INTERIM RESULTS August 2016 Forward-looking statement disclaimer - - PowerPoint PPT Presentation

The Gym Group plc

INTERIM RESULTS

August 2016

This presentation and information communicated verbally to you may contain certain projections and other forward-looking statements with respect to the financial condition, results of operations, businesses and prospects of The Gym Group Plc. These statements are based on current expectations and involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Any of the assumptions underlying these forward-looking statements could prove inaccurate or incorrect and therefore any results contemplated in the forward-looking statements may not actually be achieved. Nothing contained in this presentation or communicated verbally should be construed as a profit forecast or profit estimate. Investors or other recipients are cautioned not to place undue reliance on any forward-looking statements contained herein. The Gym Group Plc undertakes no obligation to update or revise (publicly or

• therwise) any forward-looking statement, whether as a result of new information, future events or other circumstances. Neither this

presentation nor any verbal communication shall constitute an invitation or inducement to any person to subscribe for or otherwise acquire securities in The Gym Group Plc.

1

Forward-looking statement disclaimer

Summary performance

2

Estate

 80

sites

(H1 2015: 63 sites)

Revenue

 £36.1m

+ 25.1% vs PY

Group Adjusted EBITDA

 £11.5m

+ £3.0m (35.2%) vs PY

(H1 2015 : £8.5m)

Adjusted PBT

£4.6m

(H1 2015: Adjusted loss £0.8m)

Adjusted EPS

2.8p

per share Strong cash generation Net Debt

£2.5m

as at June 2016

Maiden interim dividend

0.25p

• Av. member

growth of + 22.8%

• Av. revenue

per member growth + 1.6%

3

Outlook Financial Update Strategic and Operational Update

A disruptive concept and compelling proposition

4

Significant market opportunity Market leader Compelling consumer proposition Low-cost, technology-led disruptive business model High quality and well invested gym estate Experienced management team led by Founder / CEO Attractive financial model

Value proposition that can prosper in a challenging economic environment

Key success factors for The Gym Group

5

• 1. All gyms open 24/7 excluding 3 gyms due to licensing restrictions

Keys to success in low cost gym market

Know how & expertise

• 8 years refinement of the model:

– Large format, high utilisation gyms – Efficiently marketing a low-cost proposition online – Integration of multiple components of technology

Ability to source sites

• Dedicated acquisitions team: well networked with landlords and agents
• Historic data about what works (and what doesn’t)
• Strong covenant and brand, impacted positively by IPO

Scale advantages

• Increasing returns to scale for large operators
• Reducing marginal costs to operate and fit out

Access to capital

• High quality, durable gym fit-out with significant upfront capex
• Bank debt is difficult to secure until operators have reached a position of scale

Technology

• Technology key to a successful low-cost product offering
• Underpins low staff costs: facilitates online model, 24/7(1)

access and generates valuable data

    

6

1. Leisure Database Company (LDC) Report: Data as at 31 March 2016. Total annual membership revenue of all health and fitness clubs in the UK (private and public). 2. Market growth as at 31 March 2016. Source: LDC Report. Figures based on March of 2012-2016. 3. % of joiners new to gyms as disclosed by completed annual surveys up to December 2015. Minimum response rate of ~30%.

Market

• pportunity

A large, fragmented health & fitness market in the UK Low cost gyms are the fastest growing sub-segment The model is growing the market Significant

• pportunity for

further growth in low cost space

• UK market

underpenetrated vs. international precedent

• Low-cost successful

in a number of other UK sectors

£4.4bn(1)

UK gym market value

6,435

gyms(1)

In the UK

~55%(2)

Market CAGR

>30%

• f joiners new to

gym membership (3) Aldi / Lidl, Travelodge / Premier Inn, easyJet / Ryanair

Number of UK gyms

6,435

Low cost Traditional private independent Public

450 1,378 1,872 2,735

Traditional private multi-club

Market

• pportunity

7

1. Source: LDC Report. Number of clubs as at 31 March 2016. 2. Source: LDC Report. Private and public clubs. Private market value of £3.09bn and public market value of £1.34bn. Figures based on March of each year (private and public). 3. Source: LDC Report. Figures based on March of each year.

