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The Gym Group plc   -  GYM   

2019 Interim Results

Released 07:00 29-Aug-2019

RNS Number : 4792K
The Gym Group plc
29 August 2019
 

The Gym Group plc

('the Company' or 'The Gym')

 

2019 Interim Results

Strong first half delivering continued profitable growth

 

The Gym Group plc, the fast growing, nationwide operator of 1661 low cost 24/7 no contract gyms2, announces its interim results for the six month period ended 30 June 2019.

Financial Highlights

 

 

 Post IFRS 16

Pre IFRS 16

 

Six months ended 30 June 2019

Six months ended 30 June 2018

Movement

Six months ended 30 June 2019

Six months ended 30 June 2018

Movement

Revenue (£'000)

73,988

58,327

26.9%

73,988

58,327

26.9%

Group Adjusted EBITDA (£'000)

24,023

18,775

28.0%

22,593

17,533

28.9%

Adjusted Profit before Tax (£'000)

7,113

4,641

53.3%

9,110

6,677

36.4%

Adjusted Earnings (£'000)

5,484

3,545

54.7%

7,081

5,127

38.1%

Adjusted EPS (p)

4.0

2.8

42.9%

5.1

4.0

27.5%

Free cash flow (£'000)

16,049

13,610

17.9%

16,049

13,610

17.9%

18,692

16,421

13.8%

18,692

16,421

13.8%

 Note: for a summary of KPI definitions used in the table see section provided below the financial review.

·      Revenue of £74.0 million, an increase of 26.9% (H1 2018:  £58.3 million)

·      Group Adjusted EBITDA of £24.0 million, an increase of 28.0% (H1 2018: £18.8 million); EBITDA margin increases to 32.5% (H1 2018: 32.2%)

·      Adjusted profit before tax of £7.1 million, up 53.3% (H1 2018: £4.6 million)

·      Statutory profit before tax increased by 80.5% to £5.6 million (H1 2018: £3.1 million)

·      Adjusted EPS of 4.0p, an increase of 42.9% (H1 2018: 2.8p)

·      Non-Property Net Debt broadly flat at £47.2 million (December 2018: £46.0 million)

·      Interim dividend of 0.45 pence per share declared, up 28.6% (H1 2018: 0.35 pence)

 

Strategic and Operational Progress

·      8 new gyms opened in H1 2019 bringing total estate to 1651

·      Membership numbers increased by 10.6% to 796,000 (H1 2018: 720,000)3

·      New operating model (New Gym Team) transition to be completed by 1 September 2019

·      LIVE IT take-up grows to 135,000 (H1 2018: 55,000) representing 16.9% of total members at 30 June 2019

·      Increase in the average revenue per member per month to £15.47 (H1 2018: £14.65) of which £0.16 was from rental income from personal trainers under the New Gym Team operating model

 

Current Trading and H2

·      In the first two months of H2, the Company has continued to trade well and in line with our expectations

·      On track to meet opening schedule of 15 -20 standard catchment gyms in 2019

·      First small box site to open in Newark, Nottinghamshire at capital cost of £0.70-0.75 million

·      The Company is on track to achieve our financial and operational plans for the full year

 

Richard Darwin, CEO of The Gym Group, commented:

"Our rapid and profitable growth has been achieved through operating high quality great value gyms that offer affordable fitness for all. Our growing membership visited a record 24 million times in the first half of the year demonstrating the wide and diverse appeal of The Gym. Continued investment in systems, infrastructure and people to scale the business is enabling us to take advantage of the huge growth potential that exists in the low cost gym market. We are on track to open between 15 and 20 standard catchment gyms this year whilst our new "small box" format further increases the number of towns that we can go to. We are confident that we can deliver further profitable growth both this year and in the years to come."

An audio webcast of the analyst presentation will be available live on http://view-w.tv/795-1295-22261/en at 9.30 today.

