • The impact on existing remuneration arrangements for other Directors annual bonus award (and two years after the vesting • The remuneration package of an LTIP award), the Committee may require the of any exiting equivalent Director repayment of all or some of the award if there is corporate failure, a material error or misstatement • The remuneration arrangements of the candidate in their previous role of the financial results, gross misconduct or if information comes to light which, had it been known, would have affected the decision as to the extent to which an award would have vested. The Committee also has the right to reduce or cancel or impose further restrictions on unvested LTIP and deferred bonus shares in similar circumstances (including material failure of risk management). Other share-based remuneration MindGym Save As You Earn (SAYE) scheme In hiring a new Executive Director, the Remuneration Committee may also make a ‘buy-out’ award to an external candidate in compensation for any remuneration arrangements forfeited on leaving a previous employer. In making such an award, the Committee will take into consideration relevant performance conditions, vesting periods and the form in which the award was made. It is usual that any ‘buy-out’ awards will be made on a comparable basis. In exceptional circumstances, the Remuneration Committee may make an exceptional award under one of the Group’s The Group operates an all-employee SAYE scheme existing long-term incentive plans to compensate in the UK, which all eligible employees and Executive a candidate for any remuneration arrangements Directors can participate in. All eligible employees forfeited on leaving a previous employer. are invited to join the scheme on an annual basis, subject to maximum participation levels, currently £500 per month, or in line with HMRC limits if these are increased in the future. Details of current schemes can be found in the Annual Report on Remuneration section of this report. MindGym Employee Stock Purchase Plan (ESPP) The Group operates an all-employee, Employee Stock Purchase Plan for its US based employees. The MindGym ESPP enables eligible employees to purchase market priced shares by making regular payroll contributions over a defined 12-month offering period. Details of how the scheme operates can be found on page 67 of the Remuneration report. Recruitment policy for new hires When hiring a new Executive Director, the Remuneration Committee will align the remuneration package with the Remuneration policy stated previously, including the maximum limits for each remuneration component. The Remuneration Committee will take all relevant factors into consideration when making a remuneration decision on a new Executive hire to ensure that these decisions are being made in the best interests of the Group and its shareholders, including, but not limited to: • Quantum • Type of remuneration being offered The Remuneration Committee would only consider making such awards where the individual has lost an award because of joining the Group and awards will be subject to continued employment and performance conditions, as appropriate. Following the appointment of a new Executive Director the shareholders will be informed of the details as soon as practicable. Where a variable or performance-related award is made under such circumstances, the Remuneration Committee confirms that the award will be within the limits specified in the Remuneration policy table. Service contracts for Executive Directors Under the Executive Directors’ service contracts, both parties are required to give six months’ notice of termination of employment. At the Group’s discretion they may terminate the contract immediately and not require the Director to work their notice and instead pay six months’ contractual pay plus benefits. The Executive Directors’ service contracts also include a six month non-compete period. These contracts are available for inspection at the Group’s registered office. Relocation packages There may be occasions when hiring a new Executive Director that a relocation package is awarded, where a candidate and/or the candidate’s immediate family relocate either on a temporary or permanent basis to fulfil their role for the best interests of the Group leavers’ to be pro-rated for time served from the and its shareholders. In such instances, the start date of the scheme to the individual’s exit Remuneration Committee retains the right date and will be subject to the applicable rules of to compensate for reasonable and appropriate the scheme. The Remuneration Committee will relocation expenses. Expatriate packages On appointing a new Executive Director, the Remuneration Committee may offer assistance where a candidate and/or the candidate’s immediate family is asked to relocate either on a temporary or permanent basis, from an overseas location to the UK or from the UK to an overseas location. In such instances, the Remuneration Committee retains the right to compensate for reasonable and appropriate relocation expenses. have sole discretion to determine the ‘good leaver’ status of an Executive Director. The Committee will determine on a case-by-case basis whether any vesting of a share-based award is appropriate. Fees for the Chair and Non-Executive Directors The Chair and the other Non-Executive Directors’ remuneration comprise only fees. The Chair’s fee is approved by the Board on the recommendation of the Remuneration Committee. The other Non- Executives’ fees are approved by the Board on the recommendation of the Chair and CEO. Remuneration policy for internal promotions When an existing employee of the Group is The Chair and Non-Executive Directors do not take part in discussions on their remuneration. The Chair and each of the Non-Executive Directors has a letter promoted internally to the role of Executive of appointment substantially in the form suggested Director, the Remuneration Committee will by the Code, and each has a one-month notice align the remuneration package with the period with no compensation for loss of office. Remuneration policy stated previously, including the factors it considers for new hires. Any remuneration awarded prior to promotion to the role of Executive Director will be retained and will be subject to the previous payment terms. The shareholders will be informed of any such remuneration in the Directors’ remuneration report following promotion. Exit payments The Group operates the following policy in respect of exit payments: • Executive Directors have a six-month notice period from the Group and they in turn are asked to give the Group six months’ notice. • Exit payments in relation to the service contract are limited to no more than one year’s contractual pay plus other benefits, and any contractual notice pay, unless determined otherwise by the Board in exceptional circumstances, or unless otherwise dictated by law. • The Remuneration Committee may use its discretion to determine appropriate bonus amounts and the vesting of any share-based award, taking into consideration the individual circumstances under which an Executive Director is leaving the Group. • The default position is for annual bonus amounts and the vesting of share-based awards for ‘good The Group has no age limit for Directors. The dates of each contract are set out on page 68. The fees for the Chair and Non-Executive Directors are set out on page 68 of this report. These fees are reviewed (but not necessarily increased) on an annual basis, considering the responsibilities of the role and their participation in the various Governance Committees of the Group. The Chair and Non-Executive Directors are not entitled to participate in any annual or long-term incentive plans, or any pension arrangements. Consideration of employment conditions elsewhere in the Group The Committee considers the pay and conditions of employees throughout the Group when determining the remuneration arrangements for Executive Directors, although no direct comparison metrics are applied. Consideration of shareholder views The Committee is committed to ongoing dialogue with shareholders and welcomes feedback on directors’ remuneration. The Committee will continue to monitor trends and developments in corporate governance, market practice and shareholder views to ensure the structure of the executive remuneration remains appropriate. 62 MindGym plc Annual Report and Accounts 2021 Governance 63 Annual report on remuneration t r o p e r n o i t a r e n u m e R This section of the report provides details of how The Committee met four times over the course MindGym’s Remuneration policy was implemented of the year. in the year ended 31 March 2021 and how the Group plans to implement the policy for the year ending 31 March 2022. Remuneration Committee activities in the year ended 31 March 2021 The Committee was formed on 28 June 2018 following the AIM listing of the Group. The Committee operates under the agreed Terms of Reference and is responsible for reviewing the framework for remuneration arrangements for Executive Directors and other senior executives on an annual basis. The Committee also reviews information on pay outcomes and processes for the wider workforce to take account of wider workforce pay and conditions when setting executive remuneration and to consider alignment between pay structures. Remuneration Committee activities over the course of the year were as follows: • Review the Group’s response to the COVID-19 pandemic, particularly in respect of pay awards and annual bonus payments • Review of remuneration for members of the Executive leadership team • Issue of awards under the MindGym Long-Term Incentive Plan Single total figure of remuneration The table below details the total remuneration earned by each Director in respect of the year ended 31 March 2021. Executive Director Year Base pay (1) Taxable benefits(2) Pension (3) Bonus(4) Share options(5) Total £'000 £'000 £'000 £'000 £'000 £'000 Octavius Black (6) Sebastian Bailey (6) Richard Steele (7) Total emoluments 2021 2020 2021 2020 2021 2020 2020 2020 152 200 152 200 180 180 484 580 4 3 5 4 8 11 17 18 8 10 8 10 9 9 25 29 - - - - - 19 - 19 - - - - 253 - 253 - 164 213 165 214 450 219 779 646 (1) Value of base pay received in the year. (2) Value of benefits received by the Directors in the year. Both Octavius Black and Sebastian Bailey are provided with Private Healthcare cover for themselves and their family. Richard Steele receives a cash contribution towards Private Healthcare cover for himself and his family. (3) The value of pension contributions made or cash in lieu of pension paid by the Group in the year. (5) Richard Steele exercised 248,405 options, which had been issued under the Group’s EMI scheme on 1 September 2020. The face value on the date of exercise was £253,498. (6) Both Octavius Black and Sebastian Bailey received no pay for the period 7 April to 30 June 2020. (7) Richard Steele reduced his pay by 20% for the period 7 April to 30 June 2020, although this will be repaid during Q1 of the year ending 31 March 2022. (4) The value of annual bonus payable in respect of the year and based on performance for the financial year. Base pay Year ended 31 March 2021 As disclosed in last year’s report, in direct response to the COVID-19 pandemic, both Octavius Black and Sebastian Bailey requested to receive no base pay from 7 April to 30 June 2020 inclusive. Over the In reaching its decision in respect of bonus payments for the year ended 31 March 2021, the Committee considered: • Shareholder experience: dividend suspended and share price performance balanced by strong business resilience over the course of the year. same period, Richard Steele also reduced his base • Employee experience: minimal workforce pay by 20%. Year ending 31 March 2022 The pay reduction for Richard Steele of £8,585 in respect of the period 7 April to 30 June 2020 will be repaid to him during June 2021, in line with the Committee’s approved approach to other employees of the Group. redundancies countered by base pay and fee cuts for all employees. • Government support: utilisation of the Government’s Coronavirus Job Retention Scheme and other such schemes (totaling c.£216k for the year). No additional funding grants were received by the Group. • Action taken with regard to Executive No repayments will be made to the two Founders remuneration during the year: pay reductions Directors, being Octavius Black and Sebastian for Executive and Non-Executive Directors as Bailey for the same period. There are not expected to be any changes to base well as other members of the Executive Leadership Team for a three-month period. pay for Executive Directors for the year ending Annual bonus performance was assessed against 31 March 2022. Pension contributions Year ended 31 March 2021 a number of both financial (Revenue and PBT) and strategic measures (Plan Delivery). The financial measures, which make up 50% of the total bonus available, were determined to have paid out at target and minimum performance respectively, During the year, Executive Directors received Group resulting in 18.75% out of a potential 50% of the pension contributions in line with the Remuneration maximum available. The Plan Delivery measure, policy. There were no Executive Directors who were which makes up the remaining 50% of the reduced members of a defined benefit pension scheme during the year. Pension contributions for Octavius Black, Sebastian maximum bonus, was assessed against a series of strategic key performance indicators, resulting in the achievement of 37.5% out of the potential 50%. Bailey and Richard Steele were made by the Group It was noted that formulaic bonus outcomes at 5% of their total base pay. Year ending 31 March 2022 For the year ending 31 March 2022, there will be no changes to pension contributions for Executive Directors. for the year reflected business performance and resilience over the past 12 months and would have resulted in a bonus payment of 28% of the maximum bonus opportunity for Richard Steele. After due and careful consideration and taking all of the above into consideration, however, Pension contributions for all other employees of the the Committee determined that to align with Group are also capped at 5% of their total base pay. shareholder experience, with no dividends having been paid in the year, no bonus should be paid to Executive Directors for the year ending 31 March 2021. Annual performance bonus Year ended 31 March 2021 As disclosed in last year’s report, the Committee deferred their decision-making in respect of FY21 annual bonus design until H2 of the financial year, as a direct response to the COVID-19 pandemic. 64 MindGym plc Annual Report and Accounts 2021 Governance 65 t r o p e r n o i t a r e n u m e R Annual bonus for the year ending 31 March 2022 Following a review of Remuneration for members of the Executive Leadership team, the Committee determined that maximum bonus potential for all eligible members of this group should be aligned to create a greater degree of transparency and fairness. As such, the maximum bonus potential for Richard Steele will increase from 30% to 50% base pay from 1 April 2021. In its review of share-based incentives, the Remuneration Committee considers several factors such as: • The available headroom for new awards • The price of previously granted options and whether these continue to act as the intended incentive • Share price movements as compared to the Group’s performance During the year, careful consideration was given to the appropriate measures and targets for the annual Scheme interests awarded in the year ended 31 March 2021 bonus scheme for FY22. With the uncertainty of the ongoing pandemic, despite the encouraging progress of the worldwide vaccine programme, the Committee felt that it was important to focus on key elements for the next 12 months. As a result, for Richard Steele and other members of the Executive leadership team, measures for the 50% of the annual bonus linked to Company performance have been simplified and for the next 12 months, will be based on a Group Revenue target only. The remaining 50% of the annual bonus will be based on a series of key strategic Plan Delivery targets. For all other eligible employees of the Group, 50% of the annual bonus will be based on a Group Revenue target and 50% will be based on personal performance. In addition, a profit before tax (PBT) underpin will apply to the annual bonus scheme for all participants, meaning that if PBT is less than £0 for the year ending 31 March 2022, the Remuneration Committee will have discretion to determine whether any vesting should occur in respect of the Group element of the bonus scheme. The Board has determined that the disclosure of performance targets for the year ending 31 March 2022 is commercially sensitive and they are therefore not disclosed in this report. These targets are determined within the context of a longer-term business plan and the disclosure of these targets could give information to MindGym’s competitors to the detriment of business performance.. Awards were made under the Group’s Long-Term Incentive Plan (LTIP) to Richard Steele and to members of the Executive and Senior Leadership Teams of the Group on 31 March 2021. Awards were made in the form of nil priced options for UK-based employees and in the form of Restricted Stock awards for US based employees, with a five-day