TIDMGYM
RNS Number : 7620G
Gym Group PLC (The)
19 March 2020
The Gym Group plc
('the Company' or 'The Gym')
Full Year Results
Response to Covid-19
The Gym Group plc, the fast growing, nationwide operator of
179(1) low cost, 24/7(2) no contract gyms, announces its full year
results for the year ended 31 December 2019.
Outlook including update on Covid-19
-- Trading in the first two months of the year was in line with
the Board's expectations with 891,000 members at the end of
February
-- The emerging outbreak of Covid-19 has in the last two weeks
begun to have an impact on the business: daily gym usage has
started to decrease, new joiner numbers are marginally lower than
expected, cancellations are higher and the number of members
freezing their membership has increased
-- As of 18 March we have 870,000 members; all gyms remain open currently
-- Operationally, we are monitoring the outbreak carefully and
being guided by advice from Public Health England with the health
and safety of our members and staff our first priority
-- Financially, we have taken a number of actions to reduce cash
outgoings, including pausing our pipeline rollout, as we operate
through what we anticipate to be a period of significant
disruption. Further details are provided in the Financial Review
section
2019 Financial highlights
IFRS 16 Pre IFRS 16
----------------------------------------------- -----------------------------------------------
31 December 2019 31 December 2018 Movement 31 December 2019 31 December 2018 Movement
Revenue (GBP'000) 153,134 123,884 23.6% 153,134 123,884 23.6%
Group Adjusted
EBITDAR (GBP'000) 74,453 58,498 27.3% 74,453 58,498 27.3%
Group Adjusted
EBITDA
(GBP'000)(3) 48,540 39,131 24.0% 47,005 36,813 27.7%
Adjusted Profit
before Tax
(GBP'000) 13,969 10,275 36.0% 18,206 13,348 36.4%
Statutory Profit
before Tax
(GBP'000) 6,219 6,956 (10.6)% 10,673 9,967 7.1%
Adjusted Earnings
(GBP'000) 10,574 7,712 37.1% 13,925 10,217 36.3%
Statutory Earnings
(GBP'000) 3,595 4,763 (24.5)% 7,132 7,206 (1.0%)
Basic Adjusted
Earnings per Share
(p) 7.7 5.8 32.8% 10.4 7.6 36.8%
Free cash flow
(GBP'000) 33,867 28,487 18.9% 33,867 28,487 18.9%
Return On Invested
Capital (%) 31 30 100bps 31 30 100bps
-------------------- ----------------- ----------------- --------- ----------------- ----------------- ---------
Note: for a summary of KPI definitions used in the table see
page 15 .
-- Revenue of GBP153.1 million, an increase of 23.6% (2018: GBP123.9 million)
-- Group Adjusted EBITDA of GBP48.5 million, an increase of
24.0% (2018: GBP39.1 million); Group Adjusted EBITDA margin remains
strong at 31.7% (2018: 31.6%)
-- Adjusted profit before tax of GBP14.0 million, up 36.0% (2018: GBP10.3 million)
-- Statutory profit before tax decreased by 10.6% to GBP6.2 million (2018: GBP7.0 million)
-- Basic Adjusted Earnings per Share (EPS) of 7.7p, an increase of 32.8% (2018: 5.8)
-- Return on invested capital on mature estate above 30% target at 31% (2018: 30%)
-- Non-Property Net Debt at GBP47.4 million (2018: GBP46.0 million, H1 2019: GBP47.2 million), demonstrating that we funded our expansion through operating cash flows
-- Proposed final dividend of 1.15p per share, giving a proposed
full year dividend of 1.60p per share (2018: 1.30p per share). As
part of our response to Covid-19, we currently do not anticipate
putting a resolution to the AGM to pay this dividend
2019 Strategic and operational progress
-- 20 new gyms opened including our first two small box format
gyms increasing the total estate to 175(1) at December 2019
-- Total year end members at 794,000, an increase of 9.7% versus
prior year (2018: 724,000); average member numbers grew by 14.9% to
796,000 (2018: 693,000)
-- LIVE IT continues to grow to 150,000 representing 18.9% of
total members at 31 December 2019 (85,000 representing 11.7% of
total members at 31 December 2018)
-- Average revenue per member per month grew by 7.6% to GBP16.02
(2018: GBP14.89); excluding the rental income from personal
trainers, growth was 5.2%
-- New operating model for personal trainers (New Gym Team)
transition completed in September 2019
Richard Darwin, CEO of The Gym Group, commented:
"Whilst 2019 was another successful year in which The Gym Group
delivered substantial growth in members, revenue and profits, we
are now focused on planning for the potential impact on our
business of Covid-19. To date, we have seen a small impact on
trading and all 179 of our gyms remain open. We go into a period of
anticipated disruption with an established membership base, a cash
generative business model and a strong balance sheet. As the scale
of the outbreak escalates we have contingency plans in place.
Our business has a significant reach with over 10 million member
visits already this year and our focus is to be in a strong
position when we emerge from the Covid-19 disruption to extend
access to affordable fitness across the UK"
The information in the RNS is extracted from the Consolidated
Financial Statements which are unaudited. The Company expects to
publish its audited Annual Report during the week commencing 23(rd)
March 2020
An audio webcast of the analyst presentation will be available
live on https://kvgo.com/IJLO/TheGymGroup_Full_Year_Results_2019 at
09:00 am.
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) 175 as of 31 December 2019 (vs 158 at 31 December 2018) with
twenty new sites opened in 2019 and three gyms closed as previously
announced; two sites acquired from the Lifestyle Fitness and
easyGym acquisitions plus one site opened in 2015 for which a five
year break clause was exercised by the Group. 179 sites as at 19
March 2020
(2) All gyms open 24/7 excluding nine gyms as at 31 December
2019 due to licensing restrictions
(3) Group Adjusted EBITDA is Group Adjusted EBITDAR minus cash
rent costs
Forward-looking statements
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". By their nature, such
statements involve risk and uncertainty since they relate to future
events and circumstances. Actual results may, and often do, differ
materially from any forward-looking statements. Any forward-looking
statements in this announcement reflect management's view with
respect to future events as at the date of this announcement. Save
as required by law or by the Listing Rules of the UK Listing
Authority, the Company undertakes no obligation to publicly revise
any forward-looking statements in this announcement following any
change in its expectations or to reflect subsequent events or
circumstances following the date of this announcement.
Chairwoman's Statement
Our current position
During the first two months of 2020 the business traded well and
guidance had been prepared to expect continued profitable growth
with an acceleration of small box openings for the year. However,
the Covid-19 pandemic has in March begun to impact our business
with participation levels in gyms dropping and with similar
businesses in Europe announcing closure during periods of
government-led self-isolation. It is now our expectation that a
period of disruption is likely and we will take all measures to
protect our colleagues, members and business through this
unprecedented event. This will include the reduction of cost and
the protection of cash and liquidity until revised prospects can be
ascertained. At this time it is not possible to guide with any
accuracy what the impact will be, however appropriate financial
modelling has been undertaken to support the assessment of the
business as a going concern with the material uncertainty from
Covid-19 and in support of viability.
Our 2019 results
The rapid development of the Group has continued with revenue
growth of 23.6% and Group Adjusted EBITDA growth of 24.0%. Mature
estate Return On Invested Capital was maintained above our 30%
hurdle. During the year 18 standard gyms were opened and a further
two small box gyms as we extend our attractive proposition to
smaller sized towns and communities. Following three site closures,
this takes the number of gyms from 158 to 175 in the year with
membership growing 9.7% to 794,000. Notably, this rate of growth is
largely self-funded with net debt moving marginally from GBP46.0m
to GBP47.4m. Our bank facilities were refinanced during the year
increasing headroom and receiving more favourable rates. The
strength of our listed company covenant continues to be attractive
to landlords and is an important advantage in winning new
sites.
Our shareholders
In addition to the many investor meetings held by executive
directors during the year, I also offered to engage with our top
ten shareholders, many of whom have been significant investors
since our IPO in 2015. This allowed me to discuss the process
undertaken to manage director succession and to listen to
shareholder views on our business. Of particular note, I focused on
telling our sustainability story, recognising the strength of our
purpose - bringing affordable fitness to towns and communities
across the UK.
I was pleased to kick off the work of a Sustainability Working
Group drawn from across the business and it is encouraging to
report significant progress. The team has identified four key areas
of focus all of which are United Nations Sustainable Development
Goals; promoting Health & Well-being, Good Jobs, Quality
Education and Lifelong Learning, Diversity & Inclusion, and
Responsibility to the Environment. You will be able to read more
about our work in our Annual Report.
Our team
Our business has been well led in their first full year by CEO,
Richard Darwin and CFO, Mark George, together with a stable and
talented team of executives. Significant work has been undertaken
to embed our values and nurture our positive culture. We remain
committed to lead an organisation that helps members and each other
'take the first steps', we are characterized 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 and to
each other and to the Group as a whole. We were delighted to retain
the Investors in People Gold award, a very significant accolade for
a growing business.
Our People and Operations teams, led by Ann-Marie Murphy and
Nick Henwood respectively, managed a most significant change to our
business model in the roll-out of New Gym Team (NGT). We now have
1,600 Fitness Trainers as part-time employees, bringing consistency
across the estate and offering them support to further their
self-employed businesses for which a rent is paid. Taking the
business from 500 to over 2,000 employees was a major achievement
and has required, and will continue to require, significant focus
on the development and recruitment of well qualified trainers.
Our work
Your Board continues to work out in our gyms and visit sites
individually and together as a Board. It continues to be the best
way of satisfying ourselves of the standards being maintained and
the progress being made. I was particularly pleased to visit
Newark, our first small box gym, and see the innovations that have
been developed to create an excellent gym on a smaller footprint at
appropriately lower capital expenditure.
The Board retains close oversight of performance as the team
execute our approved strategy. I am grateful to my Board colleagues
for their engagement and contribution, always given with a good
heart when either challenging or supporting the executive team. The
transparency and openness of our dialogue together with continued
improvement of reporting to the Board were universally recognised
as strengths in our Board performance review. We are also delighted
to welcome Katy Tucker as our first dedicated Company secretary; I
know she will support us all to achieve greater effectiveness as we
become a business of scale.
On behalf of the Board let me thank all our colleagues for their
dedication to making our members' lives healthier and thank them
for their support in facing into the new difficulties that Covid-19
poses to us all.
Penny Hughes
Chairwoman
19 March 2020
Chief Executive's Review
Covid-19
At this time our business is focused on mitigating the impact
that Covid-19 is likely to have over the coming months. We go into
this period of disruption with an established membership base, a
cash generative model and a strong balance sheet following a
successful 2019. Mitigating Covid-19 will require a period of
slowdown in our expansion to preserve cash in order that we are
well placed, when this period of uncertainty ends, to address the
long-term growth opportunity for low cost gyms in the UK.