For further information, please contact

The Gym Group

Richard Darwin, CEO

Mark George, CFO

 

via Instinctif Partners

Instinctif Partners

Matthew Smallwood

Justine Warren

020 7457 2020

 

Numis

Luke Bordewich

George Price

 

 

 

020 7260 1000

Peel Hunt

Dan Webster

George Sellar

020 7418 8900

 

 

 

 

1165 as of 30 June 2019 (vs 158 at 31 December 2018) with eight new sites opened in H1 2019 and one site recently closed (Birmingham Corporation Street). 166 sites as at 29 August 2019

2 All gyms open 24/7 excluding nine gyms as at 30 June 2019 due to licensing restrictions.

3 Average number of members grew 20.0% to 797,000 (H1 2018: 664,000). Average members excludes new sites not open at the period end. Proforma members of 720,000 as at 30 June 2018 (including easyGym members acquired on 4 July 2018)

 

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.

Chief Executive's Review

The Gym Group has traded well in the first half of 2019, building on the investment in infrastructure and systems put in place over the past two years.  With 165 sites across the UK this is now a business of considerable scale and over the coming years we will continue to invest to ensure we maintain a rapid rate of growth. The business aims to create sustainable competitive advantage through the quality of the sites that we operate and the platforms that support them. The first six months of 2019 have delivered another period of substantial progress. Revenue of £74.0 million increased by 26.9% (H1 2018: £58.3 million) with 20.0% growth in the H1 average number of members to 797,000 (H1 2018: 664,000). Average revenue per member per month also increased compared to last year, up 5.6% to £15.47 (H1 2018: £14.65). Approximately half of the growth in this spend per head has come as expected from LIVE IT, our premium pricing proposition, which reached 135,000 members by 30 June 2019.

 

At the period end, we had 165 sites open; this included eight new openings in the first half of the year, more than we have opened in H1 in recent years. In addition, we completed the transition of the easyGym estate onto our brand and platform converting sites at London Oxford Street and Birmingham Kings Heath.  Over the past two years we have acquired two portfolios of sites - Lifestyle Fitness and easyGym - and have successfully integrated them into our business.  These acquisitions have delivered rapid increase in scale through access to new catchments and enabled us to accelerate our business plan. 

 

Group Adjusted EBITDA increased by £5.2 million to £24.0 million, up 28.0% (H1 2018: £18.8 million). Site EBITDA1 increased by 25.7% to £30.5 million assisted by the ongoing maturation of our estate. By the end of the year (2019) the business will have 109 sites that are considered mature increasing to 155 by the end of 2020, underpinning and driving growth in profitability over the next two years.

 

The Gym Group is a very cash generative business with £16.0 million of free cash flow2 generated in the half year (H1 2018: £13.6 million). The scale of our mature estate is now such that the cash generated from operations is sufficient to fund the investment in new sites and the development of our platform. Net Debt increased only marginally to £47.2 million (December 2018: £46.0 million) at the half year demonstrating we are reaching the inflexion point where growth and dividends can be self-funded. The result of this is that we can continue our progressive dividend policy with the Board declaring an interim dividend of 0.45 pence per share, up 28.6% versus the first half of 2018 (H1 2018: 0.35 pence).

 

There are four areas that we believe are key to creating a profitable business within the low cost gym market. These are: i) Taking advantage of the market opportunity across different size formats; ii) Efficiently executing the roll out of sites from a strong pipeline; iii) Building an infrastructure and platform to support our growing business; iv) Continuing to develop our business model. Let me update on the progress we have made in each of these areas in the last six months:

 

Market Opportunity: The UK low cost gym sector continues to grow with the number of gyms increasing to 687 sites at June 20193. The Gym Group has a market share of 24% within this market. Over the last 18 months, we have grown the number of sites in our estate by 29% whilst the overall market for low cost gyms has grown by 20%. The average size of site that we have developed has been 16,700 sq ft within catchment sizes of greater than 60,000 population ("standard catchment").  In March we commissioned analysis by PWC to assess the potential of the overall market and this showed that the low cost market could grow to 1200-1400 sites by 2026. Half of this growth is estimated to be delivered from standard catchments and half from catchments between 25,000-60,000 population.  We aim to take advantage of both areas of growth by continuing to roll out standard catchment size gyms and also open small box gyms of around 5,000-9,000 sq. ft.  We expect the capital cost of these smaller gyms to be £0.70-0.75 million and - as with our larger gyms - will be targeting a ROCE of 30% at maturity. Our first small box will open in Newark, Nottinghamshire later this year.