average share price of £1.30 used to calculate awards. Richard Steele was granted 138,461 nil priced options in respect of this award. Octavius Black and Sebastian Bailey did not participate in this award. In respect of Richard Steele and members of the Executive Leadership team, Awards will vest 50% three years after grant, 25% four years after grant, with the remaining 25% vesting five years after grant, subject to the extent to which stretching performance conditions set out below are met. Performance will be measured against a series of stretching performance conditions linked to Group Revenue (45%), Earnings Per Share (45%) and Total Shareholder Return (10%). The Board has determined that the disclosure of performance targets in respect of awards granted in the year ending 31 March 2021 are commercially sensitive and they are therefore not disclosed in this report. These targets are determined within the context of a longer-term business plan and the disclosure of these targets could give information to MindGym’s competitors to the detriment of business performance. The Committee is committed to disclosing specific targets and performance against these targets on vesting of the awards. Share-based incentives The Committee believes that long-term share awards incentivise and reward executives for Scheme interests vesting in the year ended 31 March 2021 the delivery of long-term business goals and As disclosed in last year’s report, the first 50% of align the interests and objectives of the senior the award made to Richard Steele on 27 April 2018 management team with those of shareholders reached its first vesting date, resulting in 248,405 over the medium term. nil priced options vesting on 27 April 2020, with a face value on the date of vesting of £260,825. Further details of the features and operations of 20,944 shares were sold to cover associated exercise the SAYE scheme can be found in Note 23 to the costs on 1 September 2020 at a price of £1.02 per consolidated financial statements. share. All other shares resulting from this award were retained. Since the end of the financial year ended 31 March 2021, the award made to Richard Steele on 27 April 2018 has reached its second and final vesting date on 27 April 2021, resulting in the vesting of 50% of the award, this being 248,405 nil priced options. The vesting of these options was not subject to any performance conditions and no options have been exercised at the date of publication. It is anticipated that Richard Steele will retain all vested options, save for those expected to be sold MindGym Employee Stock Purchase Plan (ESPP) The ESPP is administered by a duly authorised Committee of the Board. All US employees of MindGym are eligible to participate in the ESPP if they have been employed for a qualifying period. To participate in the Plan, an eligible employee must contribute between $10 and $550 over a 12-month offering period at the end of which, shares in MindGym Plc will be purchased on behalf of the employee. to cover associated exercise costs, subject to the No Executive Directors participated in this scheme. Company’s share dealing policy. No options have been exercised in respect of this second vesting tranche at the date of publication. Year ending 31 March 2022 As the Group matures, the Committee is mindful of Payments for loss of office and payments to past Directors made in the year ended 31 March 2021 There were no exit payments made in the year to the need to incentivise the most senior leaders of the Executive Directors and there were no payments Group to deliver against its ambitious growth plans made to past Directors in the year. and intends to continue to make awards under the Group’s Long-Term Incentive Plan in the year ending 31 March 2022, in line with the Remuneration policy. Service contracts All three Executive Directors signed new service It is anticipated that the CFO will be granted awards contracts with the Group on admission to AIM on under the Group’s Long-Term Incentive Plan in the 25 June 2018. These are not of fixed duration and year ending 31 March 2022. Neither of the Founders, are terminable by either party giving six months’ being Octavius Black or Sebastian Bailey, will written notice. participate in these awards. All employee share plans MindGym Save As You Earn (SAYE) scheme The SAYE scheme is administered by a duly authorised Committee of the Board. All UK Executive Directors and employees of MindGym are eligible to participate in the SAYE scheme if they have been employed for a qualifying period. To participate in the Scheme an eligible employee Directors’ interests and shareholding In line with Quoted Companies Alliance Remuneration Guide for small and mid-sized quoted companies, Executive Directors are encouraged to build and retain a shareholding in the Group. Current shareholdings as at 31 March 2021 are set out below for Executive Directors and associated persons: must enter a Sharesave contract and agree to make Executive Director monthly contributions between £5 and £500 for a specified period of three or five years. Options granted to acquire MindGym shares under the Actual holding Actual ownership as a % of base pay(1) Octavius Black (2) 55,156,500 34,473% Scheme have an option price determined by the Sebastian Bailey 9,015,668 5,635% MindGym Board, which will be not less than the higher of 80% of the middle market quotation price or their nominal value. Richard Steele 227,461 158% (1) Share price on 31 March 2021 of £1.25 used for calculation (2) Octavius Black and Joanne Cash hold their shareholding jointly Richard Steele participated in the 2019 SAYE invitation period as disclosed in last year’s report, but no Executive Directors participated in the 2020 invitation. There have been no changes to the shareholdings of Executive Directors between 31 March 2021 and 11 June 2021. 66 MindGym plc Annual Report and Accounts 2021 Governance 67 Advice and services provided to the Remuneration Committee Except when matters concerning their own positions are being considered, the Chair and Chief People Officer are normally invited to attend the meetings of the Remuneration Committee. Over the course of the year ended 31 March 2021, the Remuneration Committee was advised on matters relating to executive remuneration by Overwood People Consulting Limited ‘OPC’. The Remuneration Committee deems the advisors to be independent from the Group and the advice it received during the year to be appropriate and objective. The fees paid for services are set out below. Company Nature of service 2021 £'000s OPC Remuneration Matters, Long-Term Incentive Design 7 Ruby McGregor-Smith Chair of the Remuneration Committee 10 June 2021 t r o p e r n o i t a r e n u m e R Fees for the Chair and Non-Executive Directors Remuneration for the Chair and Non-Executive Letters of appointment – the Chair and Non-Executive Directors The Chair and Non-Executive Directors signed Directors is set by the Board, taking account of the letters of appointment with the Group for the commitments and responsibilities of the role and provision of Non-Executive Directors’ services, their participation in the various governance which may be terminated by either party giving Committees of the Group. The fees for the Chair and one month’s written notice. Non-Executive Directors along with their associated appointment dates are set out in the tables below. Director Committee memberships Date of appointment to the Board Expiry date of current arrangement Joanne Cash Nomination & Remuneration 1 March 2011 25 June 2024 Trevor Phillips Nomination & Remuneration 16 October 2020 30 September 2023 Ruby McGregor- Smith Nomination & Remuneration, Audit & Risk Sally Tilleray Nomination & Remuneration, Audit & Risk 23 November 2020 12 November 2023 14 June 2018 14 June 2024 David Nelson Nomination & Remuneration 2 April 2014 25 June 2024 Interests and shareholding – the Chair and Non-Executive Directors There are no shareholding requirements for the Chair or Non-Executive Directors. Joanne Cash jointly holds 55,156,500 shares in the Group with Octavius Black. No Non-Executive Directors hold shares in the Group. (1) Joanne Cash has declined to receive a fee in relation to her role as Non-Executive Board Chair (2) Joanne Cash receives a Private Medical Insurance benefit in relation to her role as Non-Executive Board Chair (3) Dido Harding stepped down from the Board on 16 October 2020 (4) Sally Tilleray was appointed as Senior Independent Director on 16 October 2020 and her fees were adjusted accordingly (5) Trevor Phillips was appointed to the Board on 16 October 2020 (6) Ruby McGregor-Smith was appointed to the Board on 23 November 2020 The Chair and Non-Executive Directors are not eligible to participate in annual bonus, LTIP and pension arrangements. As disclosed in last year’s report, all Non-Executive Directors reduced their fees by 20%, in line with other members of the Executive team, from 7 April 2020 to 30 June 2020. These fee reductions will be repaid to Non-Executive Directors in June 2021 and are therefore reflected in the fees set out below. Non-Executive Director Year Fees £’000 Benefits £’000 Total fees and benefits £’000 Joanne Cash (1, 2) Dido Harding (3) Sally Tilleray (4) David Nelson Trevor Phillips (5) Ruby McGregor- Smith (6) Aggregate emoluments 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2020 2020 - - 30 60 45 40 40 40 20 - 15 - 150 140 3 2 - - - - - - - - - - 3 2 3 2 30 60 45 40 40 40 40 20 15 - 153 142 There are no proposed increases to Non-Executive Director fees in the year ending 31 March 2022, save for where there may be a change in responsibilities over the course of the year. 68 MindGym plc Directors’ report The Directors present their report together with the audited financial statements for the year ended 31 March 2021. The corporate governance statement on pages 46–51 also forms part of this Directors’ report. Principal activity MindGym plc (the ‘Company’) is a public limited company incorporated in the United Kingdom, registered number 3833448. The Company’s shares have been traded on the Alternative Investment Market (‘AIM’) of the London Stock Exchange since Directors The Directors of the Company during the year, and subsequently to the date of this report, were: • Joanne Cash • Octavius Black • Sebastian Bailey • Richard Steele • David Nelson • Sally Tilleray • Trevor Phillips (appointed on 16 October 2020) 28 June 2018. The group consists of MindGym plc • Ruby McGregor-Smith and its subsidiaries, MindGym (USA) Inc., MindGym (appointed on 23 November 2020) Performance PTE, MindGym (Canada) Inc. (together • Diana ‘Dido’ Harding the ‘Group’). (resigned on 16 October 2020) 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. Review of business The Chairman’s statement on page 10 and the CEO’s review on page 20 provides a review of the business, the Group’s trading for the year ended 31 March 2021, key performance indicators and an indication of future developments and risks, and form part of this Directors’ report. The Directors’ biographies can be found on page 44. Details of the Executive Directors’ service contracts, the Non-Executive Directors’ letters of appointment and the Directors’ dates of appointment can be found in the Remuneration report on page 68. Articles of Association The rules governing the appointment and replacement of Directors are set out in the Company’s Articles of Association. The Articles of Association may be amended by a special resolution of the Company’s shareholders. A copy of the Articles of Association can be found on the Company’s website: www.uk.themindgym.com/investors/ share-capital-not-public-hands Directors’ interests The Directors’ interests in the Company’s shares are set out in the Remuneration report on page 67. Financial results and dividends The Group’s loss before taxation for the year was £0.4 million (2020: profit of £7.4 million). More information about the Group’s financial performance can be found in the financial review on page 28–33 and in the financial statements on page 76 onwards. The Board has not recommended the payment of a final dividend for the year. More information about dividends can be found in the Chair’s statement on page 12. Directors’ indemnity provisions As permitted by the Articles of Association, the Restrictions on shares The Directors are not aware of any agreements Directors have the benefit of an indemnity, which between the holders of the Company’s shares is a qualifying third-party indemnity provision as that may result in the restriction of the transfer defined by s236 of the Companies Act 2006. The of securities or on voting rights. No shareholder indemnity was in force throughout the financial holds securities carrying any special rights or period and at the date of approval of the financial controls over the Company’s share capital. statements. The Company has purchased directors’ and officers’ liability insurance during the period under review, as allowed by the Company’s articles. Share capital As at 31 March 2021, the Company’s issued share Relationship agreement On 25 June 2018, Octavius Black, Joanne Cash and Sebastian Bailey (the ‘Substantial Shareholders’) entered into the Relationship Agreement with the Company. The principal purpose of the Relationship capital was £50,999.90 divided into 99,791,784 Agreement is to ensure that the Company is capable ordinary shares of 0.001p each and 50,000 at all times of carrying on its business independently redeemable preference shares of £1.00 each. of the Substantial Shareholders and their respective The holders of ordinary shares are entitled to one associates. vote per share at the Company’s general meetings. The redeemable preference shares carry no dividend or voting rights and are fully redeemable at the election of the Company or the holder of the redeemable preference shares (Octavius Black). Under the Relationship Agreement, each of the Substantial Shareholders have undertaken that they will (and will procure that their respective associates will), among other things: Significant shareholdings As of 28 May 2021, the Company is aware of the following holdings of significant shareholders a) Ensure that the Group shall be managed for the benefit of the Shareholders as a whole and independently of themselves and their respective associates. in the Company (as defined in the AIM Rules). b) Ensure that all transactions and arrangements Shareholder Joanne Cash and Octavius Black (jointly) Number of shares Percentage of issued share capital with the Company and any other member of the Group are on an arm’s length basis and on normal commercial terms. c) Not exercise any of their respective voting or 55,712,055 55.83% other rights and powers to prevent the Company or any other member of the Group from Liontrust Asset Management 11,363,374 11.39% complying with its obligations under the AIM Sebastian Bailey 9,516,373 9.54% Rules for Companies or other applicable law. Canaccord Genuity Wealth Management 4,308,603 4.32% d) Not exercise any of their respective voting or other rights and powers to cancel the Company’s admission to trading on AIM. Baillie Gifford & Co 4,288,002 4.3% JO Hambro Capital Management 3,622,448 3.63% For as long as Octavius Black and Joanne Cash 2,550,780 2.56% (or their respective personal representatives or River and Mercantile Asset Management BGF Investments 2,483,314 2.49% UBS Global Asset Management 1,625,561 Cazenove Capital Management 1,208,718 1.63% 1.21% successors in title) hold, in aggregate, 20% or more of the total voting rights in the Company, they shall be entitled to appoint one director to the Board, in place of either or both of them. Financial instruments The financial risk management objectives of the Group, including credit risk and currency risk, are provided in Note 21 to the financial statements on pages 105 to 107. 70 MindGym plc Annual Report and Accounts 2021 Governance 71 t r o p e r s ' r o t c e r i D Political donations The Company made no political donations in the year. Authority to purchase own shares At the Company’s AGM held on 13 July 2020, the Company was generally and unconditionally authorised by its shareholders to make market purchases (within the meaning of section 693 of Greenhouse gas emissions The Group is required to disclose its UK energy use and associated greenhouse gas (GHG) emissions under the Companies (Directors’ report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. As a minimum, the Group is required to disclose those GHG emissions relating to purchased natural gas, electricity and transport fuel. the Companies Act 2006) of up to a maximum of Indirect emissions from purchased electricity 9,949,321 of its ordinary shares (10% of the Company’s then issued capital at the time). The Company has not repurchased any of its have been calculated based on figures for emissions per kWh provided by our electricity supplier and so reflect the mix of fuels used ordinary shares under this authority, which is in the electricity generation. due to expire at the 2021 AGM. A resolution will be proposed to renew the authority at the 2021 AGM. The UK energy use and emissions for the year ended 31 March 2021 are set out in the table below. Employees Employees are encouraged to be involved in decision-making processes and are provided with information on the financial and economic factors affecting the Group’s performance, through team meetings, updates from the Chief Executive Officer and via an open and inclusive culture. More information on employee engagement is provided on page 36 of the strategic report. 