Review of 2019
2019 was another year of strong growth and rapid development for
The Gym Group. We continued to grow our business by remaining
focused on our strong and worthwhile purpose, bringing affordable
fitness to towns and communities across the UK. Our growth has also
been assisted by the investment in central infrastructure and
systems made over the past 2-3 years and a stable, talented team
that is focused on the profitable expansion of the business. We
continue to believe that there is a substantial opportunity within
the UK low cost gym market and we are intent on ensuring that the
business is well positioned to take advantage of the potential for
further expansion.
Our membership base continued to expand as we rolled out new
sites and grew market share with total year end members up 9.7% to
794,000 (2018: 724,000) and average members up 14.9% to 796,000
(2018: 693,000). This is reflected in the growth of our financial
metrics: revenue up 23.6% to GBP153.1 million (2018: GBP123.9
million) and Group Adjusted EBITDA up by 24.0% to GBP48.5 million
(2018: GBP39.1 million). Adjusted Profit before Tax increased by
35.9% to GBP14.0 million (2018: GBP10.3 million) and Basic Adjusted
Earnings per Share was up by 32.8% to 7.7p (2018: 5.8). Our
statutory Profit before Tax decreased to GBP6.2 million (2018:
GBP7.0 million).
These metrics are very much in line with our expectations for
the business, demonstrating that as our estate matures and we
concentrate on organic growth, this business is well positioned to
generate strong profits and cashflow.
After two acquisitions in 2017 and 2018, our site growth this
year has been concentrated on growing the Group organically. We
expanded the estate by opening 18 sites of c.15,000 square feet
each with the focus being on ensuring we open high quality sites in
a variety of locations around the UK. Significantly we have created
an additional avenue of growth with our small box format, with our
first two openings late in the year. As we build on the opportunity
to open small box sites our growth will enable us to offer
affordable fitness to a greater proportion of the UK. Our market
share currently stands at 24% of the low-cost market by number of
sites (higher as a proportion of members) and we are well
positioned with a strong future pipeline for this to increase
further over the coming years.
We continue to believe there is a substantial opportunity for
the Group to expand in the UK. The PwC report we commissioned last
year noted the potential for the low-cost gym market to almost
double from its base of 727 gyms as at December 2019. Around half
of the future growth is forecast to come from catchments with a
population of over 60,000 within a 15-minute drive time (standard
catchments) and half in smaller catchments. Through 2019 we have
continued to take advantage of opening standard gyms. The smaller
catchment opportunity is also significant for the small box format
where we opened our first two sites in Newark and Beverley during
the year.
Strategic progress
Delivering strong performance from gyms
At the end of 2019 we had 109 sites out of 175 sites which have
been open and in our network for over two years (which we define as
Mature). By the end of 2020 this number will grow to 155, therefore
in 2020 we will continue to derive the benefits of a maturing
estate. Mature Site EBITDA in 2019 was GBP48.1 million, up 23.3%
(2018: GBP39.0 million) and Mature Site EBITDA per site remained
strong at GBP437,000 (2018: GBP438,000), with the 2017 cohort of
sites performing well. In 2019 we achieved a return on invested
capital in the mature estate of 31% (2018: 30%), once again
achieving our target return on capital of 30% for organic openings.
This measure continues to be achieved consistently both from sites
reaching maturity more recently as well as from our older sites,
which have maintained strong levels of performance.
During the year we have made good progress with the sites
acquired from Lifestyle Fitness (in 2017) and easyGym (in 2018).
The two remaining easyGym branded sites (Oxford Street and Kings
Heath) were converted to our brand and operating model during 2019.
We intend to invest further in these sites once the lease
extensions are confirmed.
The former Lifestyle sites have demonstrated strong member
growth as we have brought the sites up to our specification and as
a result have delivered significantly increased revenue in 2019 vs
2018. The easyGym sites are also making good progress, with
particularly encouraging take up of LIVE IT; penetration is already
higher for ex-easyGym sites than the Group average, even though
they have been selling the product for a relatively short period of
time. As a result, we have seen revenue in the former easyGym sites
increase in 2019 vs 2018 on a like for like basis. We will continue
to make some selective investments to ensure we take advantage of
the significant potential of the sites.
Our marketing capability is a real source of competitive
advantage and an important way of driving high levels of member
acquisition. Our no-contract proposition is appealing to new
members as they know they have the flexibility to cancel their
membership at any time and as a result we have some members who
join and cancel multiple times. It remains important therefore that
we deliver strong rejoiner numbers from ex-members and that they
have had a good experience whilst being a member to encourage them
to return. Our ability to attract new and ex-members is enhanced by
our capability in areas such as CRM and in different marketing
channels (TV, Out of home, digital, SEO and social media). Our
innovative First Steps campaign launched in June offered 16 to
18-year olds their first taste of being in a gym with a 6-week
off-peak free membership, helping them to manage their stress
during the exam period and enabling us to reach this important
group of potential members.
Developing the Business Model
Our premium membership package, LIVE IT, has benefited from
being in operation for a full year across the entire estate. With
the ability to access more than one site being a key feature of the
premium membership, take-up of LIVE IT is assisted by the growth in
our overall network of sites, demonstrated by strong levels of
demand in the metropolitan areas such as London, Manchester and
Birmingham where we have multiple sites. The other LIVE IT member
benefits of "refer a friend" and use of the Fitquest machine are
also proving popular and now are an integral part of our offer. At
December 2019 150,000 members (18.9% of our total base; 2018:
85,000 members, 11.7% of our total base) had taken advantage of
LIVE IT. We continue to be encouraged by the level of take-up.
Following a trial in 47 sites we have now also rolled out Yanga
Sports Water to the entire estate ahead of the peak Jan and Feb
trading period. This is another great value product offered at
GBP3.99 per month and also a sustainable product given it requires
members to fill up using their own water bottles.
The roll-out of our new operating model for personal trainers,
New Gym Team (NGT) went according to plan in 2019 with all gyms now
on the common operating model. We now have 1,600 part-time
employees who work for us 12 hours a week ("Fitness Trainers").
Outside of these hours they run their self-employed personal
trainer business in our gyms for which they pay us a rent. In
addition, we have around 300 full rental personal trainers who do
not do any employed hours and are wholly self-employed - they also
pay us a rent. We consider that this model is both market leading
and also reflective of the flexible working economy that allows
Fitness Trainers to be employees for part of their week, with the
benefits that come from being employed, and self-employed for the
rest of the time. The transition has gone smoothly and we are now
focused on leveraging the benefits of this model. This means
driving consistency of operational delivery across our whole estate
along with the ability for Fitness Trainers to develop their skill
set to further their self-employed businesses and provide high
quality personal training services to our members. We hope that
this will attract the best personal trainers who will then in turn
provide even better member experience.
In addition to improving the overall member experience, these
initiatives are also increasing Average Revenue Per Member Per
Month (ARPMM), which grew by 7.6% to GBP16.02 in the year. The
increase in revenue from personal trainers under NGT (offset by a
salary cost), accounted for about a third of this increase;
excluding this factor ARPMM increased by 5.2%. Increased LIVE IT
penetration accounted for approximately a third of the growth in
ARPMM with the remainder coming from an increase in average
headline price. We ended 2019 with an average headline price of
GBP18.45 per month (2018: GBP17.14). Our philosophy remains to be a
high-quality operator charging the lowest price in any given
market. Where we can increase price, we will do so but we are also
prepared to reduce price on occasion if the local market requires.
Our capability around yield management has advanced in the last
year with central support from our data and analytics team.
Achieving our rollout strategy
We opened 20 sites organically in 2019 of which two were our
first small box gyms, which will bring our affordable fitness to
smaller catchments across the UK. With three site closures in the
year, this brings our total estate to 175 gyms. Our primary focus
is selecting strong locations for the long term and we are
encouraged by the quality of sites that are becoming available. Our
strong, listed company covenant continues to be highly attractive
to landlords, which supports us in securing high potential sites
that come onto the market. Two trends are worth highlighting:
increasingly we are successful in taking sites on retail parks at a
time when there has been less demand from retailers for physical
stores. Colliers Wood, Basingstoke and Northampton are good
examples of sites we have opened in the last year on retail parks.
In addition, we still see plenty of opportunities in residential
areas in large towns and cities - during the year we have opened in
Hove, Battersea and Glasgow West End as examples of this trend. The
strength of our new openings is highlighted by the performance of
the 2017 cohort (21 sites) which has now become mature and we are
seeing a similar trend with the 2018 cohort that will mature this
year. We continue to take a variety of sites, including new builds,
which demonstrates the flexibility of our model.
Our small box format gives us the ability to take advantage of
the opportunity highlighted by our market analysis. These sites
have a smaller square footage than our standard model of 15,000 sq.
ft and we expect to open sites of between 5000-9000 sq. ft. The
development that we have made across both the operating model and
capital model enables us to open at a capital cost of between
GBP700k-GBP750k and we expect to continue to achieve the 30% return
on capital on a lower average member level. The average monthly
price that we will charge is around GBP2 higher than in the rest of
the estate but in these types of location the competitive
environment (mainly from local authority or franchise operators),
will enable us to charge at this price point and be very
competitive. Members' response to the small box format at Newark
and Beverley has been encouraging.
Developing the member proposition
Investment continued across our existing estate and our focus in
2019 has been to ensure the sites have the appropriate equipment
mix. Particular investment has been in plate-loaded equipment and
enhanced functional areas. We are also maintaining our very high
maintenance standards ensuring that the sites continue to maintain
high levels of fit-out even as they become more mature. We will
focus the more substantial refurbishments on sites that need an
enhanced product and a competitive boost in their local market. We
have plans to enhance our Group Exercise capability in 2020 by
trialling a combined real and virtual offering in some of our
sites. This is part of a wider development of our Group Exercise
proposition.
Our use of technology
We highlighted in 2019 that increasingly we think of our
business as both an e-commerce leisure retailer and a multi-site
operator. As part of this we have committed to invest into
technology capex developments in the future. Our technology
platforms deliver the online member experience and also serve
finance, HR and commercial functions and are key to delivering
sustainable scale advantages. Our focus is on making changes that
deliver member improvements and operating efficiency. The initial
spend will be in three areas: an upgraded website that will deliver
improved opportunities for product sales and conversion; investment
into efficiency gains within the gyms such as the upgrade of our
digital camera systems; and a data function with enhanced models
that support our team in decision making in areas such as pricing
and retention. We are excited about the opportunities within this
area and have been building the capability and strength of our
technology team over the past year under the leadership of our CIO,
Jasper McIntosh. Technology will remain fundamental to the delivery
of our business model and is key to facilitating the low-cost
environment in which we operate.
