the gym group plc interim resultsthis presentation and information communicated verbally to you may...
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The Gym Group plc
INTERIMRESULTSAugust 2016
This presentation and information communicated verbally to you may contain certain projections and other forward-looking statements with respect to the financial condition, results of operations, businesses and prospects of The Gym Group Plc. These statements are based on current expectations and involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Any of the assumptions underlying these forward-looking statements could prove inaccurate or incorrect and therefore any results contemplated in the forward-looking statements may not actually be achieved. Nothing contained in this presentation or communicated verbally should be construed as a profit forecast or profit estimate. Investors or other recipients are cautioned not to place undue reliance on any forward-looking statements contained herein. The Gym Group Plc undertakes no obligation to update or revise (publicly or otherwise) any forward-looking statement, whether as a result of new information, future events or other circumstances. Neither this presentation nor any verbal communication shall constitute an invitation or inducement to any person to subscribe for or otherwise acquire securities in The Gym Group Plc.
1
Forward-looking statement disclaimer
Summary performance
2
Estate
80 sites
(H1 2015: 63 sites)
Revenue
£36.1m + 25.1% vs PY
Group Adjusted EBITDA
£11.5m+ £3.0m (35.2%)
vs PY (H1 2015 : £8.5m)
Adjusted PBT
£4.6m (H1 2015: Adjusted loss £0.8m)
Adjusted EPS
2.8pper share
Strong cash generation
Net Debt
£2.5mas at June 2016
Maiden interim dividend
0.25p
Av. member growth of + 22.8%
Av. revenue per member
growth + 1.6%
3
OutlookFinancial Update
Strategic and Operational
Update
A disruptive concept and compelling proposition
4
Significant market opportunity Market leader
Compelling consumer proposition Low-cost, technology-led disruptive business model
High quality and well invested gym estateExperienced management team led by Founder / CEO
Attractive financial model
Value proposition that can prosper in a challenging economic environment
Key success factors for The Gym Group
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1. All gyms open 24/7 excluding 3 gyms due to licensing restrictions
Keys to success in low cost gym market
Know how &
expertise
• 8 years refinement of the model:
– Large format, high utilisation gyms
– Efficiently marketing a low-cost proposition online
– Integration of multiple components of technology
Ability to
source sites
• Dedicated acquisitions team: well networked with landlords and agents
• Historic data about what works (and what doesn’t)
• Strong covenant and brand, impacted positively by IPO
Scale
advantages• Increasing returns to scale for large operators
• Reducing marginal costs to operate and fit out
Access to
capital• High quality, durable gym fit-out with significant upfront capex
• Bank debt is difficult to secure until operators have reached a position of scale
Technology • Technology key to a successful low-cost product offering
• Underpins low staff costs: facilitates online model, 24/7(1)
access and generates valuable data
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1. Leisure Database Company (LDC) Report: Data as at 31 March 2016. Total annual membership revenue of all health and fitness clubs in the UK (private and public).2. Market growth as at 31 March 2016. Source: LDC Report. Figures based on March of 2012-2016.3. % of joiners new to gyms as disclosed by completed annual surveys up to December 2015. Minimum response rate of ~30%.
Market opportunity
A large, fragmented
health & fitness
market in the UK
Low cost gyms are
the fastest growing
sub-segment
The model is
growing the market
Significant
opportunity for
further growth in low
cost space
• UK market
underpenetrated vs.
international precedent
• Low-cost successful
in a number of other
UK sectors
£4.4bn(1)
UK gym market value
6,435gyms(1)
In the UK
~55%(2)
Market CAGR
>30%of joiners new to
gym membership (3)
Aldi / Lidl, Travelodge / Premier Inn,
easyJet / Ryanair
Number of
UK gyms
6,435
Low cost
Traditional private
independent
Public
450
1,378
1,872
2,735
Traditional private
multi-club
Market opportunity
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1. Source: LDC Report. Number of clubs as at 31 March 2016.2. Source: LDC Report. Private and public clubs. Private market value of £3.09bn and public market value of £1.34bn. Figures based on March of each year (private and public).3. Source: LDC Report. Figures based on March of each year.