 

Rolling out sites from a strong pipeline:  We opened eight sites in the first half of 2019. These openings are meeting our expectations.  Five of the openings are ex-retail sites as we continue to take advantage of the opportunity created by recent retail closures. This is giving us a ready supply of quality sites on retail parks with parking and in the first half we have opened such gyms in Carlisle, Kidderminster, Northampton, Ayr, and Nottingham Radford.  However, our model and property requirements have always been very flexible and in the first half openings have also taken place on a leisure park in Ipswich and through landlord redevelopments of sites in Hove and Slough. The pipeline of openings is encouraging for H2 and will include strong South East locations including Basingstoke, Colliers Wood, Acton and Canning Town. We expect to meet our guidance of 15 to 20 new sites for 2019 with our H2 openings expected to be weighted towards the end of the year.

 

As part of our ongoing estate management we have taken the decision to exit two sites that we do not believe will meet our long-term requirements. We will close the former Lifestyle gym in Stoke on 23 September 2019 and a further site (details not disclosed for commercial reasons) will close before the end of 2019 when we have an opportunity to exercise a break clause; we do not anticipate any further closures in the foreseeable future. In addition, as announced previously, we have currently mothballed the former easyGym site at Birmingham Corporation Street. We have a large site within 300 metres in Birmingham City Centre which can accommodate all the members for both sites and have decided to concentrate our capital spend on an extensive refurbishment of the City Centre site.

 

Infrastructure development:  A significant part of the development that has supported our rapid growth has been the investment in infrastructure over the last two years. This included our Member Management System and Workday ERP system - both projects that are now embedded in our business processes and working well.  The digital platform in particular has enabled us to launch additional products such as LIVE IT, Yanga and the member app.  Workday, which boosted our administrative systems, is a key enabler of our Personal Trainer model (New Gym Team) transition.  Moving forward the pace of technology development is unlikely to relent and we plan to invest in our capability in this area.  Ongoing development and investment in technology will enable us to optimise online membership sign-ups; develop our e-commerce website and use data to support our approach to pricing, churn and property evaluation.  From 2020 we expect to spend 3.0-3.5% of revenue on IT capex annually (circa. 2.5% of revenue in 2019) and expect that the projects in which we invest will improve the digital and gym experience for members and will enhance efficiency and profitability.

 

At the end of 2018, we continued the development of the member app. We are pleased with the initial take up, the app has already been downloaded by over 250,000 of our members and is used widely to book classes, monitor fitness and set challenges. We will continue to issue further updates of the app over the coming months, and to use technology to put information in the hands of our managers, improving analytical decision-making and driving our focus on member satisfaction. Data is a key area to driving competitive advantage.

 

Developing our business model: With the IT platforms now in place we continue to seek ways to enhance our business model either to improve member service or to expand relevant products.  LIVE IT, our premium pricing product, continues to be the most significant advancement in driving additional revenue per member.  With penetration of 16.9% of membership at the half year, this has increased Average Revenue Per Member per Month (ARPMM), contributing approximately half of the 5.6% growth recorded at the end of June 2019.  Further pricing developments are currently in trial - FLEX IT, a variation with no joining fee option, is set at a higher monthly price than our base membership offer which includes a joining fee. We are performing an extended trial across 32 sites to ensure that we can apply the learnings to optimise revenues.  Our approach to dynamic pricing enables us to adjust volumes and yields according to local market conditions and capability in the area has been significantly enhanced over the past year.

 

Also of note are developments in our marketing capability with innovative, relevant campaigns aimed at our target audience.  The SO I CAN campaign that we ran for Jan / Feb included TV for the first time but also utilised a diverse range of media that included Out Of Home, digital channels, social media, PPC and SEO.   In June we launched First Steps, a campaign aimed at introducing 16-18 years olds to using The Gym by giving them free off-peak membership for six weeks over the summer months. Take up has been good with many tens of thousands of visits over the period of the campaign. The campaign includes an offer to sign up for membership at the end of the six weeks. 

