TIDMGYM
RNS Number : 2208T
The Gym Group plc
19 March 2019
19 March 2019
The Gym Group plc
('the Company' or 'The Gym')
Full Year Results
Continued rapid growth in membership, revenue and profit
The Gym Group plc, the fast growing, nationwide operator of
160(1) low cost, no contract, 24/7 gyms, announces its full year
results for the year ended 31 December 2018.
Financial highlights
-- Revenue of GBP123.9 million, an increase of 35.6% (2017:
GBP91.4 million)
-- Group Adjusted EBITDA(2) of GBP36.8 million, an increase
of 31.6% (2017: GBP28.0 million)
-- Basic adjusted earnings per share(3) increased to 8.4p (2017:
7.4p)
-- Adjusted profit before tax(4) increased by 19.4% to GBP14.4
million (2017: GBP12.0 million)
-- Statutory profit before tax of GBP10.0 million (2017: GBP9.2
million)
-- Proposed final dividend of 0.95p per share, giving a proposed
full year dividend of 1.30p per share (2017: 1.20p per share)
Strategic and operational progress
-- 17 new gyms opened and 13 acquired from easyGym, increasing
the total estate to 158 at December 2018
-- Total year end members at 724,000, an increase of 19.3% versus
prior year (2017: 607,000); average member numbers grew by
31.3% to 693,000 (2017: 528,000)
-- LIVE IT take-up grows to 85,000 representing 11.7% of members
at 31 December 2018
-- Increase in the average revenue per member per month to GBP14.89
(2017: GBP14.41)
-- Return on capital on mature estate above 30% target at 31%
(2017: 32%)
-- The new Personal Trainer model rollout across the estate
to be completed by Autumn 2019
Outlook
-- The new financial year has started well and current trading
is in line with the Board's expectations with 793,000 members
at the end of February, an increase of 9.5% since the year
end; additionally, over the same period, the penetration
of LIVE IT has grown to 13.5%
-- Expect to achieve guidance range of 15 to 20 site openings
for 2019
-- The low cost gym market is expected to double in size in
the next seven years, from its current number of sites to
between 1,200 and 1,400 gyms (PwC)
-- Intend to open first small box format gym in 2019 and commence
a rollout thereafter
Richard Darwin, CEO of The Gym Group, commented:
"During 2018 we accelerated our growth to reach 158 gyms,
delivering rapid increases in revenue and profits as well as
important projects to support a business of scale in the longer
term. Our purpose is to provide affordable access to everyone who
wants to improve their wellbeing and we see every day the positive
impact we achieve as The Gym continues to make health and fitness
available and affordable to all. Independent research confirms the
low cost gym market can at least double its number of sites
supporting our ambition for further organic growth alongside the
maturing of our current estate.
January and February are peak months for new memberships. We
have had a successful start to the year and our brand now serves
over 800,000 members with 10 million visits already so far this
year. We plan on opening 15-20 gyms in 2019 as we extend access to
affordable fitness nationwide."
An audio webcast of the analyst presentation will be available
live on http://view-w.tv/795-1295-21250/en at 09:30.
A copy of the Annual Report and Accounts is available via our
website www.tggplc.com
For further information, please contact:
The Gym Group via Instinctif Partners
Richard Darwin, CEO
Mark George, CFO
Numis
Luke Bordewich
George Price 020 7260 1000
Peel Hunt
Dan Webster
George Sellar 020 7418 8900
Instinctif Partners
Matthew Smallwood
Justine Warren 0207 457 2020
1 158 sites branded The Gym and two sites currently branded
easyGym. All gyms branded The Gym open 24/7 excluding six gyms as
at 19 March 2019 due to licensing restrictions.
2 Group Adjusted EBITDA is calculated as operating profit before
depreciation, amortisation, long term employee incentive costs and
exceptional items.
3 Basic adjusted earnings per share is calculated as the Group's
profit for the year before amortisation, exceptional items, and the
related tax effect, divided by the basic weighted average number of
shares.
4 Adjusted profit before tax is calculated as profit before tax
before amortisation and exceptional items.
Chairwoman's Statement
The past year has seen significant progress at The Gym Group.
Our rollout of sites took the number of gyms in which we operate
from 128 to 158, comprising 17 organic openings and the acquisition
of 13 gyms previously branded easyGym. This positions us strongly
in the low cost gym sector, growing our market share to 24%. In
addition to the organic site openings and acquisition, we converted
and rebranded 22 sites including 12 former Lifestyle sites,
acquired in 2017, and ten of the 13 former easyGym sites,
strengthening our plaftorm for growth in 2019 and beyond. The rapid
development of the Company has continued, with revenue and Group
Adjusted EBITDA increasing in excess of 30% whilst mature estate
ROCE was maintained above our 30% target.
These are significant achievements; however, our overall
financial performance was marginally below the stretching targets
set for the business and the high EBITDA hurdle set for bonus
purposes. Whilst we decided to convert more Lifestyle sites than
originally planned, the conversions took longer than expected and
membership uplift following reopening took longer than planned. In
addition some of the organic openings began trading later in the
year than originally anticipated, resulting in fewer trading weeks
and lower revenue than expected. We have spent time reviewing
performance and adapting to build further resilience. But the
bigger picture is that we start 2019 as a larger business than
first planned and with strong brand and operating standards across
all 158 gyms in a consumer market that continues to appreciate our
proposition. This signals significant room for growth in a growing
market - a recent study by PwC indicates the size of the UK low
cost gym market could double to 1,200 to 1,400 sites by 2026.
It was also an important year for our leadership team. John
Treharne, Founder of the business in 2007, expressed his desire to
step back from the CEO position having led the business through
more than ten years of continued profitable growth, through our IPO
in 2015 and beyond 100 gyms; achievements he could barely have
dreamed of in the early days. It has been a real privilege to work
with such a successful entrepreneur whose restless energy to
deliver higher standards and whose personal style has created a
culture of which we are all proud. I am delighted that John remains
on the Board as Founder Director, focussing on continued innovation
and development and providing his great experience, network and
wisdom to our business and to Board deliberations.
The Nomination Committee engaged in a thorough process to
determine our succession plans. Further details are provided in the
Report of the Nomination Committee in the Annual Report. Having
considered external candidates, we were pleased to ask Richard
Darwin to step up from CFO to CEO; this continuity is welcome and
Richard is ambitious and committed to grow into the CEO role. We
also undertook a thorough search to find a successor CFO to Richard
and were delighted to appoint Mark George to the Board. Mark brings
high quality, relevant experience and a good cultural fit; he is
settling well into his role.
Transitioning a business from being Founder-led requires some
thought about the unique qualities that Founders bring,
particularly around culture and tone from the top. We have always
been proud of the enthusiasm of our colleagues and our strong
culture; the Board and executive team are determined to maintain
this culture and our values as we begin the next chapter. Our
purpose is to break down barriers to fitness for all: Open 24/7,
whenever members are ready; no contract, come and go as it suits;
outstanding value; excellent quality gyms. This simple and
inclusive approach has introduced hundreds of thousands of people
to health and fitness for the first time and we are passionate
about continuing with this mission.
In order to codify the culture that we hold dear at The Gym
Group we have established our values. We are committed to lead an
organisation that helps members and each other 'Take The First
Step'. We are characterised by 'Realness', being fair and honest in
all we do. We run gyms that accentuate 'Friendliness' being
welcoming, inclusive and not intimidating. 'Challenging Your
Limits' is a mindset we bring to members, to each other and to the
Company as a whole. We intend to live by these values throughout
the Company.
During 2018 we worked on three key initiatives to build a
stronger business. We began the rollout of LIVE IT, a class of
membership that offers additional benefits for a small premium.
This is developing well, with members enjoying the benefits of
'multiple sites' and 'bring a friend' as well as the FitQuest
monitoring machines. We also undertook the implementation of a new
ERP system, Workday, which will provide a far superior platform for
our financial and HR systems going forward and was an important
milestone. Finally, we continued to trial and refine our innovative
new ways of working with Personal Trainers. This is perhaps the
most important change to our business model since inception and so
getting it right was more important than going fast. Our trial
phase is now complete and full rollout will run from April through
to September 2019. We are confident this makes us more attractive
to Personal Trainers, who in turn contribute significantly to
higher member satisfaction. All of our colleagues are supportive of
this important change.