2020/21 Total UK energy consumption 129,744 kWh Direct emissions – natural gas (Scope 1) nil Indirect emissions from purchased electricity (Scope 2) 48 tonnes of CO2 Other indirect emissions – vehicle fuel (Scope 3) - Total tonnes CO2 48 tonnes of CO2 Applications for employment by disabled persons Tonnes of CO2 per UK employee 0.35 tonnes of CO2 are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of a member of staff becoming disabled, every effort is made to ensure that their employment within the Group continues and that workspace and other modifications are made as appropriate. It is the policy of the Group that the training, career development and promotion of a disabled person should, as far as possible, be identical to that of a person who does not suffer from a disability. Stakeholder engagement and key decisions Details of how we engage with our key stakeholders, key decisions and discussions of the Board during the year and the main stakeholder inputs into those decisions are set out on pages 36 to 39 of the strategic report. The Group’s UK energy consumption reduced 35% from the previous year due to the restrictions associated with the COVID-19 pandemic. As this is the first year the Group has assessed its emission, energy efficiency actions have not yet been taken. Post balance sheet events The performance conditions on share-based payment awards made on 31 March 2021 under the LTIP were approved in May 2021. See Note 22 and the Annual Report on Remuneration for further details. Going concern The Group meets its day-to-day working capital Independent auditors BDO LLP has expressed its willingness to continue in requirements from the cash flows generated by its office as Auditor and a resolution to appoint BDO LLP trading activities and its available cash resources. will be proposed at the forthcoming Annual General As at 31 March 2021 the Group had £16.8 million of Meeting of the Company. cash and £3.2m of lease liabilities. Adjusted cash conversion in the year ended 31 March 2021 was 418% (2020: 136%). Disclosure of information to Auditor In the case of each Director in office at the date the The Group prepares cash flow forecasts and re- Directors’ report is approved, the following applies: 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 ongoing COVID-19 • The Director knows of no information, which would be relevant to the auditors for the purpose of their audit report, of which the auditors are not aware. • The Director has taken all steps that he/she ought to have taken as a director to make him/herself aware of any such information and to establish pandemic and expected medium-term economic that the auditors are aware of it. impact, and subject to stress testing, scenario modelling and sensitivity analysis, which the Directors consider sufficiently robust. 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 Annual General Meeting The Annual General Meeting is scheduled to be held on 15 July 2021. The ordinary business will include receipt of the Directors’ report and audited financial statements for the year ended 31 March 2021, the re-election of Directors, the reappointment of BDO LLP as Auditor and authorisation of the Directors to determine the Auditor’s remuneration. The Notice of Annual General Meeting and the ordinary and special resolutions to be put to the meeting are included in this document on pages 122 to 128 and are available on the Company’s website. the Group has adequate resources to continue in The Board is closely monitoring developments in operational existence for the foreseeable future. relation to the COVID-19 pandemic and the related Accordingly, they continue to adopt the going UK Government guidelines and will provide an concern basis in preparing the Annual Report update by an announcement via a Regulatory and Accounts. The Directors believe that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business mode and strategy. Information Service if any changes are required to the AGM arrangements. 72 MindGym plc Annual Report and Accounts 2021 Governance 73 Website publication The Directors are responsible for ensuring that the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. The Directors’ report was approved by the Board and was signed on its behalf on 10 June 2021. Environmental, social and governance highlights Environmental We have commenced reporting on our UK energy Social We fully fund ParentGym, one of the largest consumption and greenhouse gas emissions school-based parenting programmes in the UK. following the guidance on Streamlined Energy ParentGym normally runs approximately 100 and Carbon Reporting (SECR). See Directors Report. programmes every term. With schools closed The pandemic has driven a move to fully virtual delivery in FY20 and to our staff working from home. Consequently, there has been almost no business travel or commuting this year. Virtual delivery has also greatly reduced the printing of course materials. over lockdown, we have 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 give them access to the programme. Although some travel will resume as the world Our products in areas such as diversity, inclusion recovers from COVID-19, we do not intend to go and wellbeing help our clients make their back to the old business as usual. Maintaining a high workplaces healthier. Richard Steele Finance Director 10 June 2021 proportion of virtual delivery and a move to flexible hybrid working for our people will lessen our impact on the environment. We seek to be a leader in making our own work environment inclusive, engaging and supportive for our employees and have established an employee wellbeing programme. Governance The Board applies the 10 principles of the Quoted Companies Alliance (QGA) Corporate Governance Code. We have increased the diversity of our Board. Our Board of eight members now includes two from a minority ethnic background, as well as three women. t r o p e r s ' r o t c e r i D Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements The Directors are responsible for preparing the strategic report, the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the Group’s Consolidated Financial Statements in accordance with International Financial Reporting Standards (‘IFRS’) in conformity with the requirements of the Companies Act 2006, and the Company Financial Statements in accordance with FRS 101 ‘Reduced Disclosure Framework’. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently • Make judgements and accounting estimates that are reasonable and prudent • State whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements • Prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 74 MindGym plc Financial statements Independent auditor’s report Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the group financial statements Parent company statement of financial position Parent company statement of changes in equity Notes to the parent company financial statements Notice of AGM Directors and advisors 78 84 85 86 87 88 110 111 112 122 130 Independent auditor’s report to the members of MindGym plc Opinion on the financial statements In our opinion: Basis for opinion We conducted our audit in accordance with • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2021 and of the Group’s loss for the year then ended; • the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; • the Parent Company financial statements have been properly prepared in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remain independent of the Group and the United Kingdom Generally Accepted Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of MindGym plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 March 2021 which comprise the Consolidated statement of comprehensive income, the Consolidated and Company statements of financial position, the Consolidated and Company statements of changes in equity, the Consolidated statement of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). 78 MindGym plc Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting included: • Understanding, challenging and corroborating the key assumptions included in their cash flow forecasts against prior year, our knowledge of the business and industry, and other areas of the audit. • Review of board minutes and review of external resources for any key future events that may have been omitted from cash flow forecasts and assessing the impact these could have on future cash flows and cash reserves. • Confirming that sensitised cash flow forecasts prepared by the Directors included the preparation of a reverse stress test to analyse the level of reduction in trade that could be sustained before a liquidity shortfall would be indicated. We assessed the assumptions against prior year and our knowledge of the business, and accuracy of these calculations. • Considering the adequacy of the disclosures relating to going concern included within the annual report against the requirements of the accounting standards and consistency of the disclosures against the forecasts and going concern assessment. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised f or issue. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. c l p m y G d n M i f o s r e b m e m e h t o t t r o p e r s ’ r o t i d u a t n e d n e p e d n I Overview Coverage1 98% (2020: 99%) of Group profit before tax The parent entity is based in the UK and there is one significant component based in the US, as well as one non-significant component based in Singapore. All audit work was performed by the group audit team 99% (2020: 99%) of Group revenue based in the UK. 99% (2020: 99%) of Group total assets Key audit matters Revenue recognition 2021 2020 Materiality Group financial statements as a whole £305,000 (2020:£330,000) based on 6% (2020: 5%) of three year average adjusted profit before tax (2020: adjusted profit before tax). 1 These are areas which have been subject to a full scope audit by the group engagement team An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. We completed a full scope audit for the parent entity and the significant component, as well as testing over the consolidation necessary for our opinion on the group financial statements. We performed analytical review procedures and specific testing on group audit risk areas on the non- significant component. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How the scope of our audit addressed the key audit matter Revenue Recognition Revenues are generated from the provision of training courses and associated products. The accounting policy in respect of revenue recognition is described in note 2 to the financial statements. Certain elements of group revenues are recognised with reference to the stage of delivery of a product or service as the performance obligations are fulfilled. Management undertake an exercise at each period end to estimate the stage of completion of individual deliverables. For certain revenue streams there may be judgement over the point the performance obligations are satisfied. In view of the judgements involved and the significance of this matter to the financial statements overall, this was considered to be an area of focus for our audit. We have assessed the appropriateness of the revenue recognition policies and considered whether they are consistent with the requirements of accounting standards, and have been applied consistently and free from bias. We tested management’s judgements over the recognition point for revenue across the year end, which included: We tested revenue recognised and amounts recorded during the year, and around the year end, to source documentation. This included identification of performance obligations, evidence of customer acceptance and delivery, and timely payment of amounts due to determine whether the approach to recognising revenue was appropriate. We examined a sample of invoices raised in the year and considered the appropriate recognition requirements, with a focus on significant licencing and development revenue to check that it is recognised either on delivery or over a period, including understanding performance obligations, payment terms and future obligations. We tested revenue cut off through agreement of a sample of revenue entries and credit notes recognised either side of year end, to check amounts are recorded in the correct period. For a sample of year end accrued income, focused on aged items, we identified the performance obligation and obtained evidence this had been met prior to year-end to check the basis for recognition is correct, the balances have been correctly accounted for, and should be recoverable from customers. Key observations: Based on the work performed we consider that revenue has been recognised appropriately and in accordance with the group’s revenue recognition accounting policy. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows: Shareholder Group financial statements Parent company financial statements 2021 £’000 305 2020 £’000 330 2021 £’000 225 2020 £’000 245 6% of 3 year average adjusted profit before tax 5% of adjusted profit before tax Approximately 75% of Group materiality Calculated as a percentage of Group materiality for Group reporting purposes We used our judgement to allocate materiality, including taking account of aggregation risk. We considered adjusted profit before tax to be the most appropriate measure for the basis of materiality given it is a key performance indicator for the group. Adjustments are included on the Consolidated Income Statement and detailed in note 6 to the financial statements. Adjusted measures have been used as we believe this more appropriately reflects the Group’s underlying performance. A three year average measure has been used this year to account for fluctuations in the Group’s profitability as a result of the Coronavirus pandemic. 75% of materiality 229 248 169 184 We considered a number of factors including the expected total value of known and likely misstatements (based on past experience and other factors) and management’s attitude towards proposed adjustments Materiality Basis for determining materiality Rationale for the benchmark applied Performance materiality Basis for determining performance materiality Component materiality Reporting threshold We set materiality for each component of the Group We agreed with the Audit Committee that we would based on a percentage of between 25% and 75% of report to them all individual audit differences in Group materiality dependent on the size and our excess of £12,000 (2020: £13,000). We also agreed to assessment of the risk of material misstatement report differences below this threshold that, in our of that component. Component materiality ranged view, warranted reporting on qualitative grounds. from £76,250 to £225,000. In the audit of each component, we further applied performance materiality levels of 75% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. 80 MindGym plc Annual Report and Accounts 2021 Financial statements 81 inconsistencies or apparent material misstatements, always detect a material misstatement when it fraud is higher than the risk of not detecting c l p m y G d n M i f o s r e b m e m e h t o t t r o p e r s ’ r o t i d u a t n e d n e p e d n I Other information The directors are responsible for the other information. The other information comprises the information included in the annual report and accounts other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Other Companies Act 2006 reporting Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic report and Directors’ report In our opinion, based on the work undertaken in the course of the audit: Matters on which we are required to report by exception • the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of Directors As explained more fully in the Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to In preparing the financial statements, the Directors fraud or error, and to issue an auditor’s report that are responsible for assessing the Group’s and the includes our opinion. Reasonable assurance is a high Parent Company’s ability to continue as a going level of assurance, but is not a guarantee that an concern, disclosing, as applicable, matters related audit conducted in accordance with ISAs (UK) will 82 MindGym plc exists. Misstatements can arise from fraud or error one resulting from error, as fraud may involve and are considered material if, individually or in the deliberate concealment by, for example, forgery, aggregate, they could reasonably be expected to misrepresentations or through collusion. influence the economic decisions of users taken There are inherent limitations in the audit on the basis of these financial statements. procedures performed and the further removed Extent to which the audit was capable of detecting irregularities, including fraud non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we Irregularities, including fraud, are instances of are to become aware of it. non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: • We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur, by meeting with management from across the Group to understand where they considered there was a susceptibility to fraud. Fraud risks were communicated to all members of the audit team during both the planning and execution of the audit. • Our audit planning identified fraud risks in relation to management override and revenue recognition. (Revenue recognition has been assessed as a Key Audit Matter above). We considered the processes that the Group has A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. established to address risks identified, or that Kieran Storan (Senior Statutory Auditor) otherwise prevent, deter and detect fraud; and how management monitors those processes. For and on behalf of BDO LLP, Statutory Auditor London, UK • Our procedures included journal entry testing, with a focus on large or unusual transactions 10 June 2021 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). based on our knowledge of the business; enquiries with the management outside of the finance function; and focussed testing as referred to in the Key Audit Matters section above. • We focused on laws and regulations that could give rise to a material misstatement in the financial statements throughout our audit, including, but not limited to, the Companies Act 2006, International Financial Reporting Standards and tax legislation. Our procedures included reviewing minutes of board and other committee meetings to identify any instances of non-compliance with laws and regulations. Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to MindGym plc consolidated statement of comprehensive income MindGym plc consolidated statement of financial position Year to 31 March 2021 Year to 31 March 2020 Note £’000 £’000 Year to 31 March 2021 Year to 31 March 2020 Note £’000 £’000 Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating (loss)/profit Finance income Finance costs (Loss)/profit before tax Adjusted profit before tax Restructuring costs Employee options surrender credit Total adjustments (Loss)/profit before tax Tax on loss/profit (Loss)/profit for the financial period from continuing operations attributable to owners of the parent Items that may be reclassified subsequently to profit or loss Exchange translation differences on consolidation Other comprehensive income for the period attributable to the owners of the parent Total comprehensive (loss)/income for the period attributable to the owners of the parentt (Loss)/earnings per share (pence) Basic Diluted Adjusted earnings per share (pence) Basic Diluted 4 4, 5 9 9 6 6 6 10 11 11 39,383 (4,967) 34,416 (34,635) (219) 30 (167) (356) 306 (662) – (662) (356) 124 (232) (281) (281) (513) (0.23) (0.23) 0.30 0.30 48,249 (9,680) 38,569 (31,147) 7,422 51 (75) 7,398 6,633 – 765 765 7,398 (1,493) 5,905 88 88 5,993 5.93p 5.91p 5.24p 5.22p Non-current assets Intangible assets Property, plant and equipment Deferred tax assets Other receivables Current assets Inventories Trade and other receivables Current tax receivable Cash and cash equivalents Total assets Current liabilities Trade and other payables Lease liability Redeemable preference shares Current tax payable Non-current liabilities Lease liability Total liabilities Net assets Equity Share capital Share premium Share option reserve Retained earnings Equity attributable to owners of the parent company 13 14 10 16 15 16 17 18 20 18 22 2,877 3,406 230 339 6,852 – 10,620 280 16,833 27,733 34,585 13,813 1,085 50 104 15,052 2,081 17,133 17,452 1 157 674 16,620 17,452 95 4,395 85 567 5,142 73 10,131 – 15,952 26,156 31,298 8,921 914 50 384 10,269 3,472 13,741 17,557 1 112 684 16,760 17,557 The financial statements were approved and authorised for issue by the Board of Directors on 10 June 2021 and were signed on its behalf by: Richard Steele Chief Financial Officer 84 MindGym plc Annual Report and Accounts 2021 Financial statements 85 MindGym plc consolidated statement of changes in equity MindGym plc consolidated statement of cash flows Share capital £’000 Share premium £’000 Note Share option reserve £’000 Retained earnings £’000 Total equity £’000 At 1 April 2019 Profit for the period Other comprehensive income: Exchange translation differences on consolidation Total comprehensive income for the period Credit to equity for share-based payments Tax relating to share- based payments Dividends At 31 March 2020 Profit for the period Other comprehensive income: Exchange translation differences on consolidation Total comprehensive income for the period Exercise of options Credit to equity for share-based payments Tax relating to share-based payments At 31 March 2021 23 10 12 22 23 10 1 – – – – – – 1 – – – – – – 1 112 340 13,177 13,630 – – – – – – 112 – – – 45 – – 157 – – – 344 – – 5,905 5,905 88 88 5,993 5,993 – 77 344 77 (2,487) (2,487) 684 16,760 17,557 – (232) (232) – – (308) 298 – 674 (281) (281) (513) (513) 308 – 65 45 298 65 16,620 17,452 Cash flows from operating activities (Loss)/profit for the financial period Adjustments for: Amortisation of intangible assets Depreciation of property, plant and equipment Profit on disposal of property, plant and equipment Net finance costs Taxation (credit)/charge Decrease/(increase)/decrease in inventories (Increase)/decrease in trade and other receivables Increase/(decrease) in payables and provisions Share-based payment charge Cash generated from operations Net tax (paid)/received Net cash generated from operating activities Cash flows from investing activities Purchase of intangible assets Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Interest received Net cash used in investing activities Cash flows from financing activities Cash repayment of lease liabilities Issuance of ordinary shares Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes Cash and cash equivalents at the end of period Year to 31 March 2021 Year to 31 March 2020 Note £’000 £’000 (232) 5,905 13 14 9 10 23 22 12 52 1,084 (2) 137 (124) 73 (246) 4,892 298 5,932 (521) 5,411 (2,834) (388) 10 15 (3,197) (1,075) 45 – (1,030) 1,184 15,952 (303) 16,833 444 717 – 24 1,493 (20) 2,279 (571) 344 10,615 638 11,253 (94) (556) – 51 (599) (565) – (2,487) (3,052) 7,602 8,294 56 15,952 Cash and cash equivalents at the end of period comprise: Cash at bank and in hand 16,833 15,952 86 MindGym plc Annual Report and Accounts 2021 Financial statements 87 Notes to the group financial statements 1. General information MindGym plc (‘the Company’) is a public limited Going concern The Group meets its day-to-day working capital company incorporated in England and Wales and requirements from the cash flows generated by its its ordinary shares are traded on the Alternative trading activities and its available cash resources. Investment Market of the London Stock Exchange As at 31 March 2021, the Group had £16.8 million (‘AIM’). The address of the registered office is of cash and £3.2m of lease liabilities. Adjusted cash 160 Kensington High Street, London W8 7RG. conversion in the year ended 31 March 2020 was The group consists of MindGym plc and its subsidiaries, MindGym (USA) Inc., MindGym Performance (Asia) Pte. Ltd and MindGym (Canada) Inc. (together ‘the Group’). 418% (2020: 136%). The Group prepares cash flow forecasts and re- forecasts regularly as part of the business planning process. The Directors have reviewed forecast cash The principal activity of the Group is to apply flows for the forthcoming 12 months for the Group behavioural science to transform the performance from the date of the approval of the financial of companies and the lives of the people who work statements and consider that the Group will have in them. The Group does this primarily through sufficient cash resources available to meet its research, strategic advice, management and liabilities as they fall due. These cash flow forecasts employee development, employee communication have been analysed in light of the COVID-19 outbreak 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’) in conformity with the requirements of the Companies Act 2006, 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 Pound 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. and expected medium-term economic impact and subjected to stress testing and scenario modelling which the Directors consider sufficiently robust. The Group was significantly impacted by COVID-19 but has been protected from more severe consequences by our digitally enabled revenue. The scenario modelling 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 is 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 2020: • Amendments to References to the Conceptual Framework in IFRS Standards Basis of consolidation The consolidated financial statements incorporate those of MindGym 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 • Amendments to IFRS 3 Definition of a Business its power over the entity). Subsidiaries are fully • Amendments to IAS 1 and IAS 8: Definition of Material • Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform (Phase 1) The adoption of these amended IFRSs 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 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: with their effective dates. • Assets and liabilities are translated at the closing Amendments to IFRS 16 Leases: COVID-19-Related Rent Concessions Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform (Phase 2) Amendments to IFRS 4 Insurance Contracts: deferral of IFRS 9 IFRS 17 Insurance Contracts* Amendments to IAS 1: Presentation of Financial Statements* Applicable from 1 April 2021 rate at the balance sheet date • Income and expenses are translated at average rates of exchange prevailing during the year All resulting exchange differences are recognised 1 April 2021 in equity. 1 April 2021 1 April 2023 1 April 2023 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 Amendments to IFRS 3: Reference to the Conceptual Framework* 1 April 2022 in profit or loss. Amendments to IAS 16: Property, Plant and Equipment – Proceeds before Intended Use* Amendments to IAS 37: Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts – Cost of Fulfilling a Contract* Annual Improvements to IFRS Standards 2018–2020 Cycle* *Not yet endorsed by the UK 1 April 2022 Revenue recognition Revenue is recognised when control over a product or service is transferred to a customer. Due to the 1 April 2022 short-term nature of the trade receivables, the Group measures them at the original transaction price invoiced without discounting. 1 April 2022* The Group generates revenue from business-to- business customers by satisfying the following performance obligations: The Directors anticipate that the adoption of these standards and amendments will have no material • 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. impact on the financial statements. • Developing training programmes customised to specific needs. Revenue is recognised at a point in time on the completion of all development work or 88 MindGym plc Annual Report and Accounts 2021 Financial statements 89 s t n e m e t a t s l a i c n a n fi p u o r g e h t o t s e t o N at the end of a stage of work when the contract Where the terms and conditions of options are provides an enforceable right to payment on modified before they vest, the increase in the fair 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 value of the options, measured immediately before and after the modification, is also charged to the 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. coaches. Revenue is recognised at a point in time The contributions are recognised as an expense on the date of delivery of the certification course. in the Statement of Comprehensive Income when Any advance consideration received from clients represents a contract liability and is disclosed in Note 17 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 16 as accrued income. they fall due. Government grants Government grants are not recognised until there is reasonable assurance that the grants will be received and that the Group will comply with any conditions attached to them. Government grants are recognised in the income statement over the same period as the The incremental costs of obtaining a contract costs for which the grants are intended to compensate. 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 not therefore capitalised. Share-based payments Where share options are awarded to employees, the fair value of the options at the date of grant Government grant income under the Coronavirus Job Retention Scheme and other schemes reimbursing employee wages is netted against staff costs and is disclosed in Note 8. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. is charged to the Consolidated Statement of The current tax payable is based on taxable profit Deferred tax is measured on a non-discounted basis Property, plant and equipment 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 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 tax authority. are incurred. 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. Other research and development costs that do not meet the above criteria are recognised as 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 equipments Two to five 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. expenses as incurred. Development costs previously recognised as an expense are not recognised as Impairment of property, plant and equipment and intangible assets Comprehensive Income over the vesting period. for the year. Taxable profit differs from accounting an asset in a subsequent period. Non-market performance conditions are taken profit as reported in the Consolidated Statement of into account by adjusting the number of equity Comprehensive Income because it excludes items instruments expected to vest at each Statement of income or expense that are taxable or deductible of Financial Position date so that, ultimately, the in other years and it further excludes items that are cumulative amount recognised over the vesting never taxable or deductible. The Group’s liability for period is based on the number of options that current tax is calculated using tax rates that have eventually vest. Market performance conditions are been enacted or substantively enacted at the factored into the fair value of the options granted. period-end date. The cumulative expense is not adjusted for failure to achieve a market performance condition. Deferred tax is provided using the liability method on temporary differences between the tax bases of The fair value of the award also takes into account assets and liabilities and their carrying amounts in non-vesting conditions. These are either factors the financial statements. Deferred tax is not beyond the control of either party (such as a target recognised on temporary differences arising from based on an index) or factors that are within the the initial recognition of goodwill or other assets control of one or other of the parties (such as the and liabilities in a transaction, other than a business Group keeping the scheme open or the employee combination, that affects neither the accounting maintaining any contributions required nor the taxable profit. by the scheme). After recognition, intangible assets are measured at cost less any accumulated amortisation and impairment losses. Amortisation is charged to administrative expenses on a straight-line basis from the date on which the asset is available for use. Intangible assets are amortised over their estimated useful lives as follows: Internally developed softwares Other intangible assets One to five years The assets’ residual values, useful lives and amortisation methods are reviewed and adjusted prospectively, if appropriate, at each reporting date. 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 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 Three to five years less costs to sell and value in use. In assessing 90 MindGym plc Annual Report and Accounts 2021 Financial statements 91 amount of the asset is reduced to its recoverable When the Group is an intermediate lessor, it Financial assets are assessed for indicators Dividends amount. An impairment loss is recognised as an accounts for its interests in the head lease and of impairment at each reporting date. s t n e m e t a t s l a i c n a n fi p u o r g e h t o t s e t o N expense immediately, unless the relevant asset is the sub-lease separately. It assesses the lease carried at a revalued amount, in which case the classification of a sub-lease with reference to the impairment loss is treated as a revaluation decrease. right-of-use asset arising from the head lease, Leases 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 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. 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. At the commencement date of the lease, the Group recognises lease liabilities measured at the present Financial instruments value of lease payments to be made over the lease Financial instruments are recognised when the term. The lease payments include fixed payments Group becomes party to the contractual provisions (including in-substance fixed payments) less any of the instrument. The Group only enters into basic 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 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. low-value assets recognition exemption to leases of Financial assets – Loans and receivables assets below $5,000. Lease payments on short-term All of the Group’s financial assets fall into the loans leases and leases of low-value assets are recognised and receivables category. Loans and receivables 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. 