…with low-cost driving market growth
Low-cost driving increase in members
A fragmented market…
UK health and fitness market by
number of private and public clubs(1)
2012-16 CAGR
+3.5%
+54.6%
+1.5%
5.6%
56.9%
(1.4%)
Total UK health and fitness market (£bn)(2)
Number of UK private gym members (m)(3)
3.8 3.8 3.9 4.0 4.0
0.1 0.1 0.2 0.3 0.43.9 3.9 4.1 4.3 4.4
1
2
3
4
2012 2013 2014 2015 2016Traditional private and public Low Cost Total
Large (£4.4bn) UK gym market with a growing low-cost segment(2)
4.3 4.2 4.1 4.1 4.1 4.0
0.2 0.4 0.7 0.9 1.3 1.94.5 4.6 4.8 5.05.4
5.9
0.5
1.5
2.5
3.5
4.5
5.5
6.5
2011 2012 2013 2014 2015 2016
Traditional Low Cost
Operational KPIs
Strong performance of existing gyms
• Revenue £36.1m +25.1% (H1 2015: £28.9m)
• Average members 420,000 +22.8% (H1 2015: 342,000)
• Average revenue per member £14.31, +1.6% (H1 2015: £14.08)
• EBITDA per site increased by 2.7% to £187,000 (H1 2015: £182,000)
Further efficiencies from low cost operating model
• Group EBITDA margin up 2.4% to 31.9% (H1 2015: 29.5%)
• Average site operating costs down 3.4% vs H1 2015
• Average site capital cost maintained at £1.35m
8
22.3
35.7
45.5
60.0
28.936.1
2012 2013 2014 2015 H12015
H12016
Revenue £m
Group Adjusted EBITDA £m
6.0
11.8
14.717.0
8.5
11.5
2012 2013 2014 2015 H12015
H12016
Gyms (#)
Members (k)
1 5 10
16
32 40
55
74 80
2008 2009 2010 2011 2012 2013 2014 2015 H12016
7 26 58
96
166
225
293
376 424
2008 2009 2010 2011 2012 2013 2014 2015 H12016
6sites
open in H1 2016
Further operationalprogress
Strengthen the customer proposition
• Net Promoter Score of 62.0% up 1.8% compared to year end
• Feefo score of 93.5% for 6 month period
• Improved classes; 15 gyms with investment in free weights areas and functional zones in H1
Focus on team and people
• Awarded Gold Investors in People in May 2016
• All Staff Share Scheme, each employee granted £1,000 free shares and the ability to invest in additional shares
• Nick Henwood joins as Operations Director, following similar roles at David Lloyd Leisure, Mothercare and Autoglass
• Barney Harrison joins as Marketing Director, with extensive experience gained at Sky
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15,000
15,500
16,000
16,500
17,000
17,500
18,000
18,500
19,000
19,500
2010 2011 2012 2013 2014 2015
Property rollout
2016 Progress
• 6 gyms opened in H1 2016
• Openings weighted towards Q4 2016
• Strong line up of London centric openings for 2016 (e.g. Lewisham, Sunbury, Dagenham)
• Well-developed pipeline for 2017 including contracts exchanged on 4 sites from another operator in August 2016
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Southfields
11/04/1613,200 sq. ft.New build mixed use development
Southall
24/05/1617,300 sq. ft.Converted office building
Glasgow Bothwell Street
24/03/1620,200 sq. ft.Converted retail property
Norwich Hall Road
23/05/1610,400 sq. ft.New build
Tooting
29/06/1616,300 sq. ft.New build mixed use development
Harrow on the Hill
24/06/1614,200 sq. ft.New build mixed use development
Rolling average sq ft-4.0%Rolling
average sq ftmature site CAGR to 2015(1)
Rolling average
members per sq ft for mature
sites 2015:
0.35CAGR to 2015:
-0.8%
Target of
15-20new sites p.a. over medium
term
New at
2015
Mature at
2015
1. Sites open at December 2013. Rolling average sq ft CAGR of sites open at December 2015 is -2.8%.
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OutlookFinancial Update
Strategic and Operational
Update
£'m
H1
2016
H1
2015
%
Change
Revenue 36.1 28.9 + 25.1%
Group Adjusted
EBITDA (1) 11.5 8.5 + 35.2%
% Margin 31.9% 29.5% + 2.4%
Adjusted PBT (2) 4.6 (0.8)
Adjusted EPS (3) 2.8p -3.3p
• Average membership growth +22.8% and average revenue per member +1.6% driving overall revenue growth of 25.1%
• Group Adjusted EBITDA grew by £3.0m to £11.5m driven by increased size of the estate and improved average EBITDA per site
• Group Adjusted EBITDA margin up 2.4% to 31.9% as estate matures
• Adjusted Profit before Tax of £4.6m an increase of £5.4m versus prior year
• Adjusted Earnings per Share of 2.8p resulting from both increased Adjusted Earnings and dilution arising on the issue of shares on IPO
12
Source: Group’s consolidated results.1. Group Adjusted EBITDA is calculated as operating profit before depreciation, amortisation, long term employee incentive costs, exceptional items and other income.2. Adjusted PBT is calculated as Group Adjusted EBITDA less depreciation, net finance costs and long term employee incentives. 3. Adjusted EPS is calculated as the Group's profit for the year before amortisation, exceptional items, other income and the related tax effect, divided by the basic weighted
average number of shares.