Sustainability at the heart of our business
Sustainability is one of the foundations on which our business
is built and continues to be a core focus as we grow. We are
seeking to build on the strong credentials we already have and to
enhance our work in this area. During the year we have established
a Sustainability Working Group ('SWG') to oversee the management of
sustainability across the Group. In addition, we are working with
expert advisers to articulate our sustainability strategy. We have
identified four key areas of focus: i) 'Promoting Health &
Wellbeing'; ii) 'Good Jobs, Quality Education and Lifelong
Learning'; iii) 'Diversity and Inclusion' and iv) 'Responsibility
to the Environment.' As outlined further within the sustainability
section of this report these help to deliver against the United
Nations Sustainable Development Goals. In the coming year we plan
to publish our first full Sustainability Report in accordance with
the Global Reporting Initiative (GRI) Standards on sustainability
reporting. In doing so we will be able to provide our stakeholders
with information that helps demonstrate how we perform against our
sustainability goals and how we are progressing with our material
workstreams.
Our people
Our entire team across the business buy into the strong social
purpose of The Gym Group. Our aim is to break down barriers to
Health & Fitness and in doing so to spread affordable fitness
across the UK. Our values that we launched to our colleagues in
2019 - taking the first step, friendliness, realness, and
challenging our limits - have landed well and we are now looking at
ways to boost engagement across the whole team through the use of
improved communication tools. Optimising Fitness Trainer
recruitment is an area of focus for us now that the NGT model has
been rolled out. We recognise that there are multiple recruitment
channels that we need to tap into.
The drive and passion of all our people across the whole
business is what makes The Gym Group special. We retained our Gold
Investors In People (IIP) status during the year and were
shortlisted for Employer of the Year in the IIP awards. Rightly we
celebrate these achievements with our teams. I would like to
personally thank all our colleagues for their efforts in building
this business. As we enter into a difficult period as a result of
Covid-19, I am sure that our teams will respond to the challenges
ahead.
Outlook
In the first two months of the year trading was in line with the
Board's expectations. Membership numbers at the end of February
show an increase to 891,000, another record level, with a 12.2%
increase since December 2019.
In the last two weeks there has been a small impact on trading
from Covid-19 and we have drawn up plans to react to an ever
changing situation. Currently all gyms are open and any actions we
take in the future will be guided by advice from Public Health
England. At 18 March our membership base was 870,000 members and
our Net Debt GBP41.9m.
Our response involves slowing down the expansion to preserve
cash and running the business as efficiently as possible with
reductions in discretionary spend. In this way we intend to get to
a position of having neutral cashflows even with lower revenues in
the short term.
We remain confident in our business model and believe that when
we are through this period we will be able to return to a growth
trajectory.
Richard Darwin
Chief Executive Officer
19 March 2020
Note: Refer to page 15 for the definitions of key performance
indicators under IFRS 16.
Financial Review
Summary
The Group has delivered another strong set of financial results,
with revenue growing 23.6% to GBP153.1 million and Group Adjusted
EBITDA growing 24.0% to GBP48.5 million. We have also continued to
deliver a strong return on invested capital, with ROIC in our
mature sites at 31% (2018: 30%), once again meeting our target of
30%.
The growth in Group Adjusted EBITDA has been achieved alongside
significant transformation and investment in the business in 2019
with 20 organic site openings, which included the first two of our
new small box gym sites towards the end of the year.
Group Operating Cash Flow increased 20.0% to GBP40.8 million
(2018: GBP34.0 million) as a result of the growth in EBITDA and
continuing efficient use of working capital. Free cash flow which
also incorporates exceptional items, tax and interest increased
from GBP28.5m to GBP33.9m.
We ended the year with non-property net debt of GBP47.4 million,
a small increase on the GBP46.0 million at Dec 2018 and broadly in
line with the GBP47.2 million debt level at June 2019,
demonstrating that we are now at the point of being able to fund
our expansion through operating cash flows.
IFRS 16 has been adopted for the first time in 2019 and all
figures presented are on this basis unless stated otherwise. The
2018 comparatives have been restated accordingly - see note 3 for
more detail. This financial review uses a combination of statutory
and non-statutory measures to report on 2019 performance. See page
15 for the definitions of the Key Performance Indicators.
2018
2019 Restated
GBP'000 GBP'000
------------------------------------------------- -------- ----------
Total Number of Gyms 175(1) 158
Total Number of Members ('000) 794 724
Revenue 153,134 123,884
Group Adjusted EBITDAR* 74,453 58,498
Group Adjusted EBITDA* 48,540 39,131
Group Adjusted EBITDA before Pre-Opening Costs* 49,715 40,671
Mature Gym Site EBITDA 48,113 38,967
Adjusted Profit Before Tax* 13,969 10,275
Adjusted Earnings* 10,574 7,712
Group Operating Cash Flow* 40,763 33,972
Free cash flow 33,867 28,487
Statutory profit before tax 6,219 6,956
-------------------------------------------------- -------- ----------
% %
Return on Invested Capital (%) 31 30
-------------------------------------------------- -------- ----------
(1) Excludes three gyms closed in 2019 as previously announced;
two sites acquired from the Lifestyle Fitness and easyGym
acquisitions plus one site opened in 2015 for which a 5-year break
clause was exercised by the Group
* Refer to page 15 for the definitions of the Key Performance
Indicators.
Key financial metrics on a pre-IFRS 16 basis(2) :
2019 2018 Restated
GBP'000 GBP'000
--------------------------------------------------- --------- --------------
Revenue 153,134 123,884
Group Adjusted EBITDA 47,005 36,813
Adjusted Profit Before Tax 18,206 13,348
Adjusted Earnings 13,925 10,217
---------------------------------------------------- --------- --------------
(2) Figures shown using IAS 17 rent costs rather than IFRS 16
right of use depreciation and interest. 2018 figures restated to
include IT amortisation costs following a change to definition of
Adjusted PBT and Adjusted Earnings in 2019.
Result for the year on IFRS 16 basis
2019 2018
Restated
GBP'000 GBP'000
Revenue 153,134 123,884
Cost of sales (1,437) (1,007)
------------------------------------------------------ ---------- ----------
Gross profit 151,697 122,877
Administration expenses excluding exceptional items (124,036) (100,919)
Exceptional administration items (6,086) (2,343)
------------------------------------------------------ ---------- ----------
Operating profit 21,575 19,615
Finance income 32 22
Finance costs excluding exceptional items (14,902) (12,681)
Exceptional finance costs (486) -
----------------------------------------------------- ---------- ----------
Profit before tax 6,219 6,956
Tax charge (2,624) (2,193)
------------------------------------------------------ ---------- ----------
Profit for the year 3,595 4,763
Profit before tax 6,219 6,956
Amortisation of non-IT intangible assets 1,178 976
Exceptional administration and finance expenses 6,572 2,343
------------------------------------------------------ ---------- ----------
Adjusted profit before tax 13,969 10,275
Tax charge (2,624) (2,193)
Tax effect of above items (771) (370)
------------------------------------------------------ ---------- ----------
Adjusted Earnings 10,574 7,712
------------------------------------------------------ ---------- ----------
2018
2019 Restated
GBP'000 GBP'000
------------------------------------------------------------- ------------------------ ------------------------
Operating profit 21,575 19,615
Depreciation of property, plant and equipment and Impairment 41,778 33,539
Amortisation of intangible assets 3,114 1,989
Exceptional administration costs 6,086 2,343
Long term employee incentive costs 1,900 1,012
Cash rent payments (25,913) (19,367)
--------------------------------------------------------------
Group Adjusted EBITDA 48,540 39,131
-------------------------------------------------------------- ------------------------ ------------------------
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 794,000 members, an increase of 9.7%
compared with the closing membership level in December 2018. As a
result of the increased size of the estate, including the easyGym
acquisition in July 2018, the average membership level across the
12-month period grew by 14.9% to 796,000 (2018: 693,000).
ARPMM increased 7.6% from GBP14.89 to GBP16.02 in 2019 through a
combination of factors. Approximately one third of the increase
came from the rollout of our new personal trainer operating model,
NGT, which added rental income to each site (offset by a salary
cost); excluding this factor, ARPMM growth would have been 5.2%. Of
the remaining increase in ARPMM, GBP0.37 came from the increased
penetration of our premium membership package LIVE IT and GBP0.40
resulted from an increase in average headline price. The positive
contribution to yield from pricing was due to selected price
increases across our mature estate, the maturation of pricing on
recently opened sites and the impact of former easyGym sites being
in our estate for a whole year in 2019 (vs only six months in
2018).
As a result of these factors, revenue for the year increased
23.6% to GBP153.1 million (2018: GBP123.9 million).
Group Adjusted EBITDA
Group Adjusted EBITDA (Group Adjusted EBITDAR minus cash rent
costs) increased by 24.0% to GBP48.5 million (2018: GBP39.1
million). Growth was driven by the increased size and maturation of
the organic estate and a growing contribution from sites acquired
in the Lifestyle and easyGym acquisitions. Group Adjusted EBITDA
margin remained strong at 31.7% (2018: 31.6%) which is particularly
encouraging in light of the rollout of NGT in the year, which, as
planned, increased revenue and had a small reduction in EBITDA.
Mature Site EBITDA(*) contributed by the 110(**) mature sites
increased to GBP48.1 million (2018: GBP39.0 million Mature Site
EBITDA from 89 mature sites) and this has contributed significantly
towards the growth in overall Group Adjusted EBITDA.
EBITDA from new sites*** increased from GBP10.9 million in 2018
to GBP13.3 million in 2019. New sites in the year include sites
acquired from Lifestyle Fitness in 2017 and from easyGym in 2018,
in addition to new gyms opened in 2018 and 2019, which are
performing in line with expectations.
* 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.
**Total number of mature sites during the year was 110.
Following the closure of a site in December 2019 there were 109
mature sites at year end.
***Total number of new sites (sites opened in 2018 onwards and
those acquired from Lifestyle Fitness and easyGym) during the year
was 70 including two gyms closed in 2019 (2018: 68).
Administration expenses
Administration expenses (excluding exceptional items) increased
by 22.9%, primarily due to the number of gyms increasing from 158
at 31 December 2018 to 175 at 31 December 2019.
The largest cost within administration expenses is depreciation,
which following the adoption of IFRS 16 now includes the
depreciation of property lease right of use assets. As a percentage
of revenue, depreciation charges have increased from 27.0% (GBP33.5
million) in 2018 to 27.3% (GBP41.7 million) in 2019. E xcluding
property lease assets depreciation, the depreciation charges have
decreased from 15.9% of revenue (GBP19.7 million) in 2018 to 14.7%
(GBP22.6 million) in 2019, partly as a result of a change in the
useful economic life assumption of gym equipment.