…with low-cost driving market growth Low-cost driving increase in members A fragmented market… UK health and fitness market by number of private and public clubs(1)

2012-16 CAGR

+3.5% +54.6% +1.5% 5.6% 56.9% (1.4%)

Total UK health and fitness market (£bn)(2) Number of UK private gym members (m)(3)

3.8 3.8 3.9 4.0 4.0 0.1 0.1 0.2 0.3 0.4

3.9 3.9 4.1 4.3 4.4

1 2 3 4

2012 2013 2014 2015 2016 Traditional private and public Low Cost Total

Large (£4.4bn) UK gym market with a growing low-cost segment(2)

4.3 4.2 4.1 4.1 4.1 4.0 0.2 0.4 0.7 0.9 1.3 1.9

4.5 4.6 4.8 5.0 5.4 5.9

0.5 1.5 2.5 3.5 4.5 5.5 6.5 2011 2012 2013 2014 2015 2016

Traditional Low Cost

Operational KPIs

Strong performance of existing gyms

• Revenue £36.1m +25.1%

(H1 2015: £28.9m)

• Average members 420,000

+22.8% (H1 2015: 342,000)

• Average revenue per member

£14.31, +1.6% (H1 2015: £14.08)

• EBITDA per site increased by

2.7% to £187,000 (H1 2015: £182,000) Further efficiencies from low cost operating model

• Group EBITDA margin up 2.4%

to 31.9% (H1 2015: 29.5%)

• Average site operating costs

down 3.4% vs H1 2015

• Average site capital cost

maintained at £1.35m

8

22.3 35.7 45.5 60.0 28.9 36.1 2012 2013 2014 2015 H1 2015 H1 2016

Revenue £m Group Adjusted EBITDA £m

6.0 11.8 14.7 17.0 8.5 11.5 2012 2013 2014 2015 H1 2015 H1 2016

Gyms (#) Members (k)

1 5 10 16 32 40 55 74 80

2008 2009 2010 2011 2012 2013 2014 2015 H1 2016

7 26 58 96 166 225 293 376 424

2008 2009 2010 2011 2012 2013 2014 2015 H1 2016

6

sites

• pen in

H1 2016

Further operational progress

Strengthen the customer proposition

• Net Promoter Score of 62.0%

up 1.8% compared to year end

• Feefo score of 93.5% for 6

month period

• Improved classes; 15 gyms

with investment in free weights areas and functional zones in H1 Focus on team and people

• Awarded Gold Investors in

People in May 2016

• All Staff Share Scheme, each

employee granted £1,000 free shares and the ability to invest in additional shares

• Nick Henwood joins as

Operations Director, following similar roles at David Lloyd Leisure, Mothercare and Autoglass

• Barney Harrison joins as

Marketing Director, with extensive experience gained at Sky

9

15,000 15,500 16,000 16,500 17,000 17,500 18,000 18,500 19,000 19,500 2010 2011 2012 2013 2014 2015

Property rollout

2016 Progress

• 6 gyms opened in H1 2016
• Openings weighted towards

Q4 2016

• Strong line up of London

centric openings for 2016 (e.g. Lewisham, Sunbury, Dagenham)

• Well-developed pipeline for

2017 including contracts exchanged on 4 sites from another operator in August 2016

10

Southfields 11/04/16 13,200 sq. ft. New build mixed use development Southall 24/05/16 17,300 sq. ft. Converted

• ffice building

Glasgow Bothwell Street 24/03/16 20,200 sq. ft. Converted retail property Norwich Hall Road 23/05/16 10,400 sq. ft. New build Tooting 29/06/16 16,300 sq. ft. New build mixed use development Harrow on the Hill 24/06/16 14,200 sq. ft. New build mixed use development

Rolling average sq ft

• 4.0%

Rolling average sq ft mature site CAGR to 2015(1) Rolling average members per sq ft for mature sites 2015:

0.35

CAGR to 2015:

• 0.8%

Target of

15-20

new sites p.a.

• ver medium

term

New at 2015 Mature at 2015 1. Sites open at December 2013. Rolling average sq ft CAGR of sites open at December 2015 is -2.8%.