Summary financials
• Site EBITDA margin reflects immaturity of estate. At H1 2016 25 sites open since Dec 2014 (H1 2015: 23 sites open since Dec 2013)
• Central cost investment supports rollout
• Depreciation maintained at 17% of revenue
• Exceptional costs in 2016 substantially reduced versus 2015
• Finance costs in prior year reflect pre-IPO financing structure
• Full year tax rate of 22% anticipated due to prior year adjustment, expect 25% in 2017
• £1.1m pre-opening costs forthe period (H1 2015: £1.2m)
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1. Pre-opening costs means the costs associated with new site openings, which primarily consists of staff costs, marketing and rent.2. Adjusted profit before tax is calculated as Group Adjusted EBITDA less depreciation, net finance costs and long term employee incentives.
Group income statement
£'m
H1
2016
H1
2015
%
Change
Revenue 36.1 28.9 25.1%
Site EBITDA 15.0 11.4 30.8%
Central costs (3.5) (2.9) 18.0%
Group Adjusted EBITDA 11.5 8.5 35.2%
Depreciation (6.1) (4.9)
Amortisation (1.0) (1.1)
Long term employee incentives (0.5) -
Exceptionals (0.2) (1.5)
Operating Profit 3.8 1.1 243.5%
Finance costs (0.4) (4.4)
Profit / (loss) before tax 3.4 (3.3)
Tax (0.9) (0.7)
Profit / (loss) after tax 2.5 (4.0)
Group adjusted EBITDA
pre – POC (1) 12.6 9.7 30.2%
Adjusted PBT (2) 4.6 (0.8)
Adjusted Earnings 3.6 (1.7)
Site EBITDA Margin 41.5% 39.6% 1.9%
Operating profit margin 10.4% 3.8% 6.6%
14
EBITDA increased 35.2%
8.5
11.5
1.0
2.5 0.1 ( 0.6 )
H1 2015 Group Adjusted EBITDA
Sites open up to December 2014
2015 and 2016 openings
Pre opening costs Central costs H1 2016 Group Adjusted EBITDA
£ m
illio
ns
Average Site EBITDA(1) up 2.7% to £187,000 (H1 2015: £182,000)
1. Average Site EBITDA is calculated as Group Adjusted EBITDA contributed by the gym portfolio divided by the number of sites at the period end.
Ancillary income
• 90% of income is recurring monthly fees; remainder is joining fees and ancillary income
• Ancillary income defined as revenue from vending, day membership passes and other sources
• New vending contract rolled out to 65% of the estate; 84% increase in vending gross profits
• Day membership income reflects growth in members. Currently priced at £4.99 to £9.99 depending on location. Introduction for prospective members
• Exploring alternative revenue streams – e-shop and affiliate partnerships
15
£’m
H1
2016
H1
2015
%
Change
Revenue 36.1 28.9 25.1%
Cost of sales (0.4) (0.6)
Gross Profit 35.7 28.3 25.9%
Gross Profit
Margin 98.8% 98.2%
Operational costs
• Average number sites: 76 in H1 2016 (59 in H1 2015)
• Average site operating costs 3.4% lower than prior year as efficiencies are gained from a larger estate
• Impact of strong cost control and growth in the estate results in 30.8% increase in Site EBITDA