Staff costs also form a significant part of administration
expenses and increased from GBP16.8 million to GBP24.7 million,
excluding a charge of GBP1.9 million (2018: GBP1.0 million) from
long term employee incentives. The increase in staff costs was
driven by new gym openings and a scaling up of support office costs
to support future growth and the roll out of NGT.
Overall central support office costs (including central staff
costs) increased from GBP10.6 million in 2018 to GBP12.9 million in
2019 due primarily to headcount increases. This represents a
decrease as a percentage of revenue from 8.6% to 8.4%.
Amortisation charges increased from GBP2.0 million to GBP3.1
million of which GBP1.9 million was amortisation of IT and software
investment (GBP1.0 million in 2018) and GBP1.2 million was
amortisation of acquisition intangibles (GBP1.0 million in
2018).
Exceptional items
Exceptional administration costs increased to GBP6.1 million,
from GBP2.3 million in 2018, and comprised:
-- GBP3.0 million due to a change in the probability-based
estimate of contingent consideration that will be payable for the
acquisition of two former easyGym sites (London Oxford Street and
Birmingham Kings Heath) as it is assumed that the Group will be
successful in acquiring new leases for these sites;
-- GBP2.7 million arising on the closure of three sites during
2019, which arose as a result of estate management. Stoke and
Birmingham Corporation Street were acquisitions from Lifestyle and
easyGym respectively, whilst we exercised a lease break option in
Newport, a site we opened in 2015 ;
-- GBP0.4 million of restructuring costs, related to the cost
associated with changing the operating model in relation to the use
of personal trainers within the business.
Exceptional finance costs increased to GBP0.5 million (2018:
GBPnil) and comprised:
-- GBP0.5 million of unamortised bank facility fees from our
previous bank facilities which were written off on completion of
our refinancing in October 2019.
Of the GBP6.6 million of e xceptional items, only GBP1.1 million
had a cash impact in the year.
Long term employee incentives
During the year the Group granted further shares under the
Performance Share Plan (PSP) and Share Incentive Plan (SIP) and
also 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 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 continuous employment.
Towards the end of the year, the Group has also granted shares
under a new share saving scheme (SAYE), where all employees were
invited to save regularly, up to a maximum value, to buy the
Group's shares at a discounted price, which vest in three years
subject to continuous employment.
The Group recognised a charge of GBP1.9 million (2018: GBP1.0
million) in relation to these share-based payment arrangements.
Finance costs
Finance costs excluding exceptionals increased to GBP14.9
million in 2019 (2018: GBP12.9 million) c omprising the implied
interest relating to the lease liability under IFRS 16 of GBP12.9
million (2018: GBP10.9 million) plus interest costs associated with
our bank borrowing facilities of GBP2.0 million (2018: GBP1.7
million) .
In October 2019 the Group refinanced its existing GBP60.0
million facilities with a new GBP70.0 million Revolving Credit
Facility (RCF). The interest charge on the new RCF varies according
to the Group's leverage ratio at any time but at current leverage
levels interest is charged at 1.75% above LIBOR. This compares to
the previous facilities' interest rate of 2.5% above LIBOR,
regardless of leverage. As the new RCF came into effect towards the
end of the year the benefit on overall finance costs in 2019 was
minimal. The remaining unamortised loan arrangement fees of GBP0.5
million in relation to the previous facility have been written off
as a result of the debt refinance (see Exceptional items above) and
an additional GBP0.9 million of fees has been incurred on the
establishment of the RCF, which will be amortised over the term of
the facility.
At December 2019 the Group has drawn GBP50.0 million of the
facilities and with cash of GBP2.6 million ended the year with
non-property net debt of GBP47.4 million, representing 0.98x Group
Adjusted EBITDA (2018: 1.17x). 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 GBP2.6 million for the
year ended 31 December 2019, which represents an effective tax rate
(ETR) on statutory profit before tax of 42.2% (2018: 31.5%). 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 24.3%
(2018: 24.1%).
Earnings
Statutory profit before tax decreased to GBP6.2 million (2018:
GBP7.0 million), with an 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 GBP3.6 million (2018: GBP4.8 million) as a result of the factors
discussed above.
Adjusted profit before tax is calculated from statutory profit
before tax and adding back the amortisation associated with non-IT
related intangibles and any exceptional items. Adjusted profit
before tax in the year was GBP14.0 million up 35.9% from GBP10.3
million in 2018.
Basic earnings per share (EPS) was 2.6p (2018: 3.6p). Basic
Adjusted EPS was 7.7p (2018: 5.8p).
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 0.45p per share
earlier in the year. The Board recommends a final dividend of 1.15p
per share in respect of the financial year ending 31 December 2019,
resulting in a full year dividend of 1.60p per share. As part of
our response to Covid-19, we currently do not anticipate putting a
resolution to the AGM to pay this dividend .
Capital Expenditure
The Group invested expansionary capital expenditure(3) of
GBP32.3 million (2018: GBP54.5 million) in the fit-out of new gyms,
the conversion of two of the easyGym sites acquired in 2018 and
investment in new LED lighting across the estate. Expansionary
capital expenditure also includes IT & software capital
expenditure of GBP3.9 million (2018: GBP3.2 million) as a result of
investment in website, infrastructure, app and support office
technology. Adjusting for the movement in capex creditors, the cash
flow in the year from expansionary capital expenditure was GBP32.5
million.
Total maintenance capital expenditure(4) was GBP10.2 million
(2018: GBP7.6 million) and, at 6.7% of revenue, in line with our
guidance. Adjusting for the movement in capex creditors, the cash
flow in the year from maintenance capital was GBP10.3 million.
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
4 Maintenance capital expenditure comprises the replacement of
gym equipment and premises refurbishment. It is a non-IFRS GAAP
measure
Cash flow
2018
2019 Restated
GBP'000 GBP'000
Group Adjusted EBITDA* 48,540 39,131
Movement in working capital 2,507 3,159
Maintenance capital expenditure cash flow (10,284) (8,318)
--------------------------------------------- --------- ----------
Group Operating Cash Flow 40,763 33,972
Exceptional items (1,120) (2,105)
Bank interest (2,197) (1,371)
Taxation (3,579) (2,009)
Free cash flow 33,867 28,487
Expansionary capital expenditure cash flow (32,504) (57,551)
Dividends paid (1,933) (1,637)
Refinancing fees (884) (302)
Net proceeds from issue of Ordinary shares - 23,196
Other financial assets purchased - (645)
Bank interest received 32 22
Movement in non-property net debt (1,422) (8,430)
Net drawdown of borrowings 1,000 11,000
--------------------------------------------- --------- ----------
Net Cash flow (422) 2,570
--------------------------------------------- --------- ----------
*See page 16 for a reconciliation of operating profit to Group
Adjusted EBITDA
Group Operating Cash Flow has increased by 20.0% from GBP34.0
million to GBP40.8 million as a result of an increase in Group
Adjusted EBITDA. Our Group Operating Cash Flow Conversion has
decreased slightly to 84.1% (2018: 86.8%).
Balance sheet
2019 2018
GBP'000 GBP'000
------------------------- ---------- ----------
Non-current assets 500,990 467,284
Current assets 12,027 11,102
Current liabilities (49,691) (44,131)
Non-current liabilities (312,893) (286,785)
--------------------------
Net assets 150,433 147,470
-------------------------- ---------- ----------
Non-current assets have increased by GBP33.6 million to GBP501.3
million (2018: GBP467.7 million). This is largely as a result of
capital expenditure in property, plant and equipment and
intangibles plus an increase in right of use assets totalling
GBP82.1 million, offset by depreciation and amortisation of GBP44.8
million.
Current assets have increased GBP0.9 million due to higher trade
receivables (as a result of the introduction of rental income
charged to personal trainers) and higher inventories (as a result
of the increased stock of Yanga water in our gyms). Current
liabilities have increased by GBP5.6 million as a result of growth
in the number of gyms, which has increased trade and other payables
as well as lease liabilities.
As of 31 December 2019 the Group had drawn GBP50.0 million of
its GBP70.0 million revolving credit facility.
As a precaution against a potential period of disruption to the
business resulting from the Covid-19 outbreak, the Group drew the
remaining GBP20.0 million of the revolving credit facility in March
2020.
Response to Covid-19
In the first two months of 2020, the Group traded in line with
our expectations.
In the first half of March we have begun to see an impact to our
business from the Covid-19 outbreak. Our strategy for operating
through the outbreak will be to:
-- reduce run rate cash outgoings to a level whereby we can
remain cash neutral at a substantially lower level of monthly
revenue; and
-- retain a cash 'buffer' to help us in the event there is a
period of widespread enforced gym closures during which we may have
no revenue for a number of weeks.
We have taken a number of actions to reduce our cash outgoings
in anticipation of a period of disruption:
-- We have drawn down the remaining GBP20m of our RCF. As of 18 March have GBP28.9m of cash;
-- New gyms under construction will be completed but all other
new sites put on hold, resulting in 7 standard gyms and 1 small box
gym opening in H1 2020. YTD committed expansionary capex of
GBP10m;
-- Expenditure on maintenance and IT capex reduced to essential
spend only; we currently plan to complete the refurbishment of the
London Oxford Street and Fulham sites;
-- Operating costs will be reduced by halting discretionary
spend, reducing marketing and focusing maintenance on essential
health & safety spend only;
-- We plan to not pay the final dividend for FY2019 which would
preserve a further GBP1.6m of cash.
We also have other options open to us including (i) additional
reductions in expenditure at certain times to improve liquidity;
(ii) the announcement by the Chancellor of the Exchequer on 17th
March 2020 of measures to assist companies with the impact of the
Covid-19 pandemic including a rates holiday for retail, leisure and
hospitality and, more specifically, guaranteed loans for lending of
over GBP300bn to enable companies to help meet their fixed cost
obligations including rent, rates and staff costs during the period
of the pandemic; (iii) the potential of the Group to access
additional debt where the Directors note that the Group's existing
GBP70m revolving credit facility includes a further GBP30m
accordion which requires consent of the banks; (iv) the potential
for the Group to agree with its landlords deferrals in the timing
of rental payments ; or (v) the potential to raise additional funds
from third parties
Mark George
Chief Financial Officer
19 March 2020
Key Performance Indicators - pre- and post-IFRS 16
The adoption of IFRS 16 as of 1 January 2019 has had a
significant impact on the key performance indicators previously
adopted by the Group. As there is no impact on Group strategy or
cash, the Board has amended the definitions of KPIs, which are
non-IFRS GAAP measures, as per the presentation available on our
website https://www.tggplc.com with the aim to have cash-based
measures that best reflect the underlying performance of the
business and these new definitions are those used in this
document.