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. 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 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. after the initial recognition of the financial asset have had an impact on the estimated future cash 3. Use of judgements and estimates In preparing these consolidated Financial flows of the financial asset. The amount of the loss Statements, management has made judgements is measured as the difference between the asset’s and estimates that affect the application of the carrying amount and the present value of estimated Group’s accounting policies and the reported future cash flows discounted at the financial asset’s amounts of assets, liabilities, income and expenses. original effective interest rate. Impaired debts are Actual results may differ from these estimates. derecognised when they are assessed as Estimates and underlying assumptions are reviewed 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 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: retained but control of the asset has transferred Going concern to another party that is able to sell the asset in its As noted in Note 2, the financial statements have entirety to an unrelated third party. been prepared on a going concern basis, following Financial liabilities – Other financial liabilities detailed scenario testing and review. All of the Group’s financial liabilities fall into the Capitalisation of internally developed intangibles other financial liabilities category. Such financial Costs of £2.8 million incurred on developing liabilities are initially measured at fair value less any software and new digital products have been directly attributable transaction costs. Subsequent to capitalised in the year (see Note 13). Initial initial recognition, these liabilities are measured at capitalisation is based on management’s judgement amortised cost using the effective interest method. on which costs meet the definition of development 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. costs. Costs capitalised include directly attributable labour costs and purchases of directly attributable products and services. No overheads have been capitalised. Initial capitalisation and any subsequent impairment is also based on management’s judgement that technological and economic feasibility is demonstrated and assumptions regarding the expected future cash generation Financial liabilities are derecognised when the of the projects and the expected period of benefits. Group’s contractual obligations expire or are discharged or cancelled. Cash and cash equivalents Assumptions and estimation uncertainties Assumptions and estimation uncertainties at 31 March 2021 that have a significant risk of resulting In the Statement of Cash Flows, cash and cash in a material adjustment to the carrying amounts 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. 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 92 MindGym plc Annual Report and Accounts 2021 Financial statements 93 s t n e m e t a t s l a i c n a n fi p u o r g e h t o t s e t o N the provision rate is based on experience over the last three years and current and expected economic conditions. 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 23 and include expected share price volatility, dividend yield, expected life and the numbers of options expected to vest. 4. 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 2021 Segment result Revenue Cost of sales Administrative expenses (Loss)/profit before inter-segment charges Inter-segment charges Operating (loss)/profit – segment result Finance income Finance costs Loss before taxation Adjusted profit before tax Operating (loss)/profit – segment result Restructuring costs Adjusted EBIT Finance income Finance costs Adjusted profit before taxation EMEA £’000 17,241 (2,237) (18,349) (3,345) 2,258 (1,087) EMEA £’000 (1,087) 587 (500) America £’000 22,142 (2,730) (16,286) 3,126 (2,258) 868 America £’000 868 75 943 Total £’000 39,383 (4,967) (34,635) (219) – (219) 30 (167) (356) Total £’000 (219) 662 443 30 (167) 306 Management does 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 2021 is set out below. Delivery Design Digital Licensing and certification Other Advisory EMEA 59.7% 12.7% 15.3% 6.3% 4.2% 1.8% America 52.5% 13.3% 16.8% 9.0% 6.9% 1.5% 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 2020 Segment result Revenue Cost of sales Administrative expenses Profit before inter-segment charges Inter-segment charges Operating profit – segment result Finance income Finance costs Profit before taxation Adjusted profit before tax Operating profit – segment result Employee options surrender costs Adjusted EBIT Finance income Finance costs Adjusted profit before taxation EMEA £’000 21,807 (4,832) (16,525) 450 5,064 5,514 EMEA £’000 5,514 - 5,514 The mix of revenue for the year ended 31 March 2020 is set out below. Delivery Design Digital Licensing and certification Other Advisory EMEA 58.2% 12.8% 7.5% 14.4% 1.2% 5.9% America £’000 26,442 (4,848) (14,622) 6,972 (5,064) 1,908 America £’000 1,908 (765) 1,143 America 54.6% 16.2% 10.0% 12.6% 1.8% 4.8% Group 55.6% 13.0% 16.2% 7.8% 5.7% 1.7% Total £’000 48,249 (9,680) (31,147) 7,422 – 7,422 51 (75) 7,398 Total £’000 7,422 (765) 6,657 51 (75) 6,633 Group 57.2% 14.9% 8.9% 12.0% 1.6% 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. 94 MindGym plc Annual Report and Accounts 2021 Financial statements 95 s t n e m e t a t s l a i c n a n fi p u o r g e h t o t s e t o N 5. Operating profit Operating loss/profit is stated after charging: 8. Employees Staff costs were as follows: 31 March 2021 31 March 2020 31 March 2021 31 March 2020 £’000 3,369 26,491 52 1,084 35 (41) £’000 6,030 23,786 444 717 132 254 Wages and salaries Social security costs Pension costs – defined contribution plans Share-based payments Restructuring payroll costs included in adjusted items £’000 22,464 2,249 897 298 583 26,491 £’000 20,613 2,006 823 344 – 23,786 31 March 2021 31 March 2020 The average number of the Group’s employees by function was: Wages and salaries in 2021 are stated net of £216,000 of government grants under the UK Coronavirus Job Retention Scheme and similar schemes. Coach costs Staff costs (Note 8) Amortisation of intangible assets Depreciation of property, plant and equipment Short-term and low-value lease expense (Write-back)/impairment of trade receivables 6. Adjustments Restructuring costs Employee options surrender costs £’000 662 – 662 £’000 – (765) (765) Restructuring costs in the year ended 31 March 2021 include redundancy costs related to the headcount reduction exercise undertaken in response to the COVID-19 impact on the business. The credit for employee options surrender costs in the year ended 31 March 2020 reflects the release of a provision in respect of compensation paid to a non-UK resident employee in relation to the IPO in June 2018. The employee left the business in October 2019. 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 £662,000 (2020: £nil). 7. Auditor remuneration Fees for audit of the Company and consolidated financial statements Fees for audit of the Company’s subsidiaries pursuant to legislation Total audit fees Tax compliance services Tax advisory services Other services Total fees payable to the auditor 31 March 2021 31 March 2020 £’000 £’000 88 15 103 82 15 10 210 66 15 81 58 37 10 186 Delivery Support Digital The year-end number of the Group’s employees by function was: Delivery Support Digital 31 March 2021 31 March 2020 £’000 £’000 170 61 20 251 183 64 – 247 31 March 2021 31 March 2020 £’000 £’000 174 67 35 276 186 69 – 255 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: Salaries, bonuses and other short-term employee benefits Post-employment benefits Share-based payments Total compensation 31 March 2021 31 March 2020 £’000 2,583 53 207 2,843 £’000 1,952 59 262 2,273 Details of Directors’ remuneration and share options are set out in the Annual Report on Remuneration on pages 64 to 69. 96 MindGym plc Annual Report and Accounts 2021 Financial statements 97 s t n e m e t a t s l a i c n a n fi p u o r g e h t o t s e t o N 9. Net finance costs Finance income Bank interest receivable Finance lease income Finance costs Lease interest 10. Tax The tax (credit)/charge for the year comprises: UK current tax UK adjustment in respect of prior periods Foreign current tax Foreign adjustment in respect of prior periods Total current tax charge Deferred tax – current year Deferred tax – adjustment in respect of prior periods Total deferred tax credit Total tax (credit)/charge Tax on items credited to equity: Current tax credit on share-based payments Deferred tax (credit)/charge on share-based payments Total tax credit in equity 31 March 2021 31 March 2020 £’000 £’000 15 15 (167) (137) 51 – (75) (24) 31 March 2021 31 March 2020 £’000 (191) (97) 299 (2) 9 (6) (127) (133) (124) £’000 1,117 (44) 257 (107) 1,223 270 – 270 1,493 31 March 2021 31 March 2020 £’000 (48) (17) (65) £’000 (373) 296 (77) The tax charge for the year can be reconciled to accounting profit as follows: (Loss)/profit before tax Expected tax (credit)/charge based on the standard rate of tax in the UK of 19% (2020: 19%) Differences in overseas tax rates Expenses not deductible for tax purposes Adjustments to tax in respect of prior periods Other tax adjustments Total tax (credit)/charge 31 March 2021 31 March 2020 £’000 (356) (68) 71 21 (226) 78 (124) £’000 7,398 1,406 165 11 (151) 62 1,493 The main categories of deferred tax assets recognised by the Group are: At 1 April 2019 Credited/(charged) to income Credited/(charged) to equity Exchange differences At 31 March 2020 Credited to income Credited to equity Exchange differences At 31 March 2021 Tax losses £’000 296 – (296) – – – – – – Share-based payments £’000 50 35 – – 85 31 17 – 133 Other £’000 291 (305) – 14 – 102 – (5) 97 Total £’000 637 (270) (296) 14 85 133 17 (5) 230 The standard rate of corporation tax in the UK is 19%. The March 2021 Budget Statement announced an increase in the main corporation tax rate to 25% with effect from April 2023. This increase was not substantively enacted at the balance sheet date. 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. 11. Earnings per share Basic earnings per share (EPS) 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 restructuring, employee option surrender costs and in 2020 one-off taxation credits. Weighted average number of shares in issue Potentially dilutive shares (weighted average) Diluted number of shares (weighted average) 31 March 2021 31 March 2020 99,660,395 587,629 100,248,024 99,493,210 445,571 99,938,781 Net (loss)/profit attributable to shareholders Exclude: Adjustments Tax on adjustments Adjusted net profit after tax 31 March 2021 31 March 2020 £’000 (232) 662 (133) 297 Basic EPS pence Diluted EPS pence (0.23) (0.23) 0.66 (0.13) 0.30 0.66 (0.13) 0.30 £’000 5,905 (765) 73 5,213 Basic EPS pence Diluted EPS pence 5.93 5.91 (0.76) 0.07 5.24 (0.76) 0.07 5.22 98 MindGym plc Annual Report and Accounts 2021 Financial statements 99 s t n e m e t a t s l a i c n a n fi p u o r g e h t o t s e t o N 12. Dividends 14. Property, plant and equipment FY19 final dividend on ordinary shares (paid Aug 2019) Interim FY20 dividend on ordinary shares (paid Jan 2020) Final dividend proposed Per share 31 March 2021 31 March 2020 Pence 1.60 0.90 £’000 – – – – £’000 1,592 895 2,487 – The Board did not propose a final dividend for the year ended 31 March 2020 and therefore the interim dividend paid in January 2020 represents the total dividend for the year of £895,000 (0.90 pence per share). No dividends have been paid or proposed for the year ended 31 March 2021. 13. Intangible assets Cost At 1 April 2019 Additions At 31 March 2020 Additions At 31 March 2021 Amortisation At 1 April 2019 Amortisation charge At 31 March 2020 Amortisation charge At 31 March 2021 Net book value At 31 March 2020 At 31 March 2021 Patents £’000 63 – 63 – 63 63 – 63 – 63 – – Development costs £’000 1,833 94 1,927 2,834 4,761 1,388 444 1,832 52 1,884 95 2,877 Total £’000 1,896 94 1,990 2,834 4,824 1,451 444 1,895 52 1,947 95 2,877 Right-of-use asset Leasehold improvements Fixtures, fittings and equipment £’000 £’000 £’000 Cost At 1 April 2019 Additions Disposals Exchange differences At 31 March 2020 Additions Disposals Exchange differences At 31 March 2021 Depreciation At 1 April 2019 Depreciation charge Disposals Exchange differences At 31 March 2020 Depreciation charge Disposals Exchange differences At 31 March 2021 Net book value At 31 March 2020 At 31 March 2021 1,794 2,922 (654) 132 4,194 34 – (307) 3,921 – 591 (187) (25) 379 903 – (32) 1,250 3,815 2,671 234 20 – – 254 72 – (5) 321 229 – – – 229 5 – – 234 25 87 Total £’000 3,269 3,478 (691) 164 1,241 536 (37) 32 1,772 6,220 316 (561) (83) 422 (561) (395) 1,444 5,686 1,107 126 (37) 21 1,217 176 (553) (44) 796 1,336 717 (224) (4) 1,825 1,084 (553) (76) 2,280 555 648 4,395 3,406 At 31 March 2021, capital expenditure of £135,000 in respect of property, plant and equipment was contracted for but not provided for in the accounts. 15. Inventories Staff costs were as follows: Development cost additions in the year to 31 March 2021 include software development costs directly incurred in the creation of new digital assets. Finished goods 31 March 2021 31 March 2020 £’000 – £’000 73 Write-downs of inventory amounted to £70,000 (2020: £16,000). The cost of inventories recognised as an expense and included in cost of sales amounted to £18,000 (2020: £2.0 million). 100 MindGym plc Annual Report and Accounts 2021 Financial statements 101 s t n e m e t a t s l a i c n a n fi p u o r g e h t o t s e t o N 16. Trade and other receivables 17. Trade and other payables Non-current Net investment in sub-lease Prepayments in respect of property deposits Current Trade receivables Less provision for impairment Net trade receivables Net investment in sub-lease Other receivables Prepayments Accrued income 31 March 2021 31 March 2020 £’000 £’000 79 260 339 9,138 (227) 8,911 172 143 688 706 10,620 278 289 567 8,235 (303) 7,932 162 305 645 1,087 10,131 The maturity analysis of the net investment in sub-lease is set out in Note 18. Trade receivables have been aged with respect to the payment terms as follows: Not past due Past due 0–30 days Past due 31–60 days Past due 61–90 days Past due more than 90 days The movement in the allowance for impairment losses was: At the beginning of the period (Write-back)/charges Utilisation of provision Foreign exchange adjustment At the end of the period 31 March 2021 31 March 2020 £’000 8,128 530 185 22 273 9,138 £’000 6,549 1,027 266 177 216 8,235 31 March 2021 31 March 2020 £’000 £’000 303 (41) (22) (13) 227 114 254 (70) 5 303 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. Trade payables Other taxation and social security Other payables Accruals Deferred income 18. Lease liability The lease liabilities included in the statement of financial position are: Current Non-current 31 March 2021 31 March 2020 £’000 2,514 549 536 5,578 4,636 13,813 £’000 1,997 833 673 3,075 2,343 8,921 31 March 2021 31 March 2020 £’000 1,085 2,081 3,166 £’000 914 3,472 4,386 There are no significant variable leases costs or lease term judgements. The related right-of-use asset is disclosed in Note 14. The movements in the lease liability were as follows: At the beginning of the year Lease payments Finance cost Additions Exchange differences At the end of the year 31 March 2021 31 March 2020 £’000 4,386 (1,075) 166 34 (345) 3,166 £’000 1,809 (565) 75 2,922 145 4,386 102 MindGym plc Annual Report and Accounts 2021 Financial statements 103 s t n e m e t a t s l a i c n a n fi p u o r g e h t o t s e t o N The maturity analysis of the contractual undiscounted cash flows is: Less than one year Between one and five years More than five years Total future lease payments Total future interest payments Total lease liability 31 March 2021 31 March 2020 £’000 1,204 2,213 – 3,417 (251) 3,166 £’000 1,087 3,750 – 4,837 (451) 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 16. Less than one year One to two years Two to three years Total undiscounted lease payments receivable Unearned finance income Net investment in the lease 19. Provisions At the beginning of the year Released in the year Foreign exchange At the end of the year 31 March 2021 31 March 2020 £’000 £’000 180 80 – 260 (9) 251 179 201 87 467 (27) 440 £’000 – – – – £’000 767 (765) (2) – 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 shareholder. 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. Net trade receivables Other receivables Prepayments in respect of property deposits Cash and cash equivalents Financial assets at amortised cost Trade payables Other payables Lease liabilities Financial liabilities at amortised cost 31 March 2021 31 March 2020 £’000 8,911 143 260 16,833 26,147 2,514 536 3,166 6,216 £’000 7,932 305 289 15,952 24,478 1,997 673 4,386 7,056 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 that 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. 31 March 2021 31 March 2020 Capital risk management The Group holds no assets or liabilities that 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. 