11

Outlook Financial Update Strategic and Operational Update

£'m H1 2016 H1 2015 % Change Revenue 36.1 28.9 + 25.1% Group Adjusted EBITDA (1) 11.5 8.5 + 35.2% % Margin 31.9% 29.5% + 2.4% Adjusted PBT (2) 4.6 (0.8) Adjusted EPS (3) 2.8p

• 3.3p
• Average membership growth +22.8% and

average revenue per member +1.6% driving

• verall revenue growth of 25.1%
• Group Adjusted EBITDA grew by £3.0m to

£11.5m driven by increased size of the estate and improved average EBITDA per site

• Group Adjusted EBITDA margin up 2.4% to

31.9% as estate matures

• Adjusted Profit before Tax of £4.6m an increase
• f £5.4m versus prior year
• Adjusted Earnings per Share of 2.8p resulting

from both increased Adjusted Earnings and dilution arising on the issue of shares on IPO

12

Source: Group’s consolidated results. 1. Group Adjusted EBITDA is calculated as operating profit before depreciation, amortisation, long term employee incentive costs, exceptional items and other income. 2. Adjusted PBT is calculated as Group Adjusted EBITDA less depreciation, net finance costs and long term employee incentives. 3. Adjusted EPS is calculated as the Group's profit for the year before amortisation, exceptional items, other income and the related tax effect, divided by the basic weighted average number of shares.

Summary financials

• Site EBITDA margin reflects immaturity of
• estate. At H1 2016 25 sites open since Dec

2014 (H1 2015: 23 sites open since Dec 2013)

• Central cost investment supports rollout
• Depreciation maintained at 17% of revenue
• Exceptional costs in 2016 substantially

reduced versus 2015

• Finance costs in prior year reflect pre-IPO

financing structure

• Full year tax rate of 22% anticipated due to

prior year adjustment, expect 25% in 2017

• £1.1m pre-opening costs for

the period (H1 2015: £1.2m)

13

1. Pre-opening costs means the costs associated with new site openings, which primarily consists of staff costs, marketing and rent. 2. Adjusted profit before tax is calculated as Group Adjusted EBITDA less depreciation, net finance costs and long term employee incentives.

Group income statement

£'m H1 2016 H1 2015 % Change Revenue 36.1 28.9 25.1% Site EBITDA 15.0 11.4 30.8% Central costs (3.5) (2.9) 18.0% Group Adjusted EBITDA 11.5 8.5 35.2% Depreciation (6.1) (4.9) Amortisation (1.0) (1.1) Long term employee incentives (0.5)

• Exceptionals

(0.2) (1.5) Operating Profit 3.8 1.1 243.5% Finance costs (0.4) (4.4) Profit / (loss) before tax 3.4 (3.3) Tax (0.9) (0.7) Profit / (loss) after tax 2.5 (4.0) Group adjusted EBITDA pre – POC (1) 12.6 9.7 30.2% Adjusted PBT (2) 4.6 (0.8) Adjusted Earnings 3.6 (1.7) Site EBITDA Margin 41.5% 39.6% 1.9% Operating profit margin 10.4% 3.8% 6.6%

14

EBITDA increased 35.2%

8.5 11.5 1.0 2.5 0.1 ( 0.6 )

H1 2015 Group Adjusted EBITDA Sites open up to December 2014 2015 and 2016

• penings

Pre opening costs Central costs H1 2016 Group Adjusted EBITDA

£ millions

Average Site EBITDA(1) up 2.7% to £187,000 (H1 2015: £182,000)

1. Average Site EBITDA is calculated as Group Adjusted EBITDA contributed by the gym portfolio divided by the number of sites at the period end.

Ancillary income

• 90% of income is recurring

monthly fees; remainder is joining fees and ancillary income

• Ancillary income defined as

revenue from vending, day membership passes and other sources

• New vending contract rolled
• ut to 65% of the estate; 84%

increase in vending gross profits

• Day membership income

reflects growth in members. Currently priced at £4.99 to £9.99 depending on location. Introduction for prospective members

• Exploring alternative revenue

streams – e-shop and affiliate partnerships

15 £’m H1 2016 H1 2015 % Change Revenue 36.1 28.9 25.1% Cost of sales (0.4) (0.6) Gross Profit 35.7 28.3 25.9% Gross Profit Margin 98.8% 98.2%

Operational costs

• Average number sites: 76

in H1 2016 (59 in H1 2015)

• Average site operating costs

3.4% lower than prior year as efficiencies are gained from a larger estate

• Impact of strong cost control

and growth in the estate results in 30.8% increase in Site EBITDA £'m H1 2016 H1 2015 % Change Operating costs (1) 10.0 8.0 25.1% Property costs (1) 9.6 7.7 24.3% Site operating costs excluding pre opening costs 19.6 15.7 24.7% Average per site Operating costs 0.13 0.14 Property costs 0.13 0.13 Site operating costs excluding pre opening costs 0.26 0.27