Definitions
For each of the KPIs below the definition remains unchanged with
the adoption of IFRS16 unless stated otherwise
- Group Adjusted EBITDAR - is operating profit before
depreciation, amortisation, long term employee incentive costs and
exceptional items.
- Group Adjusted EBITDA - Pre-IFRS 16 definition of Group
Adjusted EBITDA is operating profit (including IAS17 rent costs)
before depreciation, amortisation, long term employee incentive
costs and exceptional items, and is a non-IFRS GAAP measure. Post
IFRS 16 definition of Group Adjusted EBITDA is operating profit
before depreciation, amortisation, long term employee incentive
costs and exceptional items, and after cash rent costs.
- Group Adjusted EBITDA before Pre-Opening Costs - is defined as
Group Adjusted EBITDA excluding the costs associated with new site
openings.
- Adjusted Profit before Tax* - is calculated as profit before
tax before non-IT amortisation and exceptional items.
- Adjusted Earnings* - is calculated as the Group's profit for
the year before non-IT amortisation, exceptional items, and the
related tax effect.
- Basic Adjusted EPS* - is calculated as the Group's profit for
the year before non-IT amortisation, exceptional items, and the
related tax effect, divided by the basic weighted average number of
shares.
- Group Operating Cash Flow - is calculated as Group Adjusted
EBITDA plus movement in working capital less maintenance capital
expenditure.
- Free Cash Flow - is calculated as Group Operating Cash Flow
less tax, interest and other financing costs and exceptional
items.
- Non-Property Net Debt - is calculated as borrowings less
property finance leases and cash and cash equivalents.
- Return On Invested Capital - is calculated as Group Adjusted
EBITDA of the Group's mature sites, divided by total capital
invested in the sites.
* Note: the definitions of Adjusted PBT/Earnings/EPS have
changed between 2018 and 2019 with IT-related amortisation no
longer being excluded. Where shown, the 2018 Adjusted
PBT/Earnings/EPS figures have been restated based on this new
definition.
** Note: In 2019 the Group changed its policy relating to the
Useful Economic Life of gym equipment (see Note 2.3 below). The
2019 numbers in this report reflect this new policy and the 2018
numbers are based on the previous policy.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
Note 31 December 31 December
2019 2018
Restated*
GBP'000 GBP'000
Revenue 4 153,134 123,884
Cost of sales (1,437) (1,007)
Gross profit 151,697 122,877
Administration expenses (130,122) (103,262)
Operating profit 21,575 19,615
Finance income 32 22
Finance costs (15,388) (12,681)
Profit before tax 6,219 6,956
---------------------------------------------- ----- ------------ ------------
Tax charge (2,624) (2,193)
Profit for the year attributable to
equity shareholders 3,595 4,763
---------------------------------------------- ----- ------------ ------------
Other comprehensive income for the
year
Items that may be reclassified to profit
or loss
Changes in the fair value of derivative
financial instruments (155) (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 (277) (463)
---------------------------------------------- ----- ------------ ------------
Total comprehensive income attributable
to equity shareholders 3,163 4,289
---------------------------------------------- ----- ------------ ------------
Earnings per share 6 Pence Pence
Basic 2.6 3.6
Diluted 2.6 3.5
Reconciliation of operating profit GBP'000 GBP'000
to Group Adjusted EBITDA:
- Operating profit 21,575 19,615
- Depreciation and impairment of property,
plant and equipment 8 41,778 33,539
- Amortisation and impairment of intangibles 3,114 1,989
- Exceptional administration costs 5 6,086 2,343
- Long term employee incentive costs 1,900 1,012
- Cash rent payments(2) (25,913) (19,367)
---------------------------------------------- ----- ------------ ------------
- Group Adjusted EBITDA(1) 48,540 39,131
---------------------------------------------- ----- ------------ ------------
(1) Group Adjusted EBITDA is a non-GAAP metric used internally
by management and externally by investors
(2) Cash rent payments are the actual cash payments which are
paid for the property leases during the year
* See note 3 for details regarding the restatement as a result
of the IFRS 16 adoption
Consolidated Statement of Financial Position
As at 31 December 2019
Note 31 December 2019 31 December 2018 1 January 2018
Restated* Restated*
GBP'000 GBP'000 GBP'000
Non-current assets
--------------------------------------------------- ----- ----------------- ----------------- ---------------
Property, plant and equipment (excluding right of
use asset) 8 176,001 163,675 133,530
Right of use asset 8 238,535 216,995 166,396
Intangible assets 86,441 86,160 71,218
Financial assets at fair value through other
comprehensive income - 285 316
Derivative financial instruments 13 169 -
Total non-current assets 500,990 467,284 371,460
Current assets
--------------------------------------------------- ----- ----------------- ----------------- ---------------
Inventories 654 379 197
Trade and other receivables 8,769 7,696 5,479
Cash and cash equivalents 2,605 3,027 456
---------------------------------------------------- ----- ----------------- ----------------- ---------------
Total current assets 12,028 11,102 6,132
Total assets 513,018 478,386 377,592
---------------------------------------------------- ----- ----------------- ----------------- ---------------
Current liabilities
--------------------------------------------------- ----- ----------------- ----------------- ---------------
Trade and other payables 29,389 26,376 23,490
Lease liabilities 15,702 9,652 7,794
Other financial liabilities 3,875 3,002 -
Borrowings 9 - 3,000 -
Provisions 352 679 917
Income taxes payable 374 1,422 633
Total current liabilities 49,692 44,131 32,834
Non-current liabilities
--------------------------------------------------- ----- ----------------- ----------------- ---------------
Borrowings 9 49,116 45,165 37,113
Lease liabilities 261,876 239,907 187,064
Provisions 1,303 1,145 740
Deferred tax liabilities 598 568 271
Total non-current liabilities 312,893 286,785 225,188
Total liabilities 362,585 330,916 258,022
---------------------------------------------------- ----- ----------------- ----------------- ---------------
Net assets 150,433 147,470 119,570
---------------------------------------------------- ----- ----------------- ----------------- ---------------
Capital and reserves
--------------------------------------------------- ----- ----------------- ----------------- ---------------
Issued capital 10 14 14 12
Own shares held 48 48 48
Capital redemption reserve 4 4 4
Share premium 159,474 159,474 136,280
Hedging reserve (166) (11) -
Retained deficit (8,941) (12,059) (16,774)
---------------------------------------------------- ----- ----------------- ----------------- ---------------
Total equity shareholders' funds 150,433 147,470 119,570
---------------------------------------------------- ----- ----------------- ----------------- ---------------
* See note 3 for details regarding the restatement as a result
of the IFRS 16 adoption
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Note Issued Own Capital Share Hedging Retained Total
capital shares redemption premium reserve deficit
held reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2018 (as
previously
reported) 12 48 4 136,280 - (15,723) 120,621
Adjustment
from adoption
of IFRS 16 3 - - - - - (1,051) (1,051)
At 1 January
2018 (restated) 12 48 4 136,280 - (16,774) 119,570
Profit for
the period
and total
comprehensive
income
(restated) - - - - - 4,763 4,763
Share based
payments - - - - - 797 797
Deferred tax
on share based
payments - - - - - 133 133
Issue of
Ordinary
share capital 2 - - 23,998 - - 24,000
Costs associated
with the issue
of share
capital - - - (804) - - (804)
Changes in
the fair value
of derivative
financial
instruments - - - - (11) - (11)
Dividends paid - - - - - (1,637) (1,637)
Changes in
the fair value
of financial
assets at fair
value through
other
comprehensive
income - - - - - (463) (463)
Deferred tax
arising on
IFRS 16
adoption - - - - - 1,122 1,122
----------------- ----- --------- -------- ------------ --------- --------- ------------------------- --------
At 31 December
2018 14 48 4 159,474 (11) (12,059) 147,470
Profit for
the year - - - - - 3,595 3,595
Share based
payments 11 - - - - - 1,670 1,670
Deferred tax
on share based
payments 12 - - - - - 8 8
Dividends paid 30 - - - - - (1,933) (1,933)
Changes in
the fair value
of financial
assets at fair
value through
other
comprehensive
income - - - - - (277) (277)
Changes in
the fair value
of derivative
financial
instruments - - - - (155) - (155)
Deferred tax
arising on
IFRS 16
adoption - - - - - 55 55
At 31 December
2019 14 48 4 159,474 (166) (8,941) 150,433
----------------- ----- --------- -------- ------------ --------- --------- ------------------------- --------
* See note 3 for details regarding the restatement as a result
of the IFRS 16 adoption
Consolidated Cash Flow Statement
For the year ended 31 December 2019
Note 31 December 2019 31 December 2018
Restated*
GBP'000 GBP'000
Cash flows from operating activities
Profit before tax 6,219 6,956
Adjustments for:
Net finance costs 15,356 12,659
Exceptional administration costs 5 6,086 2,343
Depreciation and Impairment of property, plant and equipment 8 41,778 33,539
Amortisation of intangible assets 3,114 1,989
Long term employee incentive costs 1,900 1,012
(Profit) / loss on disposal of property, plant and equipment (112) 72
Increase in inventories (275) (182)
Increase in trade and other receivables (1,073) (1,218)
Increase in trade and other payables 3,967 4,487
----------------------------------------------------------------------- ----- ----------------- -----------------
Cash generated from operations 76,960 61,657
Tax paid (3,579) (2,009)
----------------------------------------------------------------------- ----- ----------------- -----------------
Net cash flows from operating activities before exceptional items 73,381 59,648
Exceptional items (1,120) (2,105)
----------------------------------------------------------------------- ----- ----------------- -----------------
Net cash flow from operating activities 72,261 57,543
----------------------------------------------------------------------- ----- ----------------- -----------------
Cash flows from investing activities
Payment for financial assets at fair value through other comprehensive
income - (432)
Business combinations (2,114) (18,600)
Purchase of property, plant and equipment (38,604) (42,341)
Purchase of intangible assets (2,461) (4,928)
Disposal of tangible assets 391 -
Interest received 32 22
----------------------------------------------------------------------- ----- ----------------- -----------------
Net cash flows used in investing activities (42,756) (66,279)
----------------------------------------------------------------------- ----- ----------------- -----------------
Cash flows from financing activities
Dividends paid (1,933) (1,637)
Lease liabilities paid(1) (13,093) (10,907)
Lease interest paid(1) (12,820) (8,460)
Bank interest paid (2,197) (1,371)
Payment of financing fees (884) (302)
Drawdown of bank loans 51,000 12,500
Repayments of bank loans (50,000) (1,500)
Proceeds of issue of Ordinary shares - 24,000
Costs associated with share issue - (804)
Derivative financial instruments paid - (213)
----------------------------------------------------------------------- ----- ----------------- -----------------
Net cash flows (used in) / from financing activities (29,927) 11,306
----------------------------------------------------------------------- ----- ----------------- -----------------
Net (decrease) / increase in cash and cash equivalents (422) 2,570
Cash and cash equivalents start of period 3,027 457
----------------------------------------------------------------------- ----- ----------------- -----------------
Cash and cash equivalents at end of period 2,605 3,027
----------------------------------------------------------------------- ----- ----------------- -----------------
*See note 3 for details regarding the restatement as a result of
the adoption of IFRS 16 'Leases'.