My Board colleagues and I continue to visit sites regularly; I
have been pleased to visit former Lifestyle and easyGym sites this
year to see the high quality of our conversions with member
gratitude obvious. We grow fast but I have still visited the
majority of our sites! Working out alongside members is the most
fun, but also the most valuable way to see the daily life of our
operations.
Our sites are often in some of the more economically challenged
locations or in areas that have not previously had affordable
access to a gym and so we bring an important benefit to the
community to engage in fitness, many for the first time. With a
young membership we know that adopting a healthy lifestyle can
bring long term benefits to individuals and society as a whole. We
were also proud to support 'Move for Movember', contributing over
GBP100,000 from member and staff activities and donations to this
important charity, in addition to member donations to other
charities collected as part of the joining process.
Of course, much is being written about the uncertain economic
times and Brexit in particular. We continue to expect to perform
well; our high quality, outstanding value fitness proposition will
remain relevant even if the economy becomes more subdued. We do not
expect Brexit to impact our trading, having taken steps to ensure
we have ready access to sufficient fitness equipment and fixtures
to support our growth. We will remain focussed on delivering value
for all stakeholders.
Finally, let me extend thanks to my Board colleagues,
particularly so in a year of executive succession. Their support
and challenge are much appreciated. In turn, on behalf of the
Board, thank you to all our colleagues for their hard work, good
nature and commitment to delivering results for all.
Penny Hughes
Chairwoman
19 March 2019
Chief Executive's Statement
Introduction
This is my first report since becoming CEO of The Gym Group. It
is a privilege to be the second CEO in the Company's 11 year
history, succeeding our Founder, John Treharne. I am delighted that
John remains an integral part of the business and is on the Board
as Founder Director, enabling us to benefit from his experience,
knowledge and contacts. As the low cost gym market continues to
develop and grow, we will draw on his insight and ensure that we
continue to develop the business reflecting the culture that John
established.
This has been another significant year of growth for the
business and The Gym Group continues to build a strong market share
in the low cost gym sector through a combination of acquisition and
organic openings. During the year we expanded our estate by a
further 30 sites, bringing the total to 158 at year end. We have
doubled the number of sites in two and a half years. 17 new sites
were opened during the year as a result of our organic opening
programme (within our target of 15-20 sites), and additionally we
acquired 13 sites from easyGym - further strengthening our position
in the South East. We financed this acquisition principally through
an equity placing to maintain a relatively unleveraged balance
sheet and a strong covenant for landlords; we are grateful for the
support of our shareholders which enabled us to accelerate our
growth in this way.
This expansion continues to grow our membership base, with total
year end members up 19.3% to 724,000 (2017: 607,000) and average
members up 31.3% to 693,000 (2017: 528,000). The ongoing expansion
of our business has led to an increase in all our key metrics:
revenue up 35.6% to GBP123.9 million (2017: GBP91.4 million) and
Group Adjusted EBITDA up by 31.6% to GBP36.8 million (2017: GBP28.0
million). Adjusted Profit before Tax increased by 19.4% to GBP14.4
million (2017: GBP12.0 million) and Basic Adjusted Earnings per
Share up by 13.5% to 8.4p (2017: 7.4p). Our statutory Profit before
Tax has increased to GBP10.0 million (2017: GBP9.2 million).
Despite these metrics, a combination of the acceleration of the
rebranding of the Lifestyle Fitness sites and some delays to the
new opening schedule to be later second half weighted, caused lower
revenue and fewer trading weeks. Despite rapid growth in both
revenue and EBITDA, the Company delivered a less profitable result
than the Board's high expectations and below the EBITDA hurdle set
for bonuses. These impacts on profits are expected to have only a
short term effect. We are extremely encouraged by the response of
the Lifestyle sites, which have had more than 20% membership growth
since acquisition; and the gyms opened in 2018 are maturing as we
expect.
The low cost gym market continues to grow rapidly, and our
organic and acquisition strategy has enabled us to continue to
build market share. Low cost gyms remain the most attractive part
of the health and fitness market. Overall, our market share
increased from 22.4% in December 2017 to 24.2% in December 2018.
The Gym Group achieved 40% of the net growth in the market, as we
continue to expand our market share, taking members from existing
operators as well as those who have never been a member of a gym
before.
In a recent market report commissioned by us, PwC has evaluated
the gym market in the UK and estimated the potential size of the
market to be 1,200 to 1,400 low cost gyms, compared to 1,000 in
previous assessments. This means that the market is forecast to
double in size from where it is today (654 low cost gyms at
December 2018). Penetration is estimated to increase both into new
catchments that currently do not have a low cost gym, as well as
other catchments that can increase their number of low cost gyms.
Half of the future growth is forecast to come in the size of
catchments in which we have opened to date ('standard catchments')
and half in smaller catchments. The PwC assessment implies that low
cost member penetration could grow to 5-7% of the population by
2026 (2018: 3.7% penetration), a penetration growth rate well below
that achieved historically. With the strength of our pipeline we
are extremely well placed to take advantage of the growth in
standard catchments and are working on the concept that can take
advantage of the smaller catchment opportunity; we intend to open
our first small box format gym later this year and expect to
commence a rollout thereafter.
Strategic progress
Delivering performance from gyms
Our primary financial goal is to develop sites to maturity and
achieve high levels of return on capital. Overall this remains a
business with significant potential, with a number of sites that
have been acquired or opened in the last two years yet to reach
maturity (in terms of member numbers). At the year end we had 89
sites that have been operating for more than two years (2017: 74
sites), just 56% of the total estate. Of the remaining 69 sites, 31
were acquired and 38 opened organically in 2017 and 2018. These
sites continue to increase profitability and are maturing as
anticipated. Mature Site EBITDA was GBP39.2 million, up 15.0%
(2017: GBP34.1 million) and Mature Site EBITDA per site was
GBP440,000 (2017: GBP461,000). This reduction in Mature EBITDA per
site was expected and consistent with our move to smaller sites
built at lower capital cost; we continue to target returns on
capital of greater than 30% across our mature sites for organic
openings and in 2018 we achieved that target again with a return on
capital in the mature estate of 31% (2017: 32%). The return on
capital for mature sites opened between 2008 and 2013 and for sites
opened in 2014 to 2016 is also above 30%.
The 18 sites acquired as part of the Lifestyle transaction in
September 2017 are still maturing. We took the decision during the
year to accelerate rebranding of all 18 sites to The Gym brand,
with 12 of these conversions taking place in 2018. This will enable
these gyms to benefit from our brand, marketing, systems and
operating model in 2019. Although it resulted in lower revenue and
more weeks of site closures than initially expected in 2018, we
were prepared to make this decision in order to maximise the best
long term result for the business. The consideration for the
Lifestyle business was GBP20.5 million, alongside total conversion
costs of GBP9.0 million, an average of GBP499,000 per site. We will
target a 20% plus return on capital by 2020 on this acquisition.
This percentage is lower than for our organic openings, reflecting
the acquisition premium incurred on such sites.
Having integrated the Lifestyle sites ahead of schedule, we
successfully completed on a second significant transaction with the
acquisition of 13 sites branded easyGym in July 2018. This
acquisition demonstrates our focus on quality as we purchased 13
out of 16 sites, leaving behind three sites that failed to meet our
location and financial criteria. The consideration for these 13
sites was GBP20.6 million, with contingent consideration of GBP4.1
million if two sites have lease extensions agreed; discussions on
the GBP4.1 million remain ongoing. At December 2018 we had
successfully converted ten of these sites to The Gym brand,
enabling them to benefit from our marketing and our platform during
the important January / February trading period. The total cost of
conversion has been GBP312,000 per site. The easyGym acquisition
further strengthens our network in London (eight sites) and in four
other cities where we already operate (Southampton, Cardiff,
Liverpool and Birmingham). In particular, we expect strong take-up
of LIVE IT, our premium pricing initiative, across the easyGym
sites where there has not previously been a multi-site option for
members. As with the Lifestyle acquisition, we are targeting a 20%
return on capital for this acquisition by 2020.