104 MindGym plc Annual Report and Accounts 2021 Financial statements 105 s t n e m e t a t s l a i c n a n fi p u o r g e h t o t s e t o N Credit risk Trade receivables and cash and cash equivalents are analysed by currency as follows: 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 16 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: Trade receivables Other receivables Prepayments in respect of property deposits Cash and cash equivalents At the end of the period Liquidity risk 31 March 2021 31 March 2020 £’000 8,911 143 260 16,833 26,147 £’000 7,932 305 289 15,952 24,478 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 lease liabilities. The maturity of the lease liability is set out in Note 18. 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 US Dollar bank accounts and in the USA in US Dollar and Canadian Dollar bank accounts. At 31 March 2021 Net trade receivables Cash and cash equivalents At 31 March 2020 Net trade receivables Cash and cash equivalents GBP £’000 2,509 14,465 3,914 13,283 USD £’000 4,806 1,974 3,465 2,137 EUR £’000 1,451 80 445 212 Other £’000 145 314 108 320 Total £’000 8,911 16,833 7,932 15,952 The Group does not currently use forward foreign exchange contracts or currency options to hedge currency risk. 22. Share capital Ordinary shares of £0.00001 at 1 April Issue of shares to satisfy options Ordinary shares of £0.00001 at 31 March 31 March 2021 31 March 2021 31 March 2020 31 March 2020 Number 99,493,210 298,574 99,791,784 Cost £’000 1 – 1 Number 99,493,210 – 99,493,210 Cost £’000 1 – 1 An Employee Benefit Trust (‘EBT’) has been established 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. As at 1 April Issue of new shares to EBT Ordinary shares of £0.00001 at 31 March Market value at 31 March 31 March 2021 31 March 2021 31 March 2020 31 March 2020 Number 130,835 (10,960) 119,875 Cost £’000 – – – 156 Number 130,835 – 130,835 Cost £’000 – – – 131 106 MindGym plc Annual Report and Accounts 2021 Financial statements 107 s t n e m e t a t s l a i c n a n fi p u o r g e h t o t s e t o N 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 MindGym 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 30 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. The total share-based payments expense was: Equity settled share-based payments 31 March 2021 31 March 2020 £’000 298 £’000 344 The movements in the number of share awards and share options and the weighted average exercise price of awards are: Outstanding at the beginning of the period Granted during the period Forfeited during the period Exercised during the period Outstanding at the end of the period Exercisable at the end of the period Weighted average fair value of awards granted (£) 31 March 2021 Weighted average exercise price £ 0.63 0.67 0.97 0.17 0.66 Number 2,183,257 741,070 (327,768) (309,535) 2,287,024 2,055 0.27 31 March 2020 Weighted average exercise price £ 0.90 0.59 1.37 – 0.63 Number 1,606,434 1,105,380 (528,557) – 2,183,257 2,055 0.55 The number granted during the year to 31 March 2021 excludes 2,055,839 awards in the form of nil cost options and restricted stock awards awarded under the LTIP on 31 March 2021 as these are subject to performance conditions which were not set until after the year end. The range of exercise prices and weighted average remaining contractual life of share awards and share options outstanding at 31 March were: £ nil £0.00001 £0.77000 £1.04000 £1.46000 Weighted average remaining contractual life (years) 31 March 2021 31 March 2020 £’000 463,705 427,129 592,537 306,843 496,810 2,287,024 5.4 £’000 484,255 579,536 - 622,656 496,810 2,183,257 7.9 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. 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 LTIP (2 year vesting) 27 Apr 2018 LTIP (3 year vesting) 27 Apr 2018 LTIP (2 year vesting) 25 Jun 2018 LTIP (3 year vesting) 25 Jun 2018 SIP SAYE ESPP 8 Oct 2018 30 Sep 19 30 Sep 19 LTIP (3 year vesting) 31 Mar 20* LTIP (4 year vesting) 31 Mar 20* LTIP (5 year vesting) 31 Mar 20* SAYE ESPP 1 Sep 20 1 Sep 20 £ 1.24 1.24 1.46 1.46 1.67 1.22 1.22 1.00 1.00 1.00 0.90 0.90 £ Nil Nil 1.46 1.46 Nil 1.04 1.04 Nil Nil Nil 0.77 0.77 years 2 3 10 10 n/a 3 1 3 4 5 3 1 % n/a n/a 19% 19% n/a 19% 19% n/a n/a n/a 19% 19% % 1.4% 1.4% 1.4% 1.4% n/a 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% % n/a n/a 1.0% 1.0% n/a 1.0% 1.0% n/a n/a n/a 1.0% 1.0% £ 1.20 1.19 0.28 0.28 1.67 0.25 0.20 0.96 0.95 0.93 0.25 0.20 * Includes further options granted on 12 Jun 2020 on the same terms and with the same valuation assumptions 24. 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: • Key management compensation as disclosed in Note 8. • Trevor Phillips, a non-executive director of MindGym plc, is also chairman and director of Green Park Interim and Executive Search which provided services to the Group totalling £83,000 in the year ended 31 March 2021. • David Nelson, a non-executive director of MindGym plc, is also a partner of Dixon Wilson. Dixon Wilson provided services to the Group totalling £12,000 in the year ended 31 March 2021. • The payment of dividends in the year ended 31 March 2020 to O. Black and J. Cash on their shareholding in the Company. 25. Events after the reporting period The performance conditions on share-based payment awards made on 31 March 2021 under the LTIP were approved in May 2021. See Note 23 and the Annual Report on Remuneration for further details. 108 MindGym plc Annual Report and Accounts 2021 Financial statements 109 MindGym plc parent company statement of changes in equity Share capital £’000 Share premium £’000 At 1 April 2019 Profit for the period Total comprehensive income for the period Credit to equity for share-based payments Tax relating to share-based payments Dividends At 31 March 2020 Loss for the period Total comprehensive income for the period Credit to equity for share-based payments Exercise of options Tax relating to share-based payments At 31 March 2021 1 – – – – – 1 – – – – 1 Share option reserve £’000 340 – – 344 – – Retained earnings £’000 Total equity £’000 11,321 11,774 4,454 4,454 – 77 4,454 4,454 344 77 (2,487) (2,487) 112 – – – – – 112 684 13,365 14,162 – – – 45 – – – 298 (308) – (926) (926) – 308 65 (926) (926) 298 45 65 157 674 12,812 13,644 MindGym plc parent company statement of financial position 31 March 2021 31 March 2020 Note £’000 £’000 Non-current assets Intangible assets Property, plant and equipment Investments in subsidiaries Deferred tax assets Current assets Inventories Trade and other receivables Current tax receivable Cash and cash equivalents Total assets Current liabilities Trade and other payables Lease liability Redeemable preference shares Current tax payable Non-current liabilities Lease liability Total liabilities Net assets Equity Share capital Share premium Share option reserve Retained earnings Equity attributable to owners of the Company 4 5 6 7 8 9 10 11 12 11 12 2,877 772 50 112 3,811 - 5,231 280 14,688 20,199 24,010 9,834 357 50 - 10,241 125 10,366 13,644 1 157 674 12,812 13,644 95 1,024 50 86 1,255 11 9,789 - 13,562 23,362 24,617 9,315 352 50 256 9,973 482 10,455 14,162 1 112 684 13,365 14,162 The Company has elected to take the exemption under Section 408 of the Companies Act 2006 from presenting the Company’s Income Statement and Statement of Comprehensive Income. The Company’s loss for the financial year was £926,000 (2020: profit of £4,454,000). The Accounting Policies and Notes on pages 112 to 120 form part of these financial statements. The financial statements were approved and authorised for issue by the Board of Directors on 10 June 2021 and signed on its behalf by: Richard Steele Chief Financial Officer 110 MindGym plc Annual Report and Accounts 2021 Financial statements 111 MindGym plc notes to the parent company financial statements 1. Summary of significant accounting policies Basis of preparation 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 The financial statements have been prepared in income. on a going concern basis, see Note 2 of the Group financial statements, and under the historical cost Revenue recognition convention in accordance with Financial Reporting Revenue is recognised when control over a product Standard 101 Reduced Disclosure Framework (FRS or service is transferred to a customer. Due to the 101) as issued by the FRC and with the Companies short-term nature of the trade receivables, the Act 2006. The Company has taken advantage of the disclosure Company measures them at the original transaction price invoiced without discounting. exemptions available under FRS 101 in relation to: The Company generates revenue from business-to- • Presentation of a cash flow statement and related notes • Comparative period reconciliations for intangible assets and property, plant and equipment business customers by: • 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. • Related party transactions with wholly owned • Developing training programmes customised to subsidiaries • Financial instruments • Capital management • Share-based payments 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. • Compensation of key management personnel • Standards not yet effective • Licensing digital training modules to clients. When non-cancellable digital modules are Where required, equivalent disclosures are given in the Group financial statements. Note 7 (Auditor remuneration), Note 12 (Dividends), Note 20 (Redeemable preference shares), Note 22 (Share capital) and Note 23 (Share-based payments) of the Group financial statements form part of these financial statements. The principal accounting policies in the preparation of these financial statements are set out below. These policies have been consistently applied to 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 the next committed period. When digital modules are hosted on the Company 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. all the years presented unless otherwise stated. Any advance consideration received from clients Foreign currency translation represents a contract liability and is disclosed in Note 10 under the heading deferred income. When The functional currency is Pound Sterling. Foreign the performance obligation has been satisfied but currency transactions are initially recorded at the the income has not yet been invoiced, the amount exchange rate ruling at the date of the transaction. represents a contract asset and is disclosed in Foreign exchange gains and losses resulting from Note 9 as accrued income. The incremental costs of obtaining a contract Government grant income under the Coronavirus principally consist of commissions paid to the Job Retention Scheme is netted against staff costs Company’s sales team. The sales team earn and is disclosed in Note 2. commission over time as the revenue they have generated is recognised. Commission costs are Taxation therefore not capitalised. The tax expense represents the sum of the tax 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 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 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 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 Company 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 are factored into the fair value of the options on temporary differences between the tax bases of granted. The cumulative expense is not adjusted for assets and liabilities and their carrying amounts in failure to achieve a market performance condition. the financial statements. Deferred tax is not 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 that are within the control of one or other of the parties (such as the 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. Group keeping the scheme open or the employee Deferred tax is measured on a non-discounted basis maintaining any contributions required by the using tax rates and laws that have been enacted or 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 the Statement of Comprehensive Income over the remaining vesting period. Defined contribution pension plan 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 Company has a legally enforceable right to offset The Company operates a defined contribution plan current tax assets and liabilities, and the deferred for its employees. A defined contribution plan is a tax assets and liabilities relate to taxes levied by the pension plan under which the Company pays fixed same tax authority. contributions into a separate entity. Once the contributions have been paid, the Company has no further payment obligations. Tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which The contributions are recognised as an expense in case the deferred tax is also recognised in equity. the Statement of Comprehensive Income when they fall due. Government grants Government grants are not recognised until there is Intangible assets Externally acquired intangible assets are initially recognised at cost. Expenditure on internally developed assets is capitalised if it can be reasonable assurance that the grants will be received demonstrated that it is technically feasible to and that the Group will comply with any conditions develop the product for it to provide expected future attached to them. Government grants are recognised economic benefits, adequate resources are available in the income statement over the same period as the to complete the development, there is an intention to costs for which the grants are intended to compensate. complete the project, and expenditure on the project can be measured reliably. 112 MindGym plc Annual Report and Accounts 2021 Financial statements 113 s t n e m e t a t s l a i c n a n fi y n a p m o c t n e r a p e h t o t s e t o N Other research and development costs that do not Investments in subsidiaries meet the above criteria are recognised as expenses as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. After recognition intangible assets are measured at cost less any accumulated amortisation and impairment losses. Amortisation is charged to administrative expenses on a straight-line basis from the date on which the asset is available for use. Intangible assets are amortised over their estimated useful lives as follows: Investments in subsidiaries are recorded at cost less provision for impairment. The Company assesses at each balance sheet date whether there is objective evidence that an investment is impaired. 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 Internally developed softwares Three to five years and sell. Other intangible assets One to five years The assets’ residual values, useful lives and amortisation methods are reviewed and adjusted prospectively if appropriate at each reporting date. 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. Property, plant and equipment Financial instruments 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 Company. 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 land and buildings Over the period of the lease Fixtures, fittings and equipment Two to five years The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted Financial instruments are recognised when the Company becomes party to the contractual provisions of the instrument. The Company 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 Company’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. prospectively if appropriate at each balance A provision for impairment of trade receivables is sheet date. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the Statement of Comprehensive Income. 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 The right-of-use asset is depreciated on a straight- have had an impact on the estimated future cash line basis over the shorter of the estimated useful flows of the financial asset. The amount of the loss life of the asset and the lease term. In addition, is measured as the difference between the asset’s the right-of-use asset is periodically reduced by carrying amount and the present value of estimated impairment losses, if any, and adjusted for future cash flows discounted at the financial asset’s certain re-measurements of the lease liability. original effective interest rate. Impaired debts are derecognised when they are assessed as uncollectible. Lease liability At the commencement date of the lease, the Company recognises lease liabilities measured Financial assets are derecognised only when the at the present value of lease payments to be made contractual rights to the cash flows from the asset over the lease term. The lease payments include expire or are settled, or when the Company transfers fixed payments (including in-substance fixed the financial asset and substantially all the risks and payments) less any lease incentives receivable. 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 Company’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 lease liability is measured at amortised cost using the effective interest method. Short-term leases and leases of low-value assets The Company 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. The effective interest method is a method of calculating the amortised cost of a financial liability Dividends and of allocating interest expense over the relevant Dividend income is recognised when the right period. The effective interest rate is the rate that to receive payment is established. Dividends payable are recognised as a liability in the period in which the dividends are approved by the shareholders of the Company or paid. 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 Company’s contractual obligations expire or are discharged or cancelled. Leases Lease identification At inception of a contract, the Company 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. 