(1) These two items totalling GBP25,913,000 represent cash rent
as used in the KPI definitions
* See note 3 for details regarding the restatement as a result
of the IFRS 16 adoption
Notes
1. General information
The Company is a public limited company, incorporated and
domiciled in the UK. Its registered address is 5th Floor, One
Croydon, 12-16 Addiscombe Road, Croydon, CR0 0XT.
.The financial information set out above does not constitute
statutory accounts for the years ended 31 December 2019 or 2018
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.
The Consolidated Financial Statements for the year ended 31
December 2018, upon which the Company's auditors have given a
report which was unqualified and 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, have been
delivered to the Registrar of Companies.
The Consolidated Financial Statements for the year ended 31
December 2019 have yet to be signed. They will be finalised based
on the financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of
Companies in due course. At this time, it expected that Ernst &
Young LLP will provide an unqualified report on the Consolidated
Financial Statements for the year ended 31 December 2019 and their
report will not contain any statement under section 498(2) or (3)
of the Companies Act 2006. However, we expect that Ernst &
Young LLP will include a reference within their report drawing
attention to material uncertainty related to going concern arising
from the current uncertainty of the impact of the Covid-19 pandemic
on the Group's business.
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.
In assessing the going concern position of the Group for the
Consolidated Financial Statements for the year ended 31 December
2019, which are currently unaudited, the Directors have considered
the Group's cash flows, liquidity and business activities. At 31
December 2019, the Group had cash balances of GBP2.6 million and
undrawn financing facilities of GBP20.0 million which are available
for general corporate purposes, including but not limited to
funding new sites, working capital and capital expenditure.
Based on the Group's forecasts, the Directors have adopted the
going concern basis in preparing the Financial Statements. The
Directors have made this assessment after consideration of the
Group's cash flows and related assumptions and in accordance with
the Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting 2014 published by the UK Financial
Reporting Council.
In making this assessment the Directors have made a current
consideration of the potential impact of the Covid-19 pandemic on
the cashflows and liquidity of the Group over the next 12 month
period. This assessment has taken in to account the current
measures being put in place by the Group to preserve cash and
reduce discretionary expenditure during a period when the Group may
need to temporarily close some or all of its sites as a result of
enforcement action by the UK Government, and potential reductions
in revenues resulting from changes in the behaviours of members.
The Group's financial modelling assumes reduced membership and
revenue as a result of Covid-19 impacting members behaviours and
associated actions by the UK government, than it would have
otherwise expected during the next 12 months both during the period
of any closure and thereafter. The Company has considered the
impact of additional downside scenarios with a greater length of
closure and a more severe impact on the Group's cashflows and
liquidity as a result of additional loss of membership and revenue.
These downside scenarios assume that Group Adjusted EBITDA in 2020
reduces by approximately 65% compared to the Board's expectations
prior to development of the Covid-19 pandemic. At these levels of
Group Adjusted EBITDA reductions, when combined with the mitigating
actions that are within the Group's control including reductions in
capital and other expenditure, the Directors currently believe the
Group can maintain sufficient liquidity within its GBP70m debt
financing facilities (reflecting the GBP20m drawdown in March 2020
of the remaining facility) and satisfy its bank covenant levels
over the next 12 months.
The Directors have also assessed the impact of an even more
severe effect on the Group were there to be an even longer period
of enforced closure and greater reductions in revenues resulting
from changes in members' behaviours. Under certain of these
scenarios the Group could breach its bank covenants or have
insufficient liquidity within the next 12 months. In considering
the impact on the Group's going concern position the Directors have
carried out a preliminary assessment of the additional options that
may be available to the Group to mitigate the impact on its
cashflows and liquidity. In particular Directors have considered
(i) additional reductions in expenditure at certain times to
improve liquidity; (ii) the announcement by the Chancellor of the
Exchequer on 17th March 2020 of measures to assist companies with
the impact of the Covid-19 pandemic including a rates holiday for
retail, leisure and hospitality and, more specifically, guaranteed
loans for lending of over GBP300bn to enable companies to help meet
their fixed cost obligations including rent, rates and staff costs
during the period of the pandemic; (iii) the potential of the Group
to access additional debt where the Directors note that the Group's
existing GBP70m revolving credit facility includes a further GBP30m
accordion which requires consent of the banks; (iv) the potential
for the Group to agree with its landlords deferrals in the timing
of rental payments ; or (v) the potential to raise additional funds
from third parties.
2. Basis of preparation (continued)
The Directors have concluded that the potential impact of the
Covid-19 pandemic described above and uncertainty over possible
mitigating actions represents a material uncertainty that may cast
significant doubt on the Group and Company's ability to continue as
a going concern. Nevertheless, having assessed the combination of
these various options and the impact of a potential liquidity
shortfall in the event of a longer period of impact from the
Covid-19 pandemic the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the next 12 months. For these reasons, they continue
to adopt a going concern basis for the preparation of the Financial
Statements. Accordingly, these financial statements do not include
any adjustments to the carrying amount or classification of assets
and liabilities that would result if the Group and Company were
unable to continue as a going concern.
3. New standards, interpretations and amendments adopted by the Group
New standards impacting the Group for the year ended 31 December
2019, and which have given rise to changes in the Group's
accounting policies are:
IFRS 16 'Leases'
IFRS 16 supersedes IAS 17 Leases, the standard sets out the
principles for the recognition, measurement, presentation and
disclosure of leases and requires lessees to recognise most leases
on the balance sheet.
The Group adopted IFRS 16 using the full retrospective method of
adoption, with the date of initial application of 1 January 2019.
The Group elected to use the transition practical expedient to not
reassess whether a contract is, or contains, a lease at 1 January
2019. Instead, the Group applied the standard only to contracts
that were previously identified as leases applying IAS 17 at the
date of initial application. The Group also elected to use the
recognition exemptions for lease contracts that, at the
commencement date, have a lease term of 12 months or less and do
not contain a purchase option (short-term leases), and lease
contracts for which the underlying asset is of low value (low-value
assets). At the date of initial application, the applicable IBR for
each lease varied between 3.7% and 8.1%.
Adjustments recognised on adoption of IFRS 16
The effect on the statement of financial position is as
follows:
31 December Impact Opening balance
2017 under of IFRS16 at 1 January
IAS17 2018
GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ----------- ----------------
Right of use asset - 166,396 166,396
Intangible assets 62,536 8,682 71,218
Current assets 9,691 (3,559) 6,132
Other assets 134,187 (341) 133,846
---------------------------------- ------------ ----------- ----------------
Total assets 206,414 171,178 377,592
---------------------------------- ------------ ----------- ----------------
Current liabilities (45,401) 20,361 (25,040)
Finance lease liabilities - (194,856) (194,856)
Deferred tax liabilities (2,092) 1,821 (271)
Other liabilities (38,037) 184 (37,853)
---------------------------------- ------------ ----------- ----------------
Total liabilities (85,530) (172,490) (258,020)
---------------------------------- ------------ ----------- ----------------
Net assets 120,884 (1,312) 119,572
---------------------------------- ------------ ----------- ----------------
Retained earnings (15,273) (1,312) (16,585)
Other changes in equity 136,157 - 136,157
---------------------------------- ------------ ----------- ----------------
Total equity shareholders' funds 120,884 (1,312) 119,572
---------------------------------- ------------ ----------- ----------------
3. New standards, interpretations and amendments adopted by the Group (continued)
31 December 2018 as reported Impact of IFRS16 Closing balance at 31 December
2018
GBP'000 GBP'000 GBP'000
---------------------------------- ----------------------------- ----------------- --------------------------------
Right of use asset - 216,995 216,995
Intangible assets 76,080 10,080 86,160
Current assets 15,318 (4,216) 11,102
Other assets 164,959 (830) 164,129
---------------------------------- ----------------------------- ----------------- --------------------------------
Total assets 256,357 222,029 478,386
---------------------------------- ----------------------------- ----------------- --------------------------------
Current liabilities (56,957) 22,478 (34,479)
Finance lease liabilities - (249,559) (249,559)
Deferred tax liabilities (3,248) 2,680 (568)
Other liabilities (46,310) - (46,310)
---------------------------------- ----------------------------- ----------------- --------------------------------
Total liabilities (106,515) (224,401) (330,916)
---------------------------------- ----------------------------- ----------------- --------------------------------
Net assets 149,842 (2,372) 147,470
---------------------------------- ----------------------------- ----------------- --------------------------------
Retained earnings (9,687) (2,372) (12,059)
Other changes in equity 159,529 - 159,529
---------------------------------- ----------------------------- ----------------- --------------------------------
Total equity shareholders' funds 149,842 (2,372) 147,470
---------------------------------- ----------------------------- ----------------- --------------------------------
31 December Impact of Closing balance
2019 under IFRS16 at 31 December
IAS17 2019
GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ---------- ----------------
Right of use asset - 238,535 238,535
Intangible assets 77,134 9,307 86,441
Current assets 18,441 (6,413) 12,028
Other assets 176,134 (120) 176,014
---------------------------------- ------------ ---------- ----------------
Total assets 271,709 241,309 513,018
---------------------------------- ------------ ---------- ----------------
Current liabilities (61,962) 27,972 (33,990)
Finance lease liabilities - (277,578) (277,578)
Deferred tax liabilities (3,035) 2,437 (598)
Other liabilities (50,419) - (50,419)
---------------------------------- ------------ ---------- ----------------
Total liabilities (115,416) (247,169) (362,585)
---------------------------------- ------------ ---------- ----------------
Net assets 156,293 (5,860) 150,433
---------------------------------- ------------ ---------- ----------------
Retained earnings (3,081) (5,860) (8,941)
Other changes in equity 159,374 - 159,374
---------------------------------- ------------ ---------- ----------------
Total equity shareholders' funds 156,293 (5,860) 150,433
---------------------------------- ------------ ---------- ----------------
The effect on profit before tax and adjusted earnings is as
shown below. Note that the adoption of IFRS 16 as of 1 January 2019
has had a significant impact on the key performance indicators
previously adopted by the Group. As there is no impact on Group
strategy or cash, the Board has amended the definitions of KPIs,
which are non-IFRS GAAP measures, with the aim to have cash-based
measures that best reflect the underlying performance of the
business and these new definitions as defined below are those used
in this document.