One of the most significant changes in the past year has been
the overhaul of our marketing capability. This was facilitated by
the appointment of new agencies in media and creative, which has
enabled us to deliver fresh and innovative marketing ahead of the
peak trading periods. During 2018 our marketing plans used out of
home, social media, performance marketing and local awareness. The
marketing plan for January / February 2019 introduced a fresh new
campaign based on members' motivations for using The Gym - 'So I
can' - with the launch of our first ever TV advert.
Improving operating efficiencies
Mature Site EBITDA margin in 2018 was marginally lower at 45.3%
(2017: 47.0%), in line with our expectations and reflecting our
continued ability to apply our operating model across a business of
growing scale. The slight decrease in Mature Site EBITDA margin
does not impact our ability to meet return on capital targets. We
have had ongoing success in being able to secure new sites with the
appropriate level of fixed cost base to operate our business
efficiently, taking advantage of our ever increasing scale.
We ended 2018 with an average headline price of GBP17.14 per
month (2017: GBP17.50). Our philosophy remains to be a high quality
operator charging the lowest price in any given market. As in
previous years, we have sought to maximise revenue on a
site-by-site basis by balancing volume and price, so took the
decision at the end of 2018 to reduce prices across approximately
30% of the estate. We are pleased with the response to this
decision, with membership volumes growing by 1.5 times the growth
rate of the rest of the estate (October 2018 to February 2019).
Some of these sites were the Lifestyle sites that had not gone
through the same pricing changes that one of our organic openings
experiences. In other sites we continue to endeavour to increase
yield where the local market allows - pricing decisions are made
through a combination of data analytics and local market
intelligence. Average Revenue per Member per Month increased by
3.3% across our estate and we expect further progress in 2019 as
sites become more established and LIVE IT has been in place for a
whole year across the estate.
LIVE IT, our premium pricing initiative, was rolled out
nationally by May 2018 and 85,000 members had taken advantage of
this offer by December 2018. We continue to be encouraged by the
level of take-up and expect further growth in absolute numbers as
those sites that have not had LIVE IT for a whole year go through
their initial months of member acquisition. As expected the most
significant take-up is from new members joining. We continue to
monitor the characteristics of tenure and attrition of our LIVE IT
members and currently they match those of our DO IT. members. LIVE
IT will be an important contributor to yield growth in 2019.
Achieving our rollout strategy
We opened 17 sites organically in 2018. Our primary focus is
choosing optimal locations and we open the number of sites that is
consistent with that aim. Our strong, listed company covenant is
highly attractive to landlords, which results in winning the best
sites that come onto the market. We continue to expect to open a
geographically diverse range of sites to build on our strength in
the South East, where 50% of our gyms are currently located. In
2018 we opened a number of strong London sites; today 55 of the
sites are located within the M25. Our new sites continue to trade
well with strong opening profiles. We are very encouraged by the
performance of the gyms opened in 2017, which have delivered an
EBITDA margin that is consistent with the first year performance of
previous cohorts, and expect to see strong returns on capital. The
2018 cohort opened later in the year than originally planned. This
meant they were earlier in their maturity profile and therefore
resulted in lower revenue in 2018 than our original plans.
The flexibility of our model allows us to take advantage of
trends in the property market. Increasingly we are taking space in
new developments such as Tottenham White Hart Lane, Sutton and
Stockport. In 2019 we anticipate opening 15 to 20 sites and the
pipeline of new sites is encouraging for 2019 and into 2020. As in
previous years, openings are expected to be weighted towards to the
second half of 2019.
In addition to the conversions of the Lifestyle and easyGym
sites, investment continued across our existing estate with a
substantial refurbishment programme to ensure that all our sites
benefit from modern signage along with the most up-to-date branding
and product mix. Our aim was to ensure the estate matched a common
standard by the end of 2018 and other than in a handful of sites
this was achieved. Our rolling maintenance programme requires sites
to be closed every six months for two days and ensures sites are
maintained to a high standard. In the future we will focus the more
substantial refurbishments on sites that need a competitive boost
in their local market.
In the past year we retendered our gym equipment supply
contract, splitting the contract into equipment and accessories and
in the process achieving a further 10% reduction in capital costs
across these areas. As part of our Brexit planning we have
stockpiled the capital requirements, including gym equipment,
sourced from Europe to ensure we can continue to meet our rollout
target in the first six months of 2019.
Developing the member proposition
Our new system of tracking member satisfaction, which measures
customer feedback, has now been deployed at site level for over a
year. Detailed member satisfaction feedback is available via an app
for General Managers, enabling them to focus their time on
activites that improve levels of member satisfaction. This new
system has enabled us to identify best practice and roll it out
across the estate. The new Personal Trainer operating model is
another driver behind enhanced member satisfaction and reflects the
determination of our business to put member service at the heart of
everything we do.
Our use of technology
Following the launch of the Member Management System in 2017,
further advances have been made in developing technology
infrastructure in 2018. The launch of Workday has given us a robust
finance and HR system that will strengthen our capability in these
areas for the future and was another significant achievement by our
team. Having developed a platform for future growth, we will
continue to research ways in which using technology will enhance
the customer experience. Late in 2018 we launched our member app
and there will be further upgrades launched over the coming months.
In addition, we are investing in Artificial Intelligence to give us
further insight in areas such as pricing and churn and to enable us
to drive further efficiencies from our operating processes.
Technology will remain fundamental to the delivery of our business
model and assist in facilitating the low cost environment in which
we operate.
Our people
During the year we commenced the trial of a new operating model
that will enable our Personal Trainers to take up part-time
employment. The majority of our Personal Trainers will be
contracted for 12 hours and, outside these hours, they will
continue to run their business on a self-employed basis in our gyms
and will pay a monthly rent to access the gym. During the year we
received HMRC clearance for the new model. We transitioned 24 new
and existing sites onto the new model during the year.
The trials have shown that the new model enhances member
satisfaction compared to the previous arrangements. During the
trial we re-evaluated the commercial proposition to the Personal
Trainers and decided to reduce the rent that is charged to those
Personal Trainers who will also be part-time employees. The new
model will be financially neutral for Personal Trainers. This
change to the financial arrangements has been extremely well
received by our Personal Trainer colleagues. The new model is
probably the most significant change to the way this business has
operated in its history, hence the care and attention we have taken
to ensure the model is correct. We believe it will deliver tangible
benefits and retain our competitive advantage by attracting and
retaining the best Personal Trainers operating in our gyms.
The business has grown rapidly over the past few years and in
doing so it is important that we identify the features that have
made it a special place to work. As a result of the transition of
John Treharne from CEO to Founder Director, we decided we needed to
consult with a number of colleagues to define the values and
culture associated with The Gym Group. These values will drive our
colleague engagement and member interaction in future years. Our
overall brand purpose is that The Gym breaks down barriers to
fitness. This has been central to The Gym's purpose since it
created the first low cost gym brand in the UK, and became the
first to offer 24/7 operation and online-only sign-ups. As we
continue to develop we will ensure we remain true to our culture. I
feel proud that our business has a strong social purpose in
improving the health of the nation. We believe this conviction and
our core low cost ethos will allow us to continue to drive demand,
even with the uncertain economic environment caused by Brexit.
We continue to build the central teams that can support the
management at site level. Our intent remains to drive performance
at a local level while providing high quality central support. In
2018, the focus has been to build strong teams that can support our
ambition. Infrastructure developments will enable us to run a
business of greater scale and substance. I was delighted to welcome
Mark George to the team and the Board as CFO. Mark brings a highly
relevant set of skills in digital businesses such as ASOS and Auto
Trader as well as multi-site experience from a number of roles at
Tesco. Ann-marie Murphy also joined as Director of People and
Development during the year and already has made significant
progress in supporting our front-line operations.
The commitment of all our people remains key to the success of
this business, whether it be in supporting new site openings,
integrating acquisitions or in day-to-day operations. Over the past
year we have welcomed many employees from Lifestyle and easyGym and
other new colleagues to support our growth. Additionally, during
the coming year we will bring on board a further 1,500 Personal
Trainers as part-time employees. I would like to welcome them all
to the business and along with our existing dedicated colleagues, I
thank them all for their ongoing commitment to this business.