£'m
H1
2016
H1
2015
%
Change
Operating costs (1) 10.0 8.0 25.1%
Property costs (1) 9.6 7.7 24.3%
Site operating costs
excluding pre opening costs19.6 15.7 24.7%
Average per site
Operating costs 0.13 0.14
Property costs 0.13 0.13
Site operating costs
excluding pre opening costs0.26 0.27 -3.4%
16
1. Operating and property costs excluding pre-opening costs.
Group cash flow
• Strongly cash generative model with Group Operating Cash Flow Conversion(2) of 116.9%
• Positive cash flow from negative net working capital of £2.8m (IFRS accounting for leases, lease incentives and strong revenue growth)
• Expansionary capex reflecting 6 openings in H1 2016
17
Source: Group’s consolidated results.1. Group Operating Cash Flow is calculated as Group Adjusted EBITDA less working capital and less maintenance capital expenditures.2. Group Operating Cash Flow Conversion is calculated as Group Operating Cash Flow as a percentage of Group Adjusted EBITDA
£’m
Net debt at 1 January (7.1)
Group operating cash flow 13.5
Expansionary capital
expenditure(8.5)
Financing costs and
exceptionals(0.4)
Net debt at 30 June (2.5)
11.5
13.5
4.6
2.8 (0.8)(8.5)
(0.4)
GroupAdjustedEBITDA
WorkingCapital
MaintenanceCapex
GroupOperating
Cash Flow (1)
ExpansionaryCapex
Net FinancingCosts &
ExceptionalItems
Net CashFlow
£ m
illio
ns
Expansionary
• Initial site investment, central IT projects and product enhancement
• New gym fit-out costs remain at £1.35m per site
• Product enhancement (£0.3m) and IT spend (£0.3m)
Maintenance
• Maintenance capex - full year weighted towards H2
• Maintenance made up of gym equipment replacement, 5 year refreshes and refurbishment
18
Capital expenditure
£'m
H1
2016
H1
2015
%
Change
Expansionary
Capex 8.5 12.6 -32.7%
Maintenance
Capex 0.8 0.7 15.7%
Total Capital
Expenditure 9.3 13.3 -30.1%
19
KPIs
£'m
Financial
H1
2016
H1
2015
H1
2014
15-16 %
change
FY
2015
Revenue 36.1 28.9 22.0 25.1% 60.0
Group Adjusted EBITDA 11.5 8.5 7.9 35.2% 17.0
Group Adjusted EBITDA before POC 12.6 9.7 8.4 30.2% 19.7
Group Operating Cash Flow 13.5 11.8 8.0 13.6% 18.6
Group Operating Cash Flow Conversion 116.9% 139.2% 101.4% 109.4%
Expansionary Capital Expenditure 8.5 12.6 8.0 -16.0% 28.2
Net Debt 2.5 55.7 39.5 7.1
Operational
Total gyms in operation 80 63 44 27.0% 74
Total number of members ('000) 424 355 266 19.4% 376
Average number of members ('000) (1) 420 342 261 22.8% 355
Average revenue per member per
month (£) (2) 14.31 14.08 14.06 1.6% 14.08
1. Average number of members is calculated as the total number of members divided by the number of months in the period.2. Average revenue per member per month is calculated as revenue divided by the average number of members divided by the number of months in the period and has been
calculated on a consistent basis for H1 2016 and H1 2015
20
OutlookFinancial Update
Strategic and Operational
Update
• Strong membership growth in H1 to 424,000 +19% vs H1 2015 in line with the Board’s expectations
• Opening programme on track; 6 open at end of H1 2016; targeting 15-20 sites in full year with strong London bias; openings back ended Q4
• Pipeline strong for 2017
• On track to meet market expectations for profit in 2016
• A value proposition that prospers in any economic environment
21
Outlook
Appendix
22
10
12
12
12
15
30
48
35
75
147
24/7 Fitness
Simply Gym
TruGym
Fitness4Less
Easy Gym
Sports Direct Fitness
Fit4Less
Xercise4Less
The Gym
Pure Gym
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1. Top 10 operators as per LDC report and LDC data as at 31 March 2016 and LDC data.2. The majority of Sports Direct Fitness estate was previously not classified as low cost by LDC but due to decrease in prices across the estate, are now part of the low cost analysis.
The Gym is a market leader
The Gym
Leading player with significant
market opportunity
No fixed contract 24/7
UK low-cost gym market landscape as at 31 March 2016(1)
# of clubs (ranked by # of members)
Business model: financial dynamics
Property rent costs
• Leasehold with fixedstep-up every 5 years(1)
• Under IFRS, the 5 year fixed uplift charge smoothed over life lease
• Higher P&L charge than actual cash cost
Depreciation
• Depreciation P&L charge relatively high given upfront cost of investment in sites
• Depreciation charge doesnot reflect maintenancecapex spend
• Maintenance capex spend approximately £630k over a7 year cycle compared to c.£170k of depreciation per gym in 2015
24
Source: Group’s consolidated results.1.Newer leases generally have initial terms of 15 years, with upwards-only rent adjustments every five years, typically either by fixed increases or increases in line with RPI or CPI.2.Pre-opening costs means the costs associated with new site openings, which primarily consists of staff costs, marketing and rent. On average in the year ended 31 December 2015.