- Group Adjusted EBITDA - Pre-IFRS 16 definition of Group
Adjusted EBITDA is operating profit (including IAS17 rent costs)
before depreciation, amortisation, long term employee incentive
costs and exceptional items, and is a non-IFRS GAAP measure. Post
IFRS 16 definition of Group Adjusted EBITDA is operating profit
before depreciation, amortisation, long term employee incentive
costs and exceptional items, and after cash rent costs.
- Adjusted Profit before Tax - is calculated as profit before
tax before non-IT amortisation and exceptional items.
- Adjusted Earnings - is calculated as the Group's profit for
the year before non-IT amortisation, exceptional items,
and the related tax effect.
3. New standards, interpretations and amendments adopted by the Group (continued)
31 December 2018 as reported Impact of IFRS16 31 December 2018 under IFRS16
GBP'000 GBP'000 GBP'000
Revenue 123,884 - 123,884
Cost of Sales (1,007) - (1,007)
Gross profit 122,877 - 122,877
Depreciation of property, plant and
equipment (19,710) (12,667) (33,539)
Other administration expenses (91,470) 19,629 (69,723)
Operating profit 11,697 6,962 19,615
Finance income 22 - 22
Finance costs (1,752) (10,929) (12,681)
Statutory profit before tax 9,967 (3,967) 6,956
------------------------------------ ----------------------------- ----------------- ------------------------------
31 December Impact of 31 December Impact of 31 December
2018 as IFRS16 2018 under new KPI 2018
reported IFRS16 definitions Restated*
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 123,884 - 123,884 - 123,884
Cost of Sales and Admin expenses (87,071) 21,685 (65,386) (19,367) (84,753)
IAS 17 rent costs
less: Cash rent payments
---------------------------------------------- ------------ ------------- ------------ ------------ -------------
Group Adjusted EBITDA 36,813 21,685 58,498 (19,367) 39,131
---------------------------------------------- ------------ ------------- ------------ ------------ -------------
Add back: Cash rent payments 19,367 19,367
Amortisation on IT related assets (1,013) (1,013)
Depreciation of property, plant and equipment (19,710) (13,829) (33,539) - (33,539)
Depreciation of right of use assets
Long term employee incentive costs (1,012) - (1,012) - (1,012)
Finance income 22 - 22 - 22
Finance costs (1,752) (10,929) (12,681) - (12,681)
Lease
interest
---------------------------------------------- ------------ ------------- ------------ ------------ -------------
Adjusted profit before tax 14,361 (3,073) 11,288 (1,013) 10,275
---------------------------------------------- ------------ ------------- ------------ ------------ -------------
Tax charge (2,761) 568 (2,193) - (2,193)
Tax effect of above items (370) - (370) - (370)
---------------------------------------------- ------------ ------------- ------------ ------------ -------------
Adjusted Earnings 11,230 (2,505) 8,725 (1,013) 7,712
---------------------------------------------- ------------ ------------- ------------ ------------ -------------
Earnings per share pence pence pence pence pence
Basic 5.4 (2.8) 2.6 1.0 3.6
Diluted 5.3 (2.7) 2.6 0.9 3.5
---------------------------------------------- ------------ ------------- ------------ ------------ -------------
3. New standards, interpretations and amendments adopted by the Group (continued)
31 Impact of 31 Impact of 31
December IFRS16 December new KPI December
2019 under 2019 under definitions 2019 as
IAS17 IFRS16 reported
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 153,134 - 153,134 - 153,134
Cost of Sales and Admin expenses (106,129) 27,448 (78,681) (25,913) (104,594)
IAS 17
rent
costs
less: Cash rent
payments
---------------------------------------------------- ----------- ----------- ----------- ------------ -----------
Group Adjusted EBITDA 47,005 27,448 74,453 (25,913) 48,540
---------------------------------------------------- ----------- ----------- ----------- ------------ -----------
Add back: Cash rent payments 25,913 25,913
Amortisation on IT related
assets (2,031) (2,031)
Depreciation of property, plant and equipment and
impairment (22,850) (18,833) (41,683) - (41,683)
Depreciation of right of use
assets
Long term employee incentive costs (1,900) - (1,900) - (1,900)
Finance income 32 - 32 - 32
Finance costs (2,050) (12,852) (14,902) - (14,902)
Lease interest
---------------------------------------------------- ----------- ----------- ----------- ------------ -----------
Adjusted profit before tax 20,237 (4,237) 16,000 (2,031) 13,969
---------------------------------------------------- ----------- ----------- ----------- ------------ -----------
Tax charge (3,538) 914 (2,624) - (2,624)
Tax effect of above items (1,102) (28) (1,130) 359 (771)
---------------------------------------------------- ----------- ----------- ----------- ------------ -----------
Adjusted Earnings 15,597 (3,351) 12,246 (1,672) 10,574
---------------------------------------------------- ----------- ----------- ----------- ------------ -----------
Earnings per share pence pence pence pence pence
Basic 5.6 (3.0) 2.6 - 2.6
Diluted 5.5 (2.9) 2.6 - 2.6
---------------------------------------------------- ----------- ----------- ----------- ------------ -----------
3. New standards, interpretations and amendments adopted by the Group (continued)
Change in Presentation
Following the adoption of IFRS16 Leases the Group has changed
its policy on the presentation of interest paid in the cash flow
statement and has presented them as financing cashflows rather than
operating cash flows as previously. This revised classification
better reflects the nature of the interest costs, being
substantially in relation to interest on leases and bank loans,
whilst also aligning it with the existing classification of
interest costs within the income statement.
31 December 2018 Impact of IFRS16 31 December 2018 Change in 31 December 2018
as reported under IFRS16 presentation Restated*
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ------------------ ----------------- ------------------ ------------------ ------------------
Cash flows from
operating
activities
Cash generated
from operations 42,290 19,367 61,657 - 61,657
Tax
(Paid)/Refunded (2,009) - (2,009) - (2,009)
Interest paid (1,371) (8,460) (9,831) 9,831 -
------------------- ------------------ ----------------- ------------------ ------------------ ------------------
Net cash flows
from operating
activities before
exceptional items 38,910 10,907 49,817 9,831 59,648
Exceptional items (2,105) - (2,105) - (2,105)
------------------- ------------------ ----------------- ------------------ ------------------ ------------------
Net cash flow from
operating
activities 36,805 10,907 47,712 9,831 57,543
------------------- ------------------ ----------------- ------------------ ------------------ ------------------
Cash flows from
financing
activities
Dividends paid (1,637) - (1,637) - (1,637)
Lease liabilities
paid - (10,907) (10,907) - (10,907)
Lease interest
paid - - - (8,460) (8,460)
Bank interest paid - - - (1,371) (1,371)
Payment of
financing fees (302) - (302) - (302)
Drawdown of bank
loans 12,500 - 12,500 - 12,500
Repayments of bank
loans (1,500) - (1,500) - (1,500)
Proceeds of issue
of Ordinary
shares 24,000 - 24,000 - 24,000
Costs associated
with share issue (804) - (804) - (804)
Payment of
derivative
financial
instrument (213) - (213) - (213)
------------------- ------------------ ----------------- ------------------ ------------------ ------------------
Net cash flows
(used in) / from
financing
activities 32,044 (10,907) 21,137 (9,831) 11,306
------------------- ------------------ ----------------- ------------------ ------------------ ------------------
Change in accounting estimate
The Group has reviewed the estimated useful economic life
('UEL') of gym equipment and consequently, has increased their UEL.
The impact of this change is to decrease the 2019 depreciation
charge by GBP954,000.
In addition, we reviewed the UEL of Lifestyle gym equipment and
reduced the UEL of strength equipment by two years to approximately
four years, and cardio equipment by one year to approximately three
years. The impact of this is an increase in depreciation of GBP346k
in 2019 and an estimated increase in depreciation of GBP580k in
2020.
4. Revenue
The main revenue streams are those described in the last annual
financial statements; membership income, rental income and other
income. The majority of revenue is derived from contracts with
customers.
Disaggregation of revenue
In the following table, revenue is disaggregated by major
products and service lines and timing of revenue recognition. All
revenue arises in the United Kingdom.
31 December 2019 31 December 2018
GBP'000 GBP'000
--------------------------------------------- ----------------- -----------------
Major products/service lines
Membership income 146,782 121,515
Rental income from personal trainers 4,572 875
Other income 1,780 1,494
---------------------------------------------- ----------------- -----------------
153,134 123,884
--------------------------------------------- ----------------- -----------------
Timing of revenue recognition
Products transferred at a point in time 2,550 2,062
Products and services transferred over time 150,584 121,822
----------------- -----------------
153,134 123,884
----------------- -----------------
Liabilities relating to contracts with customers
-------------------------------------------------------------------------------- -------- --------
Contract liabilities (7,961) (7,112)
--------------------------------------------------------------------------------- -------- --------
Revenue recognised that was included in contract liabilities in the prior year
-------------------------------------------------------------------------------- -------- --------
Membership income 7,051 5211
Other income 61 66
--------------------------------------------------------------------------------- -------- --------
Contract liabilities relate to membership fees received at the
start of a contract, where the Group has the obligation to provide
a gym membership over a period of time. The contract liability
balance increases as the Group's membership numbers increase, and
therefore has increased between 2018 and 2019.
5. Exceptional items
31 December 2019 31 December 2018
GBP'000 GBP'000
Remeasurement of contingent consideration 2,988 -
Impairment and other costs arising as a 2,688 -
result of site closures
Restructuring costs 410 1,239
Acquisition costs - 644
Acquisition integration costs - 460
------------------------------------------------------ ---------------------------- ----------------------------
Total exceptional items in operating
expenses 6,086 2,343
------------------------------------------------------ ---------------------------- ----------------------------
Refinancing costs 486 -
----------------------------------------------------- ---------------------------- ----------------------------
Total exceptional items in financing 486 -
expenses
----------------------------------------------------- ---------------------------- ----------------------------
Total exceptional items 6,572 2,343
------------------------------------------------------ ---------------------------- ----------------------------
5. Exceptional items (continued)
Remeasurement of contingent consideration relates to a change in
the probability-based estimate of contingent consideration that
will be payable for the acquisition of two easyGym sites in the
event the Group is successful in acquiring new leases for these
sites. This remeasurement of the acquisition consideration has been
recognised in the income statement but has no cash impact in
2019.
Impairment and other costs arising as a result of site closures
relate to the closure of three sites during 2019, which arose as
part of our estate management in order to optimise group
performance; the closures comprised two sites acquired from the
Lifestyle and easyGym acquisitions plus one site opened in 2015 for
which a 5-year break clause was exercised by the Group. These costs
substantially relate to the impairment of right of use assets,
leasehold improvements and gym equipment, and the provision for
post-closure costs.
Refinancing costs relate to unamortised costs incurred in
relation to the previous bank facility that was refinanced in
October 2019.