Outlook
The new financial year has started well and current trading is
in line with the Board's expectations. Membership numbers at the
end of February show an increase to 793,000, another record level,
with a 9.5% increase since December 2018. The significant levels of
member growth are being reinforced by the performance of our
acquisitions from Lifestyle and easyGym that have been fully
integrated into the Group. In 2019 we anticipate opening 15 to 20
sites, with six in the first half of the year. We expect to
maintain our ratio of having over 50% of our sites in the South
East and expect LIVE IT to continue to increase in penetration and
underpin our yield growth.
We have developed a portfolio of outstanding gyms and in 2019 we
are committed to continue driving profitable progress. We remain
confident in our model and its ability to drive value for
colleagues and shareholders as the business continues its rapid
development.
Richard Darwin
Chief Executive Officer
19 March 2019
Financial Review
Summary
I am pleased to be presenting these annual results for the first
time as The Gym Group's new CFO. I am fortunate to have joined such
a great business; one that's in a market of long term structural
growth and has a well proven business model that can deliver
outstanding value for its members and at the same time an
attractive return on capital to shareholders.
2018 has been a significant year of progress for the Group, with
strong organic growth, a new acquisition, the integration of a
previous acquisition and many other important initiatives that
position us well for continued growth in the coming years.
The Group has delivered another strong set of financial results,
with revenue growing 35.6% to GBP123.9 million and Group Adjusted
EBITDA growing 31.6% to GBP36.8 million. We have also continued to
deliver a strong return on capital, with ROCE in our mature sites
at 31% (2017: 32%).
The growth in Group Adjusted EBITDA has been achieved alongside
significant transformation and investment in the business in 2018
with 17 organic site openings, the acquisition of 13 sites from
easyGym and the conversion of the remaining sites acquired from
Lifestyle Fitness in 2017. We financed the easyGym acquisition
principally through an equity placing, raising GBP24.0 million.
Group Operating Cash Flow increased 37.7% to GBP34.0 million
(2017: GBP24.7 million) as a result of the growth in EBITDA and
continuing efficient use of working capital.
2018 2017
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Total Number of Gyms 158 128
Total Number of Members ('000) 724 607
Revenue 123,884 91,377
Group Adjusted EBITDA(1) 36,813 27,963
Group Adjusted EBITDA before Pre-Opening Costs(2) 39,305 30,598
Adjusted Earnings(3) 11,230 9,527
Group Operating Cash Flow(4) 33,972 24,677
Statutory profit before tax 9,967 9,191
---------------------------------------------------- -------- --------
1 Group Adjusted EBITDA is calculated as operating profit before
depreciation, amortisation, long term employee incentive costs, and
exceptional items.
2 Group Adjusted EBITDA before Pre-Opening Costs is defined as
Group Adjusted EBITDA excluding the costs associated with new site
openings.
3 Adjusted Earnings is calculated as the Group's profit for the
year before amortisation, exceptional items, and the related tax
effect.
4 Group Operating Cash Flow is calculated as Group Adjusted
EBITDA less working capital less maintenance capital
expenditures.
Result for the year
2018 2017
GBP'000 GBP'000
------------------------------------- ---------- ---------
Revenue 123,884 91,377
Cost of sales (1,007) (982)
-------------------------------------- ---------- ---------
Gross profit 122,877 90,395
Administration expenses (107,825) (78,015)
Long term employee incentive costs (1,012) (774)
Exceptional items (2,343) (1,664)
-------------------------------------- ---------- ---------
Operating profit 11,697 9,942
Finance income 22 12
Finance costs (1,752) (763)
-------------------------------------- ---------- ---------
Profit before tax 9,967 9,191
Tax charge (2,761) (2,020)
--------------------------------------
Profit for the year 7,206 7,171
-------------------------------------- ---------- ---------
Tax charge 2,761 2,020
Amortisation of intangible assets 2,051 1,175
Exceptional administration expenses 2,343 1,664
--------------------------------------
Adjusted profit before tax 14,361 12,030
-------------------------------------- ---------- ---------
Tax charge (2,761) (2,020)
Tax effect of above items (370) (483)
-------------------------------------- ---------- ---------
Adjusted Earnings 11,230 9,527
-------------------------------------- ---------- ---------
2018 2017
GBP'000 GBP'000
----------------------------------------------- ------------------------ --------
Operating profit 11,697 9,942
Depreciation of property, plant and equipment 19,710 14,408
Amortisation of intangible assets 2,051 1,175
Exceptional items 2,343 1,664
Long term employee incentive costs 1,012 774
------------------------------------------------
Group Adjusted EBITDA 36,813 27,963
------------------------------------------------ ------------------------ --------
Revenue
The increase in revenue was driven by a combination of growth in
the number of members and an increase in the Average Revenue Per
Member Per Month ('ARPMM').
We ended the year with 724,000 members, an increase of 19.3%
compared with the closing membership level in December 2017. As a
result of having the Lifestyle sites for a whole year compared to
just three months in 2017, plus the 13 easyGym sites acquired in
July 2018, the average membership level across the 12-month period
grew by 31.3% to 693,000 (2017: 528,000).
ARPMM increased from GBP14.41 to GBP14.89 in 2018 through a
combination of price increases, member mix and the take-up of our
premium membership package LIVE IT, which, following a full year's
rollout, increased its penetration to 11.7% of our membership by
the end of the year.
As a result of these factors, revenue for the year increased
35.6% to GBP123.9 million (2017: GBP91.4 million).
Group Adjusted EBITDA
Group Adjusted EBITDA increased by 31.6% to GBP36.8 million
(2017: GBP28.0 million), due to sites opened in recent years
increasing their contribution to profits. Group Adjusted EBITDA
margin reduced from 30.6% to 29.7%, reflecting the absorption of
the Lifestyle Fitness and easyGym sites, and the fact that a large
proportion of our sites are immature. Our mature sites (those more
than two years old) delivered Group Adjusted EBITDA margin of
45.3%, we therefore expect the overall Group margin to grow over
time as our estate matures.
Group Adjusted EBITDA is adversely affected by pre-opening
costs. Group Adjusted EBITDA before Pre-Opening Costs increased by
28.5% to GBP39.3 million. Pre-opening costs decreased from GBP2.6
million to GBP2.5 million, reflecting 17 site openings in 2018
compared to 21 in 2017.
Growth in EBITDA from our mature sites has contributed
significantly towards the growth in Group Adjusted EBITDA. Mature
Site EBITDA(1) contributed by the 89 mature sites increased to
GBP39.2 million (2017: GBP34.1 million Mature Site EBITDA from 74
mature sites).
EBITDA from new sites increased from GBP3.0 million in 2017,
representing 54 sites, to GBP8.3 million in 2018, with 69 sites at
31 December 2018. New sites include 18 sites acquired from
Lifestyle Fitness in 2017 and 13 sites from easyGym in 2018, in
addition to new gyms opened in 2017 and 2018, which are performing
well.
Administration expenses
Administration expenses increased by 38.2%, primarily due to the
number of gyms increasing from 128 at 31 December 2017 to 158 at 31
December 2018.
The largest cost within administration expenses is property
lease rentals, which increased from GBP17.3 million in 2017 to
GBP23.0 million in 2018 due to the increase in the number of gyms.
Staff costs also form a significant part of administration expenses
and increased from GBP13.2 million to GBP16.0 million, excluding a
charge of GBP1.0 million (2017: GBP0.8 million) from long term
employee incentives. The increase was driven by both gym openings
and a scaling up of support office costs to support future growth.
Support office costs increased from GBP9.1 million in 2017 to
GBP10.7 million in 2018 due primarily to headcount increases.
Depreciation
Depreciation charges increased from GBP14.4 million in 2017 to
GBP19.7 million in 2018, as a result of the increased number of
sites in our estate. Depreciation as a percentage of revenue
remained flat at 16%. Amortisation charges increased from GBP1.2
million to GBP2.1 million due to increases in software investment
and acquisition intangibles.