• 3.4%

16

1. Operating and property costs excluding pre-opening costs.

Group cash flow

• Strongly cash generative

model with Group Operating Cash Flow Conversion(2) of 116.9%

• Positive cash flow from

negative net working capital of £2.8m (IFRS accounting for leases, lease incentives and strong revenue growth)

• Expansionary capex reflecting

6 openings in H1 2016

17

Source: Group’s consolidated results. 1. Group Operating Cash Flow is calculated as Group Adjusted EBITDA less working capital and less maintenance capital expenditures. 2. Group Operating Cash Flow Conversion is calculated as Group Operating Cash Flow as a percentage of Group Adjusted EBITDA

£’m Net debt at 1 January (7.1) Group operating cash flow 13.5 Expansionary capital expenditure (8.5) Financing costs and exceptionals (0.4) Net debt at 30 June (2.5)

11.5 13.5 4.6 2.8 (0.8) (8.5) (0.4)

Group Adjusted EBITDA Working Capital Maintenance Capex Group Operating Cash Flow (1) Expansionary Capex Net Financing Costs & Exceptional Items Net Cash Flow

£ millions

Expansionary

• Initial site investment, central IT projects and

product enhancement

• New gym fit-out costs remain at £1.35m per

site

• Product enhancement (£0.3m) and IT spend

(£0.3m) Maintenance

• Maintenance capex - full year weighted

towards H2

• Maintenance made up of gym equipment

replacement, 5 year refreshes and refurbishment

18

Capital expenditure

£'m H1 2016 H1 2015 % Change

Expansionary Capex 8.5 12.6

• 32.7%

Maintenance Capex 0.8 0.7 15.7% Total Capital Expenditure 9.3 13.3

• 30.1%

19

KPIs

£'m Financial H1 2016 H1 2015 H1 2014 15-16 % change FY 2015 Revenue 36.1 28.9 22.0 25.1% 60.0 Group Adjusted EBITDA 11.5 8.5 7.9 35.2% 17.0 Group Adjusted EBITDA before POC 12.6 9.7 8.4 30.2% 19.7 Group Operating Cash Flow 13.5 11.8 8.0 13.6% 18.6 Group Operating Cash Flow Conversion 116.9% 139.2% 101.4% 109.4% Expansionary Capital Expenditure 8.5 12.6 8.0

• 16.0%

28.2 Net Debt 2.5 55.7 39.5 7.1 Operational Total gyms in operation 80 63 44 27.0% 74 Total number of members ('000) 424 355 266 19.4% 376 Average number of members ('000) (1) 420 342 261 22.8% 355 Average revenue per member per month (£) (2) 14.31 14.08 14.06 1.6% 14.08

1. Average number of members is calculated as the total number of members divided by the number of months in the period. 2. Average revenue per member per month is calculated as revenue divided by the average number of members divided by the number of months in the period and has been calculated on a consistent basis for H1 2016 and H1 2015

20

Outlook Financial Update Strategic and Operational Update

• Strong membership growth in H1 to

424,000 +19% vs H1 2015 in line with the Board’s expectations

• Opening programme on track; 6 open at

end of H1 2016; targeting 15-20 sites in full year with strong London bias;

• penings back ended Q4
• Pipeline strong for 2017
• On track to meet market expectations for

profit in 2016

• A value proposition that prospers in any

economic environment

21

Outlook

Appendix

22

10 12 12 12 15 30 48 35

75

147

24/7 Fitness Simply Gym TruGym Fitness4Less Easy Gym Sports Direct Fitness Fit4Less Xercise4Less The Gym Pure Gym

23

• 1. Top 10 operators as per LDC report and LDC data as at 31 March 2016 and LDC data.
• 2. The majority of Sports Direct Fitness estate was previously not classified as low cost by LDC but due to decrease in prices across the estate, are now part of the low cost analysis.

The Gym is a market leader

The Gym

Leading player with significant market

• pportunity

No fixed contract 24/7

UK low-cost gym market landscape as at 31 March 2016(1) # of clubs (ranked by # of members)

Business model: financial dynamics

Property rent costs

• Leasehold with fixed

step-up every 5 years(1)

• Under IFRS, the 5 year fixed

uplift charge smoothed over life lease

• Higher P&L charge than

actual cash cost Depreciation

• Depreciation P&L charge

relatively high given upfront cost of investment in sites

• Depreciation charge does

not reflect maintenance capex spend

• Maintenance capex spend

approximately £630k over a 7 year cycle compared to c.£170k of depreciation per gym in 2015

24

Source: Group’s consolidated results. 1.Newer leases generally have initial terms of 15 years, with upwards-only rent adjustments every five years, typically either by fixed increases or increases in line with RPI or CPI. 2.Pre-opening costs means the costs associated with new site openings, which primarily consists of staff costs, marketing and rent. On average in the year ended 31 December 2015.