Restructuring costs relate to the costs associated with changing
the operating model for the use of personal trainers within the
business that was completed in 2019.
6. 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
(see note 13).
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 2019, 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 (see note 13).
31 December 2019 31 December 2018
Restated*
2019 2018
Basic weighted average number of shares 137,870,237 133,301,917
Adjustment for share awards 2,561,055 1,569,233
-------------------------------------------- ----------------- -----------------
Diluted weighted average number of shares 140,431,292 134,871,150
Basic earnings per share (p) 2.6 3.0
Diluted earnings per share (p) 2.6 2.9
-------------------------------------------- ----------------- -----------------
* See note 3 for details regarding the restatement as a result
of the IFRS 16 adoption
Adjusted earnings per share is based on profit for the year
before exceptional items, amortisation of non-IT intangible assets
and their associated tax effect.
31 December 2019 31 December 2018
Restated*
GBP'000 GBP'000
Profit for the year 3,595 4,763
Amortisation of non-IT intangible assets 1,273 976
Exceptional items 6,572 2,343
Tax effect of above items (771) (370)
------------------------------------------- ----------------- -----------------
Adjusted earnings 10,669 7,712
Basic adjusted earnings per share (p) 7.7 5.8
Diluted adjusted earnings per share (p) 7.6 5.7
------------------------------------------- ----------------- -----------------
* See note 3 for details regarding the restatement as a result
of the IFRS 16 adoption
7. 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.
During the year ended 31 December 2019 the remaining deferred
consideration of GBP2.1 million was paid.
During 2019 the Directors reassessed the probabilities of the
lease extensions occurring in respect of the two sites concerned
and now consider these to be virtually certain. As a consequence
the estimated fair value of contingent consideration payable in
respect of these lease extensions at 31 December 2019 has increased
by GBP3.0m to GBP3.9 million (2018: GBP0.9 million).
The undiscounted settlement value of the contingent
consideration could be between GBPnil and GBP3.9 million. The
contingent consideration has been recognised at its fair value of
GBP3.9 million using an expected value methodology. This is a Level
3 valuation under the fair value hierarchy .
A loss of GBP3.0 million was recognised in profit and loss
during the year in relation to the liability (see note 7). 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, it has been assumed that the probability
of the relevant leases being extended is now 100% (2018: a range of
nil to 50% probability). 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 banking
facilities of GBP10.0 million.
Prior to 3 July 2019 the Group also finalised the fair values of
the assets and liabilities of these business combinations. The
adjustments made in finalising fair values relate to the adjustment
of fair value of the gym equipment acquired and the restated 2018
amounts are shown below.
The details of the purchase consideration, the net assets
acquired and goodwill are as follows:
Fair value as previously reported Adjustments Total
GBP'000 GBP'000 GBP'000
Net assets acquired:
-------------------------------------------- ---------------------------------- ----------------- --------
Intangibles 768 - 768
Property, plant and equipment 11,705 (836) 10,869
Provisions (360) - (360)
Deferred tax (1,008) - (1,008)
Net assets 11,105 (836) 10,269
Goodwill 10,397 836 11,233
Total consideration 21,502 21,502
--------------------------------------------- ---------------------------------- ----------------- --------
Satisfied by:
Cash consideration 14,500 - 14,500
Deferred and contingent consideration 7,002 - 7,002
--------------------------------------------- ---------------------------------- ----------------- --------
Total consideration 21,502 21,502
--------------------------------------------- ---------------------------------- ----------------- --------
Net cash outflow arising from acquisition: 31 December 2019 31 December 2018
-------------------------------------------- ---------------------------------- -----------------
Deferred consideration paid 2,114 4,000
Cash consideration - 14,500
--------------------------------------------- ---------------------------------- -----------------
Net cash outflow in the year 2,114 18,500
--------------------------------------------- ---------------------------------- -----------------
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.
8. Property, plant and equipment
Assets Leasehold Fixtures, Gym and Computer Total Right of Total
under improvements fittings other equipment before use assets
Construction and equipment Right
equipment of use
assets
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January
2018 (as
previously
reported) 2,368 118,075 9,452 57,719 1,950 189,564 - 189,564
On adoption
of IFRS 16 - - - - - - 205,582 205,582
At 1 January
2018
(restated) 2,368 118,075 9,452 57,719 1,950 189,564 205,582 395,146
Transfers (23,412) 16,403 247 6,465 297 - - -
Additions 23,409 10,403 827 4,143 519 39,301 60,411 99,712
Business
combinations - 9,165 183 2,357 - 11,705 - 11,705
Disposals - (191) - (987) - (1,178) - (1,178)
At 31 December
2018 (as
previously
reported) 2,365 153,855 10,709 69,697 2,766 239,392 265,993 505,385
Fair Value
adjustment
- see note
13 - - - (836) - (836) - (836)
At 31 December
2018
(Restated) 2,365 153,855 10,709 68,861 2,766 238,556 265,993 504,549
Additions 24,672 7,462 519 3,968 251 36,872 41,841 78,714
Disposals - (157) - (580) - (737) - (737)
Transfers (23,338) 15,566 655 6,903 215 - - -
---------------- ------------- ------------- ----------- ----------- ----------- -------- ----------- --------
At 31 December
2019 3,699 176,726 11,883 79,152 3,232 274,692 307,835 582,526
---------------- ------------- ------------- ----------- ----------- ----------- -------- ----------- --------
Accumulated
depreciation
At 1 January
2018 (as
previously
reported) - 25,944 4,163 24,981 1,114 56,202 - 56,202
On adoption
of IFRS 16 - - - - - 35,169 35,169
---------------- ------------- ------------- ----------- ----------- ----------- -------- ----------- --------
At 1 January
2018
(restated) - 25,944 4,163 24,981 1,114 56,202 35,169 91,371
Charge for
the year - 9,868 1,310 8,021 511 19,710 13,829 33,539
Disposals - (139) - (892) - - - (1,031)
At 31 December
2018 - 35,673 5,473 32,110 1,625 74,881 48,998 123,879
Charge for
the year - 12,238 1,308 8,406 619 22,571 19,112 41,683
Disposals - (110) - (347) - (457) - (458)
Impairment - 1,165 24 498 9 1,696 1,189 2,885
At 31 December
2019 - 48,966 6,805 40,667 2,253 98,691 69,299 167,990
---------------- ------------- ------------- ----------- ----------- ----------- -------- ----------- --------
Net book value
At 31 December
2018
(Restated) 2,365 118,182 5,236 36,751 1,141 163,675 216,995 380,670
At 31 December
2019 3,699 127,760 5,078 38,485 979 176,001 238,535 414,536
---------------- ------------- ------------- ----------- ----------- ----------- -------- ----------- --------
The impairment charge of GBP2,885,000 for 2019 relates mainly to
the closure of three sites during 2019. See note 5 for further
details.
Right of use assets relate to property leases.
9. Borrowings
31 December 31 December 2018
2019
GBP'000 GBP'000
Current
----------------------------------------- ----------------------- ----------------------------
Revolving credit facility(1) - 3,000
Non-current
----------------------------------------- ----------------------- ----------------------------
Facility A - 10,000
Facility B - 36,000
Revolving credit facility(1) 50,000 -
Loan arrangement fees (884) (835)
------------------------------------------ ----------------------- ----------------------------
49,116 45,165
Total borrowings 49,116 48,165
(1) Prior to the debt refinancing in 2019, the revolving credit
facility supported working capital requirements and therefore was
classified within current liabilities.
The Group's bank borrowings are secured by way of fixed and
floating charges over the Group's assets.
In October 2019, the Group successfully refinanced its
borrowings, moving from a mix of term loans and RCF to a single
committed RCF of GBP70m with an uncommitted GBP30 million accordion
facility, giving the Group an option (subject to lender approval)
to increase its total borrowings under the facility to GBP100
million. The facility is syndicated to a three lender panel of
HSBC, Barclays and Sabadell and matures in 2023. The funds borrowed
under the facility bear interest at a minimum annual rate of 1.75%
(2018: 2.5%) above the appropriate Sterling LIBOR. The average
interest rate paid in the year on drawn funds under the new
facility is 2.71% (2018 previous facility:3.21%). Undrawn funds
bear interest at a minimum annual rate of 0.613% (2018: 0.875%). At
the year end, the Group had drawn down GBP50 million (2018: GBP49
million) on the facility.
The refinancing of the previous facility resulted in its
derecognition and a charge to the Consolidated Statement of
Comprehensive Income of GBP487,000 relating to the balance of
unamortised financing fees. The fees incurred in connection to the
new arrangement were GBP873,000 and the costs will be spread over
the term of the loan using the effective interest method. The
facility is recognised at its amortised cost.
Covenants
The RCF is subject to financial covenants relating to leverage
and fixed charge cover, which did not change significantly from
those under the previous facility. The Group has been in compliance
with all of the covenants during the periods under review. Breach
of the covenants following a cure period would render any
outstanding borrowings subject to immediate settlement.
10. Issued capital
The total number of issued share capital as at 31 December 2020
is 137,870,237
11. Long term employee incentive costs
The Group operates share based compensation arrangements under
The Gym Group plc Performance Share Plan and The Gym Group plc
Share Incentive Plan. The awards granted during the year are
similar in nature to those awarded during 2018.
For the year ended 31 December 2020, the Group recognised a
total charge of GBP1,900,000 (31 December 2018: GBP1,012,000) in
respect of the Group's share based long term incentive plans and
related employer's national insurance.
Five Year Record
For definitions of these key performance indicators refer to
page 13. The following table sets out a summary of selected key
financial information and key performance indicators for the
business under IFRS 16.
2019 2018 2017 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------------- ------------ ------------ ------------ ------------
Revenue 153,134 123,884 91,377 73,539 59,979
Group Adjusted EBITDA 48,540 39,131 30,558 25,377 20,684
Group Operating Cash Flow 40,763 33,972 24,677 24,944 18,616
Expansionary Capital Expenditure 32,504 57,551 52,453 20,922 28,230
Non-Property Net Debt 47,395 45,973 37,543 5,178 7,140
Non-Property Net Debt to Group
Adjusted EBITDA 0.98x 1.17x 1.23x 0.2x 0.35x
Total number of gyms (number) 175 159 128 89 74
Total number of members ('000) 794 724 607 448 376
Average Revenue per Member per
Month (GBP) 16.02 14.89 14.41 14.31 14.08
Number of Mature gyms in operation
(number) 109 89 74 55 40
Mature Gym Site EBITDA 48,113 38,967 32,376 26,589 19,490
Return on Invested Capital for
Mature Sites 31% 30% 30% 32% 32%
------------------------------------ -------------- ------------ ------------ ------------ ------------
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 EAKDNFSAEEEA
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