Exceptional items
Exceptional costs increased to GBP2.3 million from GBP1.7
million in 2017 and comprised: GBP1.2 million in restructuring
costs relating to the change in how we work with Personal Trainers
in our gyms (including restructuring costs expected to be incurred
in the rollout in 2019); GBP0.6 million of costs associated with
the acquisition of easyGym; and GBP0.5 million of costs relating to
the integration of the Lifestyle Fitness and easyGym assets.
Long term employee incentives
During the year the Group granted further Performance Share Plan
('PSP'), Share Incentive Plan ('SIP') shares and Restricted Stock
Options to certain members of senior management. The awards vest in
three years provided continuous employment during this period and,
in the case of the PSP, certain performance conditions are attained
relating to the earnings per share and total shareholder
returns.
The Group continues to operate a matching shares scheme under
the SIP, where for every share purchased by an employee the Group
will award one matching share, up to a maximum value, which vest in
three years subject to continued employment.
The Group recognised a charge of GBP1.0 million (2017: GBP0.8
million) in relation to these share based payment arrangements.
Finance costs
Finance costs increased to GBP1.7 million in 2018 (2017: GBP0.8
million) with further drawing on our debt facilities to fund the
expansion of our estate. At December 2018 the Group had undrawn
facilities of GBP4.0 million within its five-year bullet repayment
facility and GBP7.0 million from its revolving credit facility,
ending the year with net debt of GBP46.0 million, representing
1.25x Group Adjusted EBITDA (2017: 1.34x). This relatively low
level of leverage ensures we can offer a strong covenant to
potential landlords, providing us with a significant commercial
advantage in the securing of desirable new sites.
Taxation
The Group has incurred a tax charge of GBP2.8 million for the
year ended 31 December 2018, which represents an effective tax rate
('ETR') on statutory profit before tax of 27.7% (2017: 22.0%). The
increase in ETR is due to an increased level of exceptional items
which are not deductible for tax purposes, and increased charges
relating to share based payments.
The underlying effective tax rate on adjusted profit before tax,
after adjusting for amortisation and exceptional items, is 21.8%
(2017: 20.8%).
Earnings
Statutory profit before tax increased to GBP10.0 million (2017:
GBP9.2 million), largely as a result of the increase in Group
Adjusted EBITDA, offset by increased depreciation due to increased
number of sites, increased amortisation of intangible assets from
acquisitions and higher exceptional costs. The Group delivered a
profit for the year of GBP7.2 million (2017: GBP7.2 million) as a
result of the factors discussed above.
Basic earnings per share ('EPS') was 5.4p (2017: 5.6p). Basic
adjusted EPS was 8.4p (2017: 7.4p). Adjusted EPS is calculated by
excluding amortisation, exceptional items, and the resultant tax
effect from earnings.
Dividend
The Board expects to continue to adopt a progressive dividend
policy. When making proposals for the payment of dividends, the
Board considers the resources available to the Group.
The Group declared an interim dividend of 0.35p per share
earlier in the year. The Board recommends a final dividend of 0.95p
per share in respect of the financial year ending 31 December 2018,
resulting in a full year dividend of 1.30p per share. Shareholders
will be asked to approve the dividend at the AGM on 4 June 2019,
for payment on 14 June 2019 to shareholders whose names are on the
register on 24 May 2019. The shares will be marked ex-dividend on
23 May 2019.
Cash flow
2018 2017
GBP'000 GBP'000
------------------------------------------------------------ --------- ---------
Group Adjusted EBITDA 36,813 27,963
Movement in working capital 5,477 2,981
Maintenance capital expenditure(2) (8,318) (6,267)
------------------------------------------------------------- --------- ---------
Group Operating Cash Flow 33,972 24,677
Expansionary capital expenditure(3) (57,551) (52,453)
Exceptional items (2,105) (1,147)
Taxation (2,009) (1,050)
Finance costs (1,349) (759)
Dividends paid (1,637) (1,347)
Other net cash flows from financing and investing activity 33,249 27,714
-------------------------------------------------------------
Net cash flow 2,570 (4,365)
------------------------------------------------------------- --------- ---------
Group Operating Cash Flow has increased by 37.7% from GBP24.7
million to GBP34.0 million as a result of an increase in Group
Adjusted EBITDA and efficient use of working capital. Total
maintenance capital expenditure was GBP8.3 million (2017: GBP6.3
million). Our Group Operating Cash Flow Conversion has increased
slightly to 92.3% (2017: 88.2%).
Expansionary capital expenditure of GBP57.6 million (2017:
GBP52.5 million) arises as a result of the fit-out of new gyms, the
acquisition of the easyGym portfolio and the conversion of the
Lifestyle sites acquired in 2017.
Balance sheet
2018 2017
GBP'000 GBP'000
------------------------- --------- ---------
Non-current assets 241,039 196,723
Current assets 15,318 9,691
Current liabilities (56,957) (45,401)
Non-current liabilities (49,558) (40,129)
--------------------------
Net assets 149,842 120,884
-------------------------- --------- ---------
Our business model and strong conversion from revenue to cash
results in an uncomplicated balance sheet.
Non-current assets have increased by GBP44.3 million to GBP241.0
million (2017: GBP196.7 million). This is largely as a result of
GBP22.9 million of assets and goodwill acquired from easyGym,
capital expenditure in property, plant and equipment and
intangibles totalling GBP43.7 million, offset by depreciation and
amortisation of GBP21.8 million.
Current assets have increased due primarily to higher cash
balances. Current liabilities have increased by GBP11.6 million as
a result of lease incentives associated with new gyms opening in
the year, contingent consideration associated with the easyGym
acquisition, GBP3.0 million drawn on the revolving credit facility
at 31 December 2018 and increases in trade and other payables as
the size of our business grows.
The Group has drawn GBP46.0 million of its five-year bullet
repayment facility and GBP3.0 million of its revolving credit
facility. GBP11.0 million of the facilities were undrawn at 31
December 2018.
Guidance for 2019
On 1 January 2019 the Group will adopt IFRS 16 'Leases'. The
indicative effect of this new accounting standard is shown in note
9.
We plan to continue our progressive dividend policy in which we
pay 10 to 20% of adjusted earnings to shareholders each year in the
form of dividends. With the move to the IFRS 16 in 2019 our
statutory earnings will change versus earnings levels previously
stated under the previous accounting standard. However, our
intention is to continue to pay dividends based on 10 to 20% of
adjusted earnings as measured in the pre-IFRS16 definition.
In addition:
-- We expect 15 to 20 new site openings.
-- We expect new site fit-out costs to continue to be between
GBP1.3 million and GBP1.4 million per site.
-- We anticipate GBP3.5 million to GBP4.0 million of capital
expenditure on technology projects.
-- Maintenance capital expenditure is expected to be between 6% and 7% of revenue in 2019.
-- Depreciation is expected to be just under 16% of revenue (on
an IAS 17 basis, consistent with 2018 reporting).
-- The charge for long term employee incentives is anticipated to be GBP1.8 million in 2019.
-- To support the growth of the business we expect support
office costs to be 8.0% to 8.5% of revenue (2018: 8.6%).
-- The future effective tax rate, after adjusting for
amortisation and exceptional items, is estimated to be 23.0% in
2019 (2018: 21.8%).
Mark George
Chief Financial Officer
19 March 2019
1 Mature sites are defined as gyms that have been open for 24
months or more measured at the end of the year. New sites are
defined as gyms that have been open for fewer than 24 months at the
end of the year, and include all 18 Lifestyle sites and all 13
easyGym sites.
2 Maintenance capital expenditure comprises the replacement of
gym equipment and premises refurbishment. It is a non-IFRS GAAP
measure.