114 MindGym plc Annual Report and Accounts 2021 Financial statements 115 s t n e m e t a t s l a i c n a n fi y n a p m o c t n e r a p e h t o t s e t o N 2. Employees and auditor’s remuneration Staff costs were as follows: 5. Property, plant and equipment Wages and salaries Social security costs Pension costs – defined contribution plans Share-based payments Restructuring payroll costs included in adjusted items 31 March 2021 31 March 2020 £’000 9,940 1,370 344 298 517 12,469 £’000 8,860 1,145 400 344 – 10,749 Wages and salaries in 2021 are stated net of £181,000 of government grants under the UK Coronavirus Job Retention Scheme. The average number of the Company’s employees by function was: Delivery Support Digital 31 March 2021 31 March 2020 73 43 20 136 86 48 – 134 Cost At 1 April 2020 Additions Disposals At 31 March 2021 Depreciation At 1 April 2020 Depreciation charge Disposals At 31 March 2021 Net book value At 31 March 2020 At 31 March 2021 Right-of-use asset Leasehold improvements Fixtures, fittings and equipment £’000 £’000 £’000 1,157 – – 1,157 327 324 – 651 830 506 228 – – 228 223 5 – 228 5 – 993 196 (561) 628 804 111 (553) 362 189 266 Total £’000 2,378 196 (561) 2,013 1,354 440 (553) 1,241 1,024 772 6. Investments in subsidiaries The Directors believe that the carrying amount of the investments is supported by their underlying Details of Directors’ remuneration and share options are set out in the Annual Report on Remuneration net assets. on pages 64 to 69. Fees payable to the auditor for the audit of the Company’s financial statements are set out in Note 7 of the Group financial statements. 3. Dividends Details of the Company’s dividends are set out in Note 12 of the Group financial statements. 4. Intangible assets Cost At 1 April 2020 Additions At 31 March 2021 Amortisation At 1 April 2020 Amortisation charge At 31 March 2021 Net book value At 31 March 2020 At 31 March 2021 Patents £’000 63 - 63 63 - 63 – – Development costs £’000 1,927 2,834 4,761 1,832 52 1,884 95 2,877 Total £’000 1,990 2,834 4,824 1,895 52 1,947 95 2,877 The investments consist of a 100% interest in the following subsidiaries, all of which had the principal activity of providing management and development training. Name Country of incorporation Registered office MindGym (USA) Inc. USA MindGym Performance (Asia) Pte. Ltd Singapore MindGym (Canada) Inc. Canada 475 Park Avenue South, Floor 2, New York, NY 10016 USA PWC Building, # 28-63, 8 Cross Street, Singapore 048424 145 King Street West, Toronto, Ontario, Canada, M5H 4G2 7. Deferred tax assets The main categories of deferred tax assets recognised by the Company are: At 1 April 2019 Credited/(charged) to income Credited/(charged) to equity At 31 March 2020 Credited/(charged) to income Credited/(charged) to equity At 31 March 2021 Tax losses £’000 296 – (296) – – – – Share-based payments £’000 50 35 – 85 31 17 133 Other £’000 20 (19) – 1 (22) – (21) Total £’000 366 16 (296) 86 9 17 112 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. 116 MindGym plc Annual Report and Accounts 2021 Financial statements 117 s t n e m e t a t s l a i c n a n fi y n a p m o c t n e r a p e h t o t s e t o N 8. Inventories Finished goods Write-downs of inventory amounted to £11,000 (2020: £nil). 9. Trade and other receivables 31 March 2021 31 March 2020 £’000 – £’000 11 11. Leases The lease liabilities included in the statement of financial position are: Current Non-current 31 March 2021 31 March 2020 £’000 357 125 482 £’000 352 482 834 31 March 2021 31 March 2020 disclosed in Note 5. There are no significant variable leases costs or lease term judgements. The related right-of-use asset is Trade receivables Less provision for impairment Net trade receivables Amounts owed by group undertakings Other receivables Prepayments Accrued income £’000 4,146 (107) 4,039 169 133 444 446 5,231 £’000 4,609 (148) 4,461 4,179 218 361 570 9,789 The Company 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. Balances due from fellow group companies are repayable on demand and interest free. The Company has applied a probability-based approach to measuring expected credit losses based on the expected manner of recovery and recovery period. Based on this assessment no credit loss provision was required at 31 March 2021 or 2020. 10. Trade and other payables Trade payables Amounts owed to group undertakings Other taxation and social security Other payables Accruals Deferred income 31 March 2021 31 March 2020 £’000 1,824 2,688 549 295 2,965 1,513 9,834 £’000 1,305 4,546 834 335 1,425 870 9,315 The movements in the lease liability were as follows: At the beginning of the year Lease payments Finance cost At the end of the year The maturity analysis of the contractual undiscounted cash flows is: Less than one year Between one and five years More than five years Total future lease payments Total future interest payments Total lease liability 31 March 2021 31 March 2020 £’000 834 (377) 25 482 £’000 1,172 (375) 37 834 31 March 2021 31 March 2020 £’000 £’000 369 127 – 496 (14) 482 374 496 – 870 (36) 834 12. Share capital and redeemable preference shares Details of the Company’s redeemable preference shares and share capital are set out in Notes 20 and 22 to the Group financial statements. 13. Share-based payments Details of the Company’s share-based payment plans are set out in Note 23 to the Group financial statements. 118 MindGym plc Annual Report and Accounts 2021 Financial statements 119 s t n e m e t a t s l a i c n a n fi y n a p m o c t n e r a p e h t o t s e t o N 14. Controlling party The Company 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: • Key management compensation as disclosed in Note 8 of the Group financial statements. • Trevor Phillips, a non-executive director of MindGym plc, is also chairman and director of Green Park Interim and Executive Search which provided services to the Group totalling £83,000 in the year ended 31 March 2021. • David Nelson, a non-executive director of MindGym plc is also a partner of Dixon Wilson. Dixon Wilson provided services to the Company totalling £12,000 in the year ended 31 March 2021. • The payment of dividends in the year ended 31 March 2020 to O. Black and J. Cash on their shareholding in the Company. 120 MindGym plc Notice of Annual General Meeting Notice is hereby given that the Annual General 5) To re-elect Joanne Black as a Director Meeting (the ‘AGM’) of MindGym plc (the ‘Company’) of the Company. will be held at the office of the Company at 160 Kensington High Street, London, W8 7RG on 15 July 2021 commencing at 9.00am. Our preference 6) To re-elect Octavius Black as a Director of the Company. had been to welcome shareholders in person to our 7) To re-elect David Nelson as a Director AGM, particularly given the constraints we faced in of the Company. 2020 due to the COVID-19 pandemic. However, at present under UK Government guidelines, shareholders will be unable to attend the AGM in 8) To re-elect Richard Steele as a Director of the Company. person. We are therefore proposing to hold the AGM 9) To re-elect Sally-Ann Tilleray as a Director with the minimum attendance required to form a of the Company. quorum. Shareholders are invited to submit any questions for the Board by sending an email at least two business days prior to the AGM to investors@themindgym.com. 10) To elect Trevor Phillips as a Director of the Company. Auditors Should any of the arrangements relating to the 11) To re-appoint BDO LLP as the Company’s auditor holding of the AGM change, we will make an to hold office until the conclusion of the next announcement to the London Stock Exchange. Annual General Meeting of the Company at Shareholders should also check the Company which accounts are laid. website at www.themindgym.com. We encourage all shareholders to vote by proxy, further details Remuneration of auditors of which are contained in this document. 12) To authorise the Audit & Risk Committee to agree The AGM will be held for the following purposes: Ordinary Resolutions To consider and, if thought fit, pass the following resolutions as Ordinary Resolutions: Report and Accounts the remuneration of the auditor of the Company. Directors’ authority to allot shares 13) To generally and unconditionally authorise the Directors, pursuant to and in accordance with Section 551 of the Companies Act 2006 (the ‘Act’), in substitution for all previous authorities to the extent unused, to exercise all the powers of the 1) To receive the Company’s financial statements Company to allot shares in the Company and to for the year ended 31 March 2021 together with grant rights to subscribe for or to convert any the reports of the Directors and auditor thereon. security into shares in the Company: Directors’ remuneration report 2) To approve the Directors’ remuneration report for the year ended 31 March 2021. Directors 3) To elect Ruby McGregor-Smith as a Director of the Company. 4) To re-elect Sebastian Bailey as a Director of the Company. a) up to an aggregate nominal amount of £332.64 (representing approximately one-third of the total ordinary share capital in issue at 11 June 2021, being the latest practicable date prior to publication of this notice of meeting); and b) comprising equity securities (as defined by Section 560 (1) of the Act) up to a further aggregate nominal value of £332.64 in connection with an offer by way of rights issue; such authorities to expire at the conclusion of Meeting of the Company (or, if earlier, at the the next Annual General Meeting, or if earlier, close of business on 31 October 2022) but, in at close of business on 31 October 2022, save that each case, prior to its expiry the Company the Company may, before such expiry make an may make offers, and enter into agreements, offer or agreement which would or might require which would, or might, require equity shares to be allotted or rights to subscribe for or securities to be allotted (and treasury shares convert any security into shares to be granted to be sold) after the authority expires and the after the authority ends. For the purposes of this resolution, ‘rights issue’ means an offer to: a) shareholders in proportion (as nearly as may be practicable) to their existing holdings; and Board may allot equity securities (and sell treasury shares) under any such offer or agreement as if the authority had not expired. 15) To authorise the Board, provided that resolution 13 is passed, and in addition to any authority granted under resolution 14, to allot equity b) holders of other equity securities if this is securities (as defined under the Companies Act required by the rights of those securities or, 2006) for cash under the authority given by if the Directors consider it necessary, as resolution 13 and/or to sell ordinary shares held permitted by the rights of those securities; by the Company as treasury shares for cash as if to subscribe for further securities by means of the issue of a renounceable letter (or other negotiable document) which may be traded for a period Section 561 of the Companies Act 2006 did not apply to any such allotment of sale, such authority to be: before payment for the securities is due, but a) limited to the allotment of equity securities subject in both cases to such exclusions or other or sale of treasury shares up to a nominal arrangements as the Directors consider amount of £49.90; and necessary or appropriate in relation to treasury shares, fractional entitlements, record dates or legal, regulatory or practical problems in, or under the laws of, any territory. Special Resolutions To consider and, if thought fit, pass the following resolutions as Special Resolutions: Disapplication of pre-emption rights 14) To authorise the Board, provided that resolution 13 is passed, to allot equity securities (as defined in the Companies Act 2006) for cash under the authority given by that resolution and/or to sell ordinary shares held by the Company as treasury shares for cash as if Section 561 of the Companies Act 2006 did not apply to any such allotment or sale, such authority to be limited: a) to allotments for rights issues and other pre-emptive issues; and b) to the allotment of equity securities or sale of treasury shares (otherwise than in paragraph (a) above) up to a total nominal amount of £49.90 being 5% of the total ordinary share capital in issue at 11 June 2021, being the latest practicable date prior to publication of this notice of meeting, such authority to expire at the end of the next Annual General b) used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction which the Board of the Company determines to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Dis-applying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this notice, such authority to expire at the end of the next Annual General Meeting of the Company (or, if earlier, at the close of business on 31 October 2022) save that, in each case, the Company may before such expiry make offers, and enter into agreements, which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the authority expires and the Board may allot equity securities (and sell treasury shares) under any such offer or agreement as if the authority had not expired. Authority to purchase own shares 16) To authorise the Company, generally and unconditionally, for the purpose of Section 701 of the Companies Act 2006 (the ‘Act’), to make market purchases (as defined in Section 693 of the Act) of ordinary shares of 0.001 pence each in the capital of the Company (‘ordinary shares’) provided that: 122 MindGym plc Annual Report and Accounts 2021 Financial statements 123 g n i t e e M l a r e n e G l a u n n A f o e c i t o N a) the maximum number of ordinary shares hereby authorised to be purchased is 9,979,178; b) the minimum price (exclusive of expenses) which may be paid for such ordinary shares is 0.001 pence per share, being the nominal amount thereof; c) the maximum price (exclusive of expenses) Explanatory notes to the resolutions Resolutions 1 to 13 are ordinary resolutions; resolutions 14 to 16 are special resolutions. To be passed, ordinary resolutions require more than 50% of the votes cast to be in favour of the resolution, while special resolutions require at least 75% of the votes cast to be in favour of the resolution. which may be paid for such ordinary shares shall be an amount equal to the higher of: (i) Ordinary Resolutions To receive the Annual Report and Accounts for the 5% above the average of the middle market year ended 31 March 2021. quotations for such shares as taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the purchase is made; and (ii) the price of the last independent trade of an ordinary share and the highest current independent bid for an ordinary share as derived from the London Stock Exchange Trading System (SETS); and Resolution 1 is a standard resolution. The Companies Act 2006 requires Directors to lay the annual accounts before a general meeting of the Company, together with the Directors’ reports and auditor's report on the accounts. The Annual Report and Accounts for the financial year ended 31 March 2021 are available on the Company’s website: www.themindgym.com. d) the authority hereby conferred shall (unless Directors’ remuneration report previously renewed or revoked) expire at the Although it is not a requirement for companies listed end of the next Annual General Meeting, save on the AIM market, the Company is putting before that the Company may before such expiry shareholders resolution 2 to approve the Directors’ make a contract or agreement to make a remuneration report. The Directors’ remuneration market purchase of its own ordinary shares report for the year ended 31 March 2021 is set out on which will or may be executed wholly or partly pages 56 to 69 of the Annual Report and Accounts after the expiry of such authority and the and includes details of the Directors’ remuneration. Company may purchase such shares as if the authority conferred hereby had not expired. By order of the Board Prism Cosec Limited Company Secretary 11 June 2021 Registered Office: 160 Kensington High Street London W8 7RG Registered in England and Wales Number: 03833448 Please note that the vote on the Directors’ remuneration report is advisory in nature and no Director’s remuneration is conditional upon the passing of the resolution. Re-election of Directors Resolution 3 seeks approval for the election of Ruby McGregor-Smith as a Director of the Company. Resolution 4 seeks approval for the re-election of Sebastian Bailey as a Director of the Company. Resolution 5 seeks approval for the re-election of Joanne Black as a Director of the Company. Resolution 6 seeks approval for the re-election of Octavius Black as a Director of the Company. Resolution 7 seeks approval for the re-election of David Nelson as a Director of the Company. Resolution 8 seeks approval for the re-election of Richard Steele as a Director of the Company. Resolution 9 seeks approval for the re-election of Sally Ann Tilleray as a Director of the Company. Resolution 10 seeks approval for the election of Trevor Phillips as a Director of the Company. Under the Company’s Articles of Association, The authority granted in paragraph (b) will allow Directors that have been appointed by the Board the Directors to allot new shares and grant rights to since the last Annual General Meeting are obliged subscribe for, or