Pre-opening costs

• Indicative pre-opening

cost c.£140k(2) per site

• Costs incurred before

revenue benefits; (negative site operating profit in initial year of opening)

• Pre-opening marketing

maximises opening membership

£m 2015 Revenue 60.0 Depreciation 10.9 Depreciation as a % of revenue 18% Average number of gyms 64 Depreciation per site (£’k) 170

Cash IFRS Yr1 Yr5 Yr10 Yr15 Charge

Yield management

Two stage process: 1. Drive membership up to maturity

• Price range £10.99-£24.99 per month(1)
• Typically £20.00 joining fee charged
• Price point regularly reviewed
• Price decision data inputs:

– Gross demand and net membership build – Penetration into local catchment – Competition – Capacity utilisation and usage patterns

• 2. At maturity manage yield
• Price to maximise sustainable profit
• Yield from multi-site upgrades
• Attrition drives natural yield maturation

25

1. Multi-site is £25.99

1000 2000 3000 4000 5000 6000 7000 8000 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15

Illustrative Site Yield Maturation

£5.00 £10.99 £12.99 £17.99 £20.99

Financial model

Technology led operating model with high margins and returns

• Low operating costs
• Leases(1) typically fixed

rental uplifts

• Fit-out reducing with scale

Maturity: Members

• Average 6,000 members

after 2 years(2)

• Strong pre-opening process:
• pen with 3,000 members

26

Source: Group’s consolidated results. 1. Newer leases generally have initial terms of 15 years, with upwards-only rent adjustments every five years, typically either by fixed increases or increases in line with RPI or CPI. 2. 3 small sites average @10,700 sq.ft. open in 2012/13. Smaller sites have less members. 3. Actual Mature Gym site metrics in 2015 based off 40 Mature sites open to 31 Dec 2013. 4. Fixed property costs include Rent, Rates, Service Charge and Landlord Insurance,. 5. Other Opex includes all other costs below Gross Profit, the principal costs are Marketing, Staff, Utilities, Cleaning, Repairs and Maintenance and Administration costs such as travel

Maturity: Site EBITDA

• Site EBITDA lags

number growth

• Initial losses from

pre-opening costs

Illustrative returns on Mature Gym Site metrics(3): Average Mature Gym Site Members (#) Average Estate

2015 Revenue £1.02m Gross profit 98% Fixed property costs(4) 26% Other opex(5) 26% EBITDA £0.47m EBITDA margin 46% Capital cost 2008-14 Actual Capital cost 2015 Actual £1.5m £1.35m ROCE 2008-14 Actual ROCE 2015 Cost (Illustrative) 31% 34%

• 200,000
• 100,000

100,000 200,000 300,000 400,000 500,000

• 3 -1 1 3 5 7 9 11131517192123

LTM EBITDA Months Since Opening

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 (3)(1) 1 3 5 7 9 11 13 15 17 19 21 23

Shareholders

27 28.1% Phoenix Advised Funds 13.9% Bridges Community Ventures 6.1% Management Others holding <3% 19.0% 32.9% Institutions holding >3%(1)

1. Includes Standard Life Investments, Hargreave Hale, Soros Fund Management, Fidelity International and Columbia Threadneedle.

• Founder and CEO since

November 2007

• Previously Managing Director at Crown

Sports PLC and Founder of Dragons Health Clubs

• CFO since May 2015
• Previously CFO of Essenden PLC and

Paramount Restaurants

• Property Director since October 2013
• Previously Director of Property at

Matalan and agent roles for KwikSave, Iceland Frozen Foods and MFI Hygena

• IT & Digital Director since June 2014,

and primary IT & digital consultant to The Gym Group since 2011

• Co-founder of two digital marketing

agencies, and Digital Agency Director from 2000 until 2013

• Joined the team in August 2016
• Previously Operations Director at

David Lloyd Leisure, Mothercare and Autoglass

• Will join the team in October 2016
• Previously held several Head of

Marketing and Acquisition roles at Sky

The Gym Group team

28 John Treharne Chief Executive Officer Richard Darwin Chief Financial Officer Jonathan Spaven Property Director Jasper McIntosh IT & Digital Director Nick Henwood Operations Director Barney Harrison Marketing Director