3 Expansionary capital expenditure relates to the Group's
investment in the fit-out of new gyms, the acquisition of the
Lifestyle and easyGym portfolios and technology projects. It is
stated net of contributions towards landlord building costs. It is
a non-IFRS GAAP measure.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
Note 31 December 2018 31 December 2017
GBP'000 GBP'000
Revenue 123,884 91,377
Cost of sales (1,007) (982)
Gross profit 122,877 90,395
Administration expenses (111,180) (80,453)
Operating profit 11,697 9,942
Being:
- Group Adjusted EBITDA(1) 36,813 27,963
- Depreciation 6 (19,710) (14,408)
- Amortisation (2,051) (1,175)
- Exceptional items 3 (2,343) (1,664)
- Long term employee incentive costs (1,012) (774)
Finance income 22 12
Finance costs (1,752) (763)
Profit before tax 9,967 9,191
Tax charge 5 (2,761) (2,020)
Profit for the year attributable to equity shareholders 7,206 7,171
----------------- -----------------
Other comprehensive income for the year
Items that may be reclassified to profit or loss
Changes in the fair value of derivative financial instruments (11) -
Items that will not be reclassified to profit or loss
Changes in the fair value of financial assets at fair value through
other comprehensive income (463) -
Total comprehensive income attributable to equity shareholders 6,732 7,171
----------------- -----------------
Earnings per share 4 pence pence
Basic 5.4 5.6
Diluted 5.3 5.6
1 Group Adjusted EBITDA is a non-GAAP metric used by management
and externally by investors
Consolidated Statement of Financial Position
As at 31 December 2018
Note 31 December 2018 31 December 2017 Restated(1)
GBP'000 GBP'000
Non-current assets
Property, plant and equipment 6 164,505 133,356
Intangible assets 76,080 62,536
Trade and other receivables - 515
Financial assets at fair value through other 285 -
comprehensive income
Derivative financial instruments 169 -
Available-for-sale financial assets - 316
----------------- -----------------------------
Total non-current assets 241,039 196,723
Current assets
Inventories 379 197
Trade and other receivables 11,912 9,037
Cash and cash equivalents 3,027 457
Total current assets 15,318 9,691
Total assets 256,357 206,414
----------------- -----------------------------
Current liabilities
Trade and other payables 48,983 43,662
Other financial liabilities 3,002 -
Borrowings 7 3,000 -
Provisions 679 917
Income taxes payable 1,293 822
Total current liabilities 56,957 45,401
Non-current liabilities
Borrowings 45,165 37,113
Other financial liabilities - 184
Provisions 1,145 740
Deferred tax liabilities 5 3,248 2,092
----------------- -----------------------------
Total non-current liabilities 49,558 40,129
Total liabilities 106,515 85,530
----------------- -----------------------------
Net assets 149,842 120,884
----------------- -----------------------------
Capital and reserves
Issued capital 14 12
Own shares held 48 48
Capital redemption reserve 4 4
Share premium 159,474 136,280
Hedging reserve (11) -
Retained deficit (9,687) (15,460)
----------------- -----------------------------
Total equity shareholders' funds 149,842 120,884
----------------- -----------------------------
1 See note 8 for details regarding the restatement as a result
of fair value adjustments.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Capital
Issued Own shares redemption Hedging Retained
Note capital held reserve Share premium reserve deficit Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2017 12 48 4 136,280 - (22,054) 114,290
Profit for the
year and
total
comprehensive
income - - - - - 7,171 7,171
Share based
payments - - - - - 655 655
Deferred tax
on share
based
payments - - - - - 115 115
Dividends paid - - - - - (1,347) (1,347)
At 31 December
2017 12 48 4 136,280 - (15,460) 120,884
Adjustment
from adoption
of IFRS 15 - - - - - (263) (263)
Profit for the
year - - - - - 7,206 7,206
Share based
payments - - - - - 797 797
Deferred tax
on share
based
payments 5 - - - - - 133 133
Issue of
Ordinary
share capital 2 - - 23,998 - - 24,000
Costs
associated
with the
issue of
share capital - - - (804) - - (804)
Dividends paid - - - - - (1,637) (1,637)
Changes in the
fair value of
derivative
financial
instruments - - - - (11) - (11)
Changes in the
fair value of
financial
assets at
fair value
through other
comprehensive
income - - - - - (463) (463)
At 31 December
2018 14 48 4 159,474 (11) (9,687) 149,842
------------- ------------- ------------ ------------- ------------- ------------- -------
Consolidated Cash Flow Statement
For the year ended 31 December 2018
Note 31 December 2018 31 December 2017
GBP'000 GBP'000
Cash flows from operating activities
Operating profit 11,697 9,942
Adjustments for:
Exceptional items 3 2,343 1,664
Depreciation of property, plant and equipment 6 19,710 14,408
Amortisation of intangible assets 2,051 1,175
Long term employee incentive costs 1,012 774
Loss / (profit) on disposal of property, plant and equipment 72 (5)
Increase in inventories (182) (38)
Increase in trade and other receivables (1,940) (3,334)
Increase in trade and other payables 7,527 6,358
----------------- -----------------
Cash generated from operations 42,290 30,944
Tax paid (2,009) (1,050)
Interest paid (1,371) (771)
----------------- -----------------
Net cash flows from operating activities before exceptional items 38,910 29,123
Exceptional items (2,105) (1,147)
----------------- -----------------
Net cash flow from operating activities 36,805 27,976
----------------- -----------------
Cash flows from investing activities
Payment for financial assets at fair value through other
comprehensive income (2017: Available-for-sale
financial assets) (432) (316)
Business combinations (18,600) (21,300)
Purchase of property, plant and equipment (42,341) (35,411)
Purchase of intangible assets (4,928) (1,693)
Interest received 22 12
----------------- -----------------
Net cash flows used in investing activities (66,279) (58,708)
----------------- -----------------
Cash flows from financing activities
Dividends paid (1,637) (1,347)
Drawdown of bank loans 12,500 28,000
Repayments of bank loans (1,500) -
Proceeds of issue of Ordinary shares 24,000 -
Costs associated with share issue (804) -
Payment of financing fees (302) (286)
Payment for derivative financial instruments (213) -
----------------- -----------------
Net cash flows from financing activities 32,044 26,367
----------------- -----------------
Net increase / (decrease) in cash and cash equivalents 2,570 (4,365)
Cash and cash equivalents at 1 January 457 4,822
----------------- -----------------
Cash and cash equivalents at 31 December 3,027 457
----------------- -----------------
Notes
1. General information
The financial information, comprising the Consolidated Statement
of Comprehensive Income, Consolidated Statement of Financial
Position, Consolidated Statement of Changes in Equity, Consolidated
Cash Flow Statement and related notes, has been extracted from the
Consolidated Financial Statements of The Gym Group plc ('the
Company') for the year ended 31 December 2018, which were approved
by the Board of Directors on 19 March 2019.
The financial information set out above does not constitute
statutory accounts for the years ended 31 December 2018 or 2017
within the meaning of sections 435(1) and (2) of the Companies Act
2006 or contain sufficient information to comply with the
disclosure requirements of International Financial Reporting
Standards ('IFRS'), but is derived from those accounts. An
unqualified report on the Consolidated Financial Statements for
each of the years ended 31 December 2018 and 2017 has been given by
the auditors Ernst & Young LLP. Each year's report did not
include reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report and
did not contain any statement under section 498(2) or (3) of the
Companies Act 2006.
The Consolidated Financial Statements for the year ended 31
December 2017 have been filed with the Registrar of Companies, and
those for 2018 will be delivered in due course subject to their
approval by the Company's shareholders at the Company's Annual
General Meeting on 4 June 2019.
2. Basis of preparation
The Consolidated Financial Statements for the year ended 31
December 2018, from which the financial information in this
announcement is derived, have been prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted for
use in the EU, International Financial Reporting Interpretations
Committee ('IFRIC') interpretations and with those parts of 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 as
modified by the recognition of derivative financial instruments and
other financial liabilities at fair value. The Directors have made
appropriate enquiries and formed a judgement at the time of
approving the Financial Statements that there is a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason
the Directors continue to adopt the going concern basis in
preparing the Financial Statements.
3. Exceptional items
2018 2017
GBP'000 GBP'000
Acquisition costs 644 548
Integration costs 460 525
Restructuring costs 1,239 543
Costs associated with head office relocation - 48
-------- --------
2,343 1,664
-------- --------
Acquisition and integration costs relate to the acquisition of
the trade and assets from Lifestyle Fitness and easyGym (note 8).
Restructuring costs relate to the cost associated with changing the
operating model in relation to the use of Personal Trainers within
the business.