convert other securities into, shares to retire and offer themselves for election. only in connection with a rights issue up to a further Furthermore, in accordance with best practice, all of nominal value of £332.64 which is equivalent to the other Directors will retire and submit themselves approximately one-third of the total issued ordinary for re-election at this Annual General Meeting. share capital of the Company at 11 June 2021. As announced on 11 June 2021, Joanne Black has There are no present plans to undertake a rights notified the Board of her intention to step down as issue or to allot new shares other than in connection Chair of the Company at the AGM. Ruby McGregor- with employee share incentive plans. The Directors Smith, who was appointed to the Board as a non- consider it desirable to have the maximum flexibility executive director in November 2020, has been permitted by corporate governance guidelines to nominated by the Board to succeed Joanne as Chair. respond to market developments and to enable Joanne will continue to serve as a non-executive allotments to take place to finance business director of the Company. Biographies of each of the Directors can be found in the Governance section of the Annual Report for the year ended 31 March 2021 and on the Company’s website: www.themindgym.com. The Board has no hesitation in recommending the election and re-election of these Directors to shareholders. In making these recommendations, the Board confirms that it has given careful consideration to the Board’s balance of skills, knowledge and experience, and is satisfied that each of the Directors putting themselves forward for election or re-election has sufficient time to discharge their duties effectively, taking into account their other commitments. Reappointment of auditors opportunities as they arise. The authorities will expire at the next Annual General Meeting of the Company or, if earlier, at close of business on 31 October 2022. Special Resolutions Disapplication of pre-emption rights Resolutions 14 and 15 will be proposed as special resolutions. If the Directors wish to allot new shares and other equity securities, or sell treasury shares, for cash (other than in connection with an employee share incentive plan), company law requires that these shares are offered first to shareholders in proportion to their existing holdings. Resolution 14 deals with the authority of the Directors to allot new shares or other equity The auditors of the Company must be appointed or securities pursuant to the authority given by re-appointed at each general meeting at which the resolution 13, or sell treasury shares, for cash accounts are laid. Resolution 11 seeks approval to without the shares or other equity securities first appoint BDO LLP as the Company’s auditors until being offered to shareholders in proportion to their the conclusion of the next general meeting of the existing holdings. Such authority shall only be used Company at which the accounts are laid. Remuneration of auditors in connection with a pre-emptive offer, or otherwise, up to an aggregate nominal amount of £49.90, being approximately 5% of the total issued ordinary share In accordance with standard practice, Resolution capital of the Company as at 11 June 2021. 12 seeks consent for the Audit & Risk Committee to determine the remuneration of the auditors. Directors’ authority to allot shares Resolution 13 seeks authority for the Directors to allot shares. In addition, the Pre-Emption Group’s Statement of Principles supports the annual disapplication of pre-emption rights in respect of allotments of shares and other equity securities (and sales of treasury shares for cash) representing no more than a further 5% of issued share capital (exclusive of The authority granted in paragraph (a) will allow treasury shares), to be used only in connection with the Directors to allot new shares and grant rights to an acquisition or specified capital investment. The subscribe for, or convert other securities into, shares Pre-Emption Group’s Statement of Principles defines up to approximately one-third of the issued ordinary ‘specified capital investment’ as meaning one or share capital of the Company which at 11 June 2021 more specific capital investment-related uses for being the latest practicable date prior to the publication of this notice of meeting is equivalent to a nominal value of £332.64. the proceeds of an issuance of equity securities, in respect of which sufficient information regarding the effect of the transaction on the Company, the 124 MindGym plc Annual Report and Accounts 2021 Financial statements 125 g n i t e e M l a r e n e G l a u n n A f o e c i t o N assets the subject of the transaction and (where shareholders generally and if the purchase could Under the current circumstances, the Board must be properly authenticated in accordance appropriate) the profits attributable to them is made be expected to result in an increase in earnings strongly advises shareholders to appoint the with Euroclear UK & Ireland Limited’s available to shareholders to enable them to reach per ordinary share. an assessment of the potential return. Accordingly, and in line with the template resolutions published by the Pre-Emption Group, Notes relating to the Notice The following notes explain your general rights as resolution 15 seeks to authorise the Directors to allot a shareholder and your right to vote at this Meeting new shares and other equity securities pursuant to or to appoint someone else to vote on your behalf. the authority given by resolution 13, or sell treasury Given the restrictions in place during the COVID-19 shares, for cash up to a further nominal amount pandemic, shareholders are encouraged to submit of £49.90, being approximately 5% of the issued their proxy form to ensure that their votes are ordinary capital of the Company as at 11 June 2021, registered and the Board strongly advises only in connection with an acquisition or specified shareholders to appoint the chairman of the meeting capital investment which is announced as proxy for all votes. Please note that appointing a contemporaneously with the allotment, or which has proxy who cannot attend the AGM will effectively taken place in the preceding six-month period and void your vote. is disclosed in the announcement of the issue. If the authority given in resolution 15 is used, the Company will publish details of the placing in its next Annual Report. If these resolutions are passed, the authorities will expire at the end of the next Annual General Meeting or on 31 October 2022, whichever is the earlier. i The right to vote at the meeting is determined by reference to the register of members. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 (as amended) and Section 360B of Companies Act 2006 (the ‘Act’), only those persons entered in the register of members of the Company (the ‘Register’) as at 6:30pm on 13 July The Board considers the authorities in resolutions 2021 (the ‘Specified Time’) shall be entitled to 14 and 15 to be appropriate in order to allow the Company flexibility to finance business vote at the Annual General Meeting in respect of the number of shares registered in their name at opportunities or to conduct a rights issue or other such time. Changes to entries on the Register pre-emptive offer without the need to comply with for certificated and uncertificated shares of the strict requirements of the statutory pre-emption the Company after the Specified Time shall be provisions. The Board does not intend to issue more disregarded in determining the rights of any than 7.5% of the issued share capital of the Company person to vote at the Annual General Meeting. for cash on a non-preemptive basis in any rolling Should the Annual General Meeting be adjourned three-year period (other than in connection with to a time not more than 48 hours after the an acquisition or specified capital investment as described in the Pre-Emption Group’s Statement of Principles) without prior consultation with shareholders. Authority to purchase own shares Resolution 16 is a special resolution and seeks authority for the Company to make market purchases of its own ordinary shares up to a maximum number of 9,979,178 ordinary shares, representing approximately 10% of the issued Specified Time, that time will also apply for the purposes of determining the entitlement of members to vote (and for the purpose of determining the number of votes they may cast) at the adjourned Annual General Meeting. Should the Annual General Meeting be adjourned for a longer period, to be so entitled, members must have been entered on the Register by 6:30pm on the day which is two working days prior to the adjourned Annual General Meeting, or, if the Company gives notice of the adjourned Annual ordinary share capital at 11 June 2021. The authority General Meeting, at the time specified in requested would expire at the end of the next Annual such notice. General Meeting, or if earlier, 31 October 2022. In reaching a decision to purchase ordinary shares, the Directors will take account of the Company’s cash resources and capital and the general effect of such purchase on the Company’s business. The ii Given the restrictions in place during the COVID-19 pandemic, shareholders are encouraged to submit their proxy form to ensure that their votes are registered. Shareholders are entitled to appoint another person as a proxy to authority would only be exercised by the Directors exercise all or part of their rights to attend and to if they consider it to be in the best interests of the speak and vote on their behalf at the Meeting. chairman of the meeting as proxy for all votes. specifications and must contain the information Please note that appointing a proxy who cannot required for such instructions, as described in the attend the AGM will effectively void your vote. A CREST Manual. The message, regardless of proxy may only be appointed in accordance with whether it constitutes the appointment of a proxy the procedures set out in notes iii and iv below or is an amendment to the instruction given and the notes to the proxy form. In normal to a previously appointed proxy, must, in order circumstances, the appointment of a proxy will to be valid, be transmitted so as to be received by not preclude a shareholder from attending and Equiniti Limited (ID RA19) no later than 9.00am voting in person at the meeting. However, as on 13 July 2020 (or if the Annual General Meeting noted above, at present under UK Government is adjourned, no later than 48 hours (excluding guidelines, shareholders will be unable to attend non-business days) before the time of any the AGM in person. iii A form of proxy is enclosed. When appointing more than one proxy, complete a separate proxy form in relation to each appointment. Additional proxy forms may be obtained by contacting the Company’s registrar Equiniti Limited, by calling 0371 384 2030 (callers from overseas should contact the Equiniti overseas helpline on +44 (0)121 415 7047. Lines are open from 9.30am to 5.00pm UK time Monday to Friday, excluding public holidays in England and Wales) or the proxy form may be photocopied. State clearly on each proxy form the number of shares in relation to which the proxy is appointed. To be valid, the proxy form (together with the power of attorney or other authority (if any) under which it is signed or certified by a notary or office copy of the same) must be received by post or (during normal business hours only) by hand at the offices of the Company’s registrar, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, by no later than 9.00am on 13 July 2021 (or, if the meeting is adjourned, no later than 48 hours (excluding non-business days) before the time of any adjourned meeting). adjourned meeting). For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which Equiniti Limited is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed (a) voting service provider(s), to procure that his or her CREST sponsor or voting service provider(s) take) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their iv CREST members who wish to appoint a proxy or CREST sponsors or voting service providers are proxies by utilising the CREST electronic proxy referred, in particular, to those sections of the appointment service may do so for the Annual CREST Manual concerning practical limitations General Meeting and any adjournment(s) thereof of the CREST system and timings. The Company by utilising the procedures described in the may treat a CREST Proxy Instruction as invalid in CREST Manual which can be viewed at the circumstances set out in Regulation 35(5)(a) www.euroclear.com. CREST personal members of the Uncertificated Securities Regulations 2001 or other CREST-sponsored members, and those (as amended). CREST members who have appointed (a) voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) v A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting. Each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual shareholder, provided that (where there is more 126 MindGym plc Annual Report and Accounts 2021 Financial statements 127 g n i t e e M l a r e n e G l a u n n A f o e c i t o N than one representative and the vote is otherwise xi As shareholders will be unable to attend the than on a show of hands) they do not do so in meeting, shareholders are invited to submit any relation to the same shares. Corporate questions for the Board by sending an email at shareholders are encouraged to complete and least two business days prior to the AGM to return a form of proxy appointing the Chairman investors@themindgym.com. of the meeting to ensure their votes are included in the poll. xii Voting on all resolutions will be conducted by way of a poll as shareholders will be unable to vi In the case of joint holders, the vote of the senior attend. The results of the poll will be announced holder who tenders a vote whether in person or via a Regulatory Information Service and made by proxy shall be accepted to the exclusion of available on the Company’s website as soon as the votes of the other joint holders and, for this practicable after the meeting. purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the relevant joint holding. vii Copies of the service contracts of the Executive Directors and all letters of appointment between the Company and its Non-Executive Directors are available for inspection at the registered office of the Company during normal business hours and at least 15 minutes prior to the commencement of, and during the continuance of, the Annual General Meeting. viii The information required to be published by Section 311(A) of the Act (information about the contents of this notice and numbers of shares in the company and voting rights exercisable at the meeting and details of any members’ statements, members’ resolutions and members’ items of business received after the date of this notice) may be found at www.themindgym.com. ix A Nominated Person may, under an agreement between him/her and the member who nominated him/her, have a right to be appointed (or to have someone else appointed) as a proxy entitled to vote at the Annual General Meeting. Nominated Persons are advised to contact the member who nominated them for further information on this and the procedure for appointing any such proxy. x If a Nominated Person does not have a right to be appointed, or to have someone else appointed, as a proxy for the Annual General Meeting, or does not wish to exercise such a right, he/she may still have the right under an agreement between himself/herself and the member who nominated him/her to give instructions to the member as to the exercise of voting rights at the Annual General Meeting. Such Nominated Persons are advised to contact the members who nominated them for further information on this. 128 MindGym plc Directors and advisors Directors Joanne Cash Non-Executive Board Chair Octavius Black Chief Executive Officer Sebastian Bailey Executive Director Richard Steele Chief Financial Officer Ruby McGregor-Smith Non-Executive Director Sally Tilleray Non-Executive Director Trevor Phillips Non-Executive Director David Nelson Non-Executive Director Company registration Registered in England and Wales No. 03833448 Registered office 160 Kensington High Street, London W8 7RG, UK Company secretary Prism Cosec Limited Elder House, St Georges Business Park 207 Brooklands Road, Weybridge Surrey KT13 0TS Auditors BDO LLP 55 Baker Street, London W1U 7EU, UK Nominated advisor and broker Liberum Capital Limited Ropemaker Place, 25 Ropemaker Street London EC2Y 9LY, UK Registrars Equinti Limited Aspect House, Spencer Road Lancing, West Sussex BN99 6DA, UK Financial PR MHP Communications 4th Floor, 60 Great Portland Street London W1W 7RT, UK Solicitors Winston & Strawn London LLP CityPoint, One Ropemaker Street London EC2Y 9AW, UK Bankers HSBC Bank Plc 3 Temple Quay, 4th Floor Temple Back East Bristol, BS1 6DZ, UK 130 MindGym plc 8 8 9 2 _ 0 1 _ G B _ E 1 . 0 0 _ A W _ S C _ 1 8 0 6 2 1 . London 160 Kensington High St London W8 7RG, UK New York 475 Park Avenue South Floor 2, NY 10016, USA e: uk@themindgym.com e: usa@themindgym.com t: +44 20 7376 0626 t: +1 646 649 4333 Singapore PWC Building, #28-63 8 Cross Street, 048424 Singapore e: sg@themindgym.com Web: themindgym.com Blog: uk.themindgym.com/resources Twitter: @themindgym t: +65 6962 8980 © 2021 MindGym plc