Pre-opening costs
• Indicative pre-openingcost c.£140k(2) per site
• Costs incurred beforerevenue benefits; (negative site operating profit in initial year of opening)
• Pre-opening marketing maximises opening membership
£m 2015
Revenue 60.0
Depreciation 10.9
Depreciation as a % of revenue 18%
Average number of gyms 64
Depreciation per site (£’k) 170Cash IFRS
Yr1 Yr5 Yr10 Yr15
Charge
Yield management
Two stage process:
1. Drive membership up to maturity
• Price range £10.99-£24.99 per month(1)
• Typically £20.00 joining fee charged
• Price point regularly reviewed
• Price decision data inputs:
– Gross demand and net membership build
– Penetration into local catchment
– Competition
– Capacity utilisation and usage patterns
2. At maturity manage yield
• Price to maximise sustainable profit
• Yield from multi-site upgrades
• Attrition drives natural yield maturation
25
1. Multi-site is £25.99
0
1000
2000
3000
4000
5000
6000
7000
8000
Jun 1
4
Jul 14
Aug 1
4
Sep 1
4
Oct 14
No
v 1
4
De
c 1
4
Jan 1
5
Feb
15
Ma
r 15
Apr
15
Ma
y 1
5
Jun 1
5
Illustrative Site Yield Maturation
£5.00 £10.99 £12.99
£17.99 £20.99
Financial model
Technology led operating model with high margins and returns
• Low operating costs
• Leases(1) typically fixedrental uplifts
• Fit-out reducing with scale
Maturity: Members
• Average 6,000 membersafter 2 years(2)
• Strong pre-opening process: open with 3,000 members
26
Source: Group’s consolidated results.1. Newer leases generally have initial terms of 15 years, with upwards-only rent adjustments every five years, typically either by fixed increases or increases in line with RPI or CPI.2. 3 small sites average @10,700 sq.ft. open in 2012/13. Smaller sites have less members.3. Actual Mature Gym site metrics in 2015 based off 40 Mature sites open to 31 Dec 2013.4. Fixed property costs include Rent, Rates, Service Charge and Landlord Insurance,.5. Other Opex includes all other costs below Gross Profit, the principal costs are Marketing, Staff, Utilities, Cleaning, Repairs and Maintenance and Administration costs such as travel
Maturity: Site EBITDA
• Site EBITDA lagsnumber growth
• Initial losses frompre-opening costs
Illustrative returns on
Mature Gym Site metrics(3):
Average Mature
Gym Site Members (#)
Average Estate
2015
Revenue £1.02m
Gross profit 98%
Fixed property costs(4) 26%
Other opex(5) 26%
EBITDA £0.47m
EBITDA margin 46%
Capital cost 2008-14 Actual
Capital cost 2015 Actual
£1.5m
£1.35m
ROCE 2008-14 Actual
ROCE 2015 Cost (Illustrative)
31%
34%
-200,000
-100,000
0
100,000
200,000
300,000
400,000
500,000
-3 -1 1 3 5 7 9 11131517192123
LT
M E
BIT
DA
Months Since Opening -
1,000
2,000
3,000
4,000
5,000
6,000
7,000
(3) (1) 1 3 5 7 9 11 13 15 17 19 21 23
Shareholders
27
28.1% Phoenix Advised
Funds
13.9% Bridges Community
Ventures
6.1% Management
Others holding <3%19.0%
32.9% Institutions holding
>3%(1)
1. Includes Standard Life Investments, Hargreave Hale, Soros Fund Management, Fidelity International and Columbia Threadneedle.
• Founder and CEO since November 2007
• Previously Managing Director at Crown Sports PLC and Founder of Dragons Health Clubs
• CFO since May 2015
• Previously CFO of Essenden PLC and Paramount Restaurants
• Property Director since October 2013
• Previously Director of Property at Matalan and agent roles for KwikSave, Iceland Frozen Foods and MFI Hygena
• IT & Digital Director since June 2014, and primary IT & digital consultant to The Gym Group since 2011
• Co-founder of two digital marketing agencies, and Digital Agency Director from 2000 until 2013
• Joined the team in August 2016
• Previously Operations Director at David Lloyd Leisure, Mothercare and Autoglass
• Will join the team in October 2016
• Previously held several Head of Marketing and Acquisition roles at Sky
The Gym Group team
28
John Treharne
Chief Executive Officer
Richard Darwin
Chief Financial Officer
Jonathan Spaven
Property Director
Jasper McIntosh
IT & Digital Director
Nick Henwood
Operations Director
Barney Harrison
Marketing Director