4. Earnings per share
Basic earnings per share is calculated by dividing the profit or
loss attributable to equity shareholders by the weighted average
number of Ordinary shares outstanding during the year, excluding
unvested shares held pursuant to The Gym Group plc Share Incentive
Plan, The Gym Group plc Performance Share Plan, The Gym Group plc
Restricted Stock Plan and The Gym Group plc Long Service Award
Plan.
Diluted earnings per share is calculated by adjusting the
weighted average number of Ordinary shares outstanding to assume
conversion of all dilutive potential Ordinary shares. During the
year ended 31 December 2018, the Group had potentially dilutive
shares in the form of share options and unvested shares issued
pursuant to The Gym Group plc Share Incentive Plan, The Gym Group
plc Performance Share Plan, The Gym Group plc Restricted Stock Plan
and The Gym Group plc Long Service Award Plan.
2018 2017
Basic weighted average number of shares 133,301,917 128,105,275
Adjustment for share awards 1,569,233 416,773
------------ ------------
Diluted weighted average number of shares 134,871,150 128,522,048
Basic earnings per share (p) 5.4 5.6
Diluted earnings per share (p) 5.3 5.6
------------ ------------
Adjusted earnings per share is based on profit for the year
before exceptional items, amortisation and their associated tax
effect.
2018 2017
GBP'000 GBP'000
Profit for the year 7,206 7,171
Amortisation of intangible assets 2,051 1,175
Exceptional administration expenses 2,343 1,664
Tax effect of above items (370) (483)
-------- --------
Adjusted earnings 11,230 9,527
-------- --------
Basic adjusted earnings per share (p) 8.4 7.4
Diluted adjusted earnings per share (p) 8.3 7.4
-------- --------
5. Taxation
Tax on profit
2018 2017
GBP'000 GBP'000
Current income tax
Current tax on profits for the year 2,458 1,712
Adjustments in respect of prior years 22 24
-------- --------
Total current income tax 2,480 1,736
Deferred tax
Origination and reversal of temporary differences 69 534
Change in tax rates (28) (78)
Adjustments in respect of prior years 240 (172)
-------- --------
Total deferred tax 281 284
Tax charge in the Consolidated Statement of Comprehensive Income 2,761 2,020
-------- --------
Reconciliation of tax charge
2018 2017
GBP'000 GBP'000
Profit before tax 9,967 9,191
Tax calculation at standard rate of corporation tax of 19.0% (2017: 19.25%) 1,894 1,769
Expenses not deductible for tax purposes 415 329
Exceptional costs not deductible 218 148
Change in tax rates (28) (78)
Adjustments in respect of prior years 262 (148)
-------- --------
2,761 2,020
-------- --------
Deferred tax
Accelerated capital
allowances Losses Intangible assets Share schemes Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2017 (475) 160 (393) 25 (683)
Prior year adjustment 171 - - 1 172
Acquired in business
combination (921) - (319) - (1,240)
Recognised in equity - - - 115 115
Recognised in income
statement (777) (20) 137 126 (534)
Change in deferred tax
rate 123 (15) 25 (55) 78
At 31 December 2017 (1,879) 125 (550) 212 (2,092)
Prior year adjustment (240) - - - (240)
Acquired in business
combination (878) - (130) - (1,008)
Recognised in equity - - - 133 133
Recognised in income
statement (412) (18) 192 169 (69)
Change in deferred tax
rate 40 - (12) - 28
At 31 December 2018 (3,369) 107 (500) 514 (3,248)
------------------------ -------- ------------------ -------------- --------
6. Property, plant and equipment
Fixtures,
Assets under Leasehold fittings and Gym and other Computer
Construction improvements equipment equipment equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2017 - 90,656 6,747 42,800 1,305 141,508
Additions 2,368 21,875 2,505 10,608 647 38,003
Business
combinations - 5,724 208 4,827 - 10,759
Disposals - (180) (8) (522) (2) (712)
At 31 December
2017 2,368 118,075 9,452 57,713 1,950 189,558
Transfers (23,412) 16,403 247 6,465 297 -
Additions 23,409 10,403 827 4,143 519 39,301
Business
combinations - 9,165 183 2,357 - 11,705
Disposals - (191) - (987) - (1,178)
At 31 December
2018 2,365 153,855 10,709 69,691 2,766 239,386
---------------- ----------------- ---------------- ---------------- ----------------- -------
Accumulated
depreciation
At 1 January 2017 - 18,683 3,133 19,909 746 42,471
Charge for the
year - 7,429 1,034 5,575 370 14,408
Disposals - (168) (4) (503) (2) (677)
At 31 December
2017 - 25,944 4,163 24,981 1,114 56,202
Charge for the
year - 9,868 1,310 8,021 511 19,710
Disposals - (139) - (892) - (1,031)
At 31 December
2018 - 35,673 5,473 32,110 1,625 74,881
---------------- ----------------- ---------------- ---------------- ----------------- -------
Net book value
At 31 December
2017 2,368 92,131 5,289 32,732 836 133,356
At 31 December
2018 2,365 118,182 5,236 37,581 1,141 164,505
---------------- ----------------- ---------------- ---------------- ----------------- -------
7. Borrowings
2018 2017
GBP'000 GBP'000
Non-current
Facility A 10,000 10,000
Facility B 36,000 28,000
Loan arrangement fees (835) (887)
-------- --------
45,165 37,113
Current
Revolving credit facility 3,000 -
-------- --------
The Group's bank borrowings are secured by way of fixed and
floating charges over the Group's assets.
HSBC and Barclays bank facility
On 12 November 2015, the Group entered into a five-year bullet
repayment facility with HSBC and Barclays. The facility currently
comprises a GBP10.0 million term loan ('facility A') for the
purposes of refinancing the Group's previous finance leases, a
GBP40.0 million term loan ('facility B') to fund acquisitions and
capital expenditure, and a GBP10.0 million revolving credit
facility. Interest is charged at LIBOR plus a 2.5% margin.
During 2017, the Group entered into an amendment to increase the
facility B commitment from GBP25.0 million to GBP35.0 million to
fund the acquisition of the Lifestyle Fitness portfolio of
gyms.
During the year, the Group entered into an amendment to the
facility to increase the facility B commitment from GBP35.0 million
to GBP40.0 million, and the revolving credit facility commitment
from GBP5.0 million to GBP10.0 million.
8. Business combinations
easyGym portfolio
On 4 July 2018 the Group acquired the trade and assets of a
portfolio of 13 gyms trading under the easyGym brand for an initial
cash consideration of GBP14.5 million, with an additional GBP6.1
million deferred consideration payable on completion of a lease
assignment on three sites and further contingent consideration if
lease extensions are agreed on two sites. GBP4.0 million of
deferred consideration was paid shortly after acquisition. At 31
December 2018, deferred and contingent consideration with fair
value of GBP3.0 million was outstanding and recognised within other
financial liabilities.
The undiscounted settlement value of the contingent
consideration could be between GBPnil and GBP4.1 million. The
contingent consideration has been recognised at its fair value of
GBP0.9 million using an expected value methodology. This is a level
3 valuation under the fair value hierarchy. No gains or losses were
recognised in profit and loss during the year in relation to the
liability. The valuation of the liability will vary between the
potential settlement amounts dependent on the likelihood of the
contingent consideration becoming payable. In measuring the
estimated contingent consideration payable a range of nil to 50%
probability of the relevant leases being extended has been assumed.
The estimated liability has not been discounted due to the short
time frame of any possible pay out.
The acquisition was part-funded by an equity placing of GBP24.0
million by the Company and an extension of the Group's banking
facilities of GBP10.0 million.
The details of the purchase consideration, the net assets
acquired and goodwill are as follows:
Fair value
GBP'000
Net assets acquired:
Intangible assets 768
Property, plant and equipment 11,705
Provisions (360)
Deferred tax (1,008)
-----------
Net assets 11,105
Goodwill 10,397
-----------
Total consideration 21,502
-----------
Satisified by:
Cash consideration 14,549
Deferred and contingent consideration 6,953
-----------
Total consideration 21,502
-----------
Net cash outflow arising on acquisition:
Cash and deferred consideration 18,500
-----------
Net cash outflow 18,500
-----------
The fair values of assets acquired are provisional and will be
finalised within 12 months of the acquisition date.
Goodwill represents the synergies and economies of scale
expected from combining each gym within the Group's operations, the
premium associated with advantageous site locations, potential
growth opportunities offered by each gym and the assembled
workforce. It will not be deductible for tax purposes.
The business contributed revenues of GBP5.7 million and net
profit of GBP0.7 million to the Group for the period from 4 July
2018 to 31 December 2018. The revenues and net profit associated
with the Group had the business been acquired on 1 January 2018
have not been disclosed as the relevant information is not
available.
Acquisition-related costs of GBP0.6 million were incurred in
respect of the easyGym acquisition and have been included in
exceptional items in note 3.
Lifestyle Fitness portfolio and Aylesbury site
On 29 September 2017, the Group acquired the trade and assets of
a portfolio of 18 gyms trading under the Lifestyle Fitness brand.
The property lease agreements in respect of ten of these gyms were
transferred to the Group which were rebranded to operate under The
Gym brand. In respect of the eight other gyms, the property leases
were not immediately transferred to the Group and these gyms were
operated using the Lifestyle Fitness brand under a concession
agreement with the vendor whereby the Group would pay a royalty
based upon a percentage of revenue together with a recharge equal
to the vendor's lease rentals. The concession agreement also
included an option fee totalling GBP1.25 million for the Group to
terminate the concession agreement in respect of each gym and
transfer the leasehold. During 2018 the concession agreement was
terminated and the eight gyms were converted to The Gym brand. The
GBP1.25 million option fee paid by the Group has been recognised as
a contract intangible asset.
On 24 November 2017, the Group acquired the trade and assets of
a single gym based in Aylesbury. The consideration for the
Aylesbury acquisition included an element of contingent
consideration which was payable upon the number of members at the
site reaching a predetermined level. This was recognised at fair
value on initial recognition using discounted cash flow ('DCF')
techniques. The inputs into the DCF valuation were the undiscounted
deferred consideration (GBP0.2 million), the discount rate (5.4%)
and the payment date derived from an estimation of the date on
which the membership target for the gym was achievable. During 2018
the consideration was renegotiated: GBP0.1 million was paid in cash
and the remaining liability was released to profit and loss.
During the year ended 31 December 2018, the Group finalised the
fair values of the assets and liabilities of these business
combinations and has restated the 2017 amounts as shown below. The
adjustments made in finalising fair values primarily relate to the
recognition of provisions at acquisition.
Lifestyle Fitness as previously
reported Adjustments Aylesbury Total
GBP'000 GBP'000 GBP'000 GBP'000
Net assets acquired:
Intangible assets 1,880 - 72 1,952
Property, plant and equipment 10,283 - 476 10,759
Provisions (295) (470) - (765)
Deferred tax (1,242) - - (1,242)
----------------------------------- ------------ ---------- --------
Net assets 10,626 (470) 548 10,704
Goodwill 9,874 470 436 10,780
----------------------------------- ------------ ---------- --------
Total consideration 20,500 - 984 21,484
----------------------------------- ------------ ---------- --------
Satisified by:
Cash consideration 20,500 - 800 21,300
Contingent consideration - - 184 184
----------------------------------- ------------ ---------- --------
Total consideration 20,500 - 984 21,484
----------------------------------- ------------ ---------- --------
Net cash outflow arising on
acquisition:
Cash consideration 20,500 - 800 21,300
----------------------------------- ------------ ---------- --------
Net cash outflow 20,500 - 800 21,300
----------------------------------- ------------ ---------- --------
The goodwill is attributable to the workforce and the
profitability of the acquired businesses where relevant. It will
not be deductible for tax purposes.
9. Standards issued not yet effective
IFRS 16 'Leases' ('IFRS 16') specifies the recognition,
measurement, presentation and disclosure of leases and will be
applied for the first time in the Consolidated Financial Statements
for the year ended 31 December 2019. The standard provides a single
lessee accounting model, requiring lessees to recognise assets and
liabilities for all leases unless the lease term is 12 months or
fewer or the underlying asset has a low value. Given the
significant leasing arrangements within the Group, the adoption of
this standard will have a material impact on the Consolidated
Financial Statements.
The Group will apply IFRS 16 using the full retrospective
application method.
It is anticipated that on restatement of the results for the
year ended 31 December 2018, the reported results will change as
follows:
-- the present value of the Group's operating lease commitments
will be recognised on the balance sheet as a right-of-use asset
(presented in property, plant and equipment) together with a
corresponding finance lease liability;
-- the application of the full retrospective method will result
in the restatement of goodwill and intangible assets arising from
historic business combinations (included in intangible assets);
-- operating lease rentals currently included within
administration expenses are expected to decrease to a negligible
amount;
-- depreciation included within administration expenses will
increase in respect of the depreciation of the right-of-use assets
over the term of the leases;
-- finance costs will increase as a result of the discount
applied to the finance lease liability; and
-- tax relief will be obtained on the interest and depreciation expenses.
There will be no impact on cash flows, although the presentation
of the cash flow statement will change significantly. In addition
to the recognition and measurement impacts above, there will also
be significantly increased disclosures when the Group adopts IFRS
16.
As reported Effect Restatement
GBP'000 GBP'000 under IFRS
16
GBP'000
Property, plant and equipment 164,505 202,442 366,947
Intangible assets 76,080 10,538 86,618
Current assets 15,318 (3,427) 11,891
Current liabilities (56,957) 22,607 (34,350)
Finance lease liabilities - (243,184) (243,184)
Deferred tax liabilities (3,248) 3,605 357
Administration expenses (111,180) 6,962 (104,218)
Finance costs (1,752) (10,929) (12,681)
Tax charge (2,761) 688 (2,073)
The effect on adjusted profit before tax and adjusted earnings
is as follows:
As reported Effect Restatement under IFRS 16
GBP'000 GBP'000 GBP'000
Group Adjusted EBITDA 36,813 21,685 58,498
Long term employee incentive costs (1,012) - (1,012)
Depreciation of property, plant and equipment (19,710) (14,801) (34,511)
Finance income 22 - 22
Finance costs (1,752) (10,929) (12,681)
------------ --------- --------------------------
Adjusted profit before tax 14,361 (4,045) 10,316
Tax charge (2,761) 688 (2,073)
Tax effect of above items (370) - (370)
------------ --------- --------------------------
Adjusted Earnings 11,230 (3,357) 7,873
------------ --------- --------------------------
Five year record
2018 2017 2016 2015 2014
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 123,884 91,377 73,539 59,979 45,480
Group Adjusted EBITDA 36,813 27,963 22,691 17,016 14,688
Group Adjusted EBITDA before Pre-Opening Costs 39,305 30,598 24,888 19,681 16,668
Group Operating Cash Flow 33,972 24,677 24,944 18,616 16,514
Operating Cash Flow Conversion 92.3% 88.2% 109.9% 109.4% 112.4%
Expansionary Capital Expenditure 57,551 52,453 20,922 28,230 20,335
Net Debt 45,973 37,543 5,178 7,140 49,205
Net Debt to Group Adjusted EBITDA 1.25x 1.34x 0.23x 0.42x 3.35x
Adjusted Earnings 11,230 9,527 7,153 (1,107) (4,452)
Basic adjusted earnings per share (p) 8.4 7.4 5.6 (1.8) (9.1)
Total number of gyms (number) 158 128 89 74 55
Total number of members ('000) 724 607 448 376 293
Average Revenue per Member per Month (GBP) 14.89 14.41 14.31 14.08 13.98
Number of Mature gyms in operation (number) 89 74 55 40 32
Mature Gym Site EBITDA 39,181 34,082 26,161 18,828 16,244
Responsibilities statement
The following statement will be contained in the 2018 Annual
Report and Accounts:
We confirm that to the best of our knowledge:
-- the Group Financial Statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and results of
the Group;
-- the Strategic Report contained in this Annual Report includes
a fair review of the development and performance of the business
and the position of the Company and the Group, together with a
description of the principal risks and uncertainties that they
face; and
-- 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 performance, business
model and strategy.
On behalf of the Board
Mark George
Chief Financial Officer and Company Secretary
19 March 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFETVEITLIA
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