 

Perhaps the most significant recent change to our business model has been the implementation of New Gym Team - the new operating model for Personal Trainers.  I am pleased to announce as of 1 September that all sites will be operating on the new model and the transition has gone according to plan. This is a market-leading proposition and allows us to attract and retain the best Personal Trainers. We are now a business that has close to 2000 employees (1500 are part-time Personal Trainers). The next stage of the process is to ensure we can maximise the benefits of the model by driving sustained improvement in member satisfaction. Our initial experience is encouraging and justifies our work to move the business across to the new model.

 

Progress over the past six months is demonstrated in the financial and non-financial metrics that we have reported in the first half of the year. Site EBITDA margin, as expected, was broadly flat at 41.2% (H1 2018: 41.6%) reflecting a business that is still relatively immature and the inclusion of the former easyGym sites, which currently have a lower margin that our organic sites. Overall Site EBITDA increased by 25.7% to £30.5 million as our estate continued to expand. We continue to open sites in line with historical levels at an overall cost of between £1.3 million to £1.4 million per site.

 

Our people are critical to this business and the engagement and development of a much larger workforce will be of paramount importance as we expand. I am pleased that we recently retained our Investors in People gold award. To ensure we maintain the strong and positive culture of the business we have launched our values across the wider business. These have landed well and realness, friendliness, challenging our limits and taking the first step are now at the heart of everything we do. 

 

We continue to invest selectively in central areas that support business development with a focus on expanding our commercial and technology capability. I am pleased to have promoted Barney Harrison our Commercial & Marketing Director to a new position of Chief Commercial Officer to assist in this aim.  This gives him a wider remit to expand the commercial capability of the business, building on the work he has done to date in expanding our product and proposition and marketing capabilities.

 

Our financial success has been achieved by adopting a business model that champions the strong social purpose of the business in expanding affordable health and fitness. All the changes that we make are to ensure our members receive a high-quality experience in a low-cost environment. Our business had 24 million member visits in the first half and as we move into more catchments through the development of small box solutions, we look forward to expanding access to affordable fitness still further. We are proud that this expansion has been done in a way that minimises the impact on the environment in which we operate. We are truly committed to putting sustainability at the heart of the business and have recently started work on a Corporate Sustainability framework to co-ordinate and advance the work that we are doing across the business. We have made a commitment to invest over £2 million over the coming years to reduce our energy consumption in our older estate and we continue to invest in the most efficient solutions in new Gyms.

 

I am pleased with the pace of change that is being driven through the business to expand the business model, make member-facing improvements and improve profitability. After a good first half we look forward to further progress in the coming months and remain on track to meet our operating and financial plans for the full year.  There remain significant opportunities for us go after and with a strong team and the tailwinds of a growing low cost gym market, I am confident about our growth prospects.

 

Richard Darwin

Chief Executive Officer

29 August 2019

 

1 Site EBITDA is calculated as Group Adjusted EBITDA contributed by the gym portfolio

2 Free Cash Flow is calculated as Group Operating Cash Flow less tax and interest paid and exceptional items

3 Figures based on Leisure Database Company 2019 State of the UK Fitness Industry Report up to March 2019 and Company analysis to June 2019

Financial Review

 

IFRS 16 has been adopted for the first time in 2019 and the figures below are presented on this basis unless stated otherwise. The 2018 comparatives have been restated accordingly - see note 2.2 for more detail.

During the half year we have opened a further eight gyms, increasing the size of the estate to 1651.  Membership numbers have increased from 720,000 to 796,000.

This growth has resulted in a 28.0% increase in Group Adjusted EBITDA to £24.0 million (H1 2018: £18.8 million).

Adjusted profit before tax has grown from £4.6 million in H1 2018 to £7.1 million in H1 2019.

We use financial and non-financial key performance indicators ('KPIs') to measure our performance over time. We select KPIs that demonstrate the financial and operational performance underpinning our strategic drivers.

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Movement

 

 

 

 

Restated

 

 

 

 

£'000

 

£'000

 

 

Revenue

 

                73,988

 

58,327

 

26.9%

Group Adjusted EBITDA

 

                24,023

 

18,775

 

28.0%

Group Adjusted EBITDA before Pre-Opening Costs

 

                24,585

 

19,285

 

27.5%

 

 

 

 

 

 

 

Adjusted Earnings

 

                  5,484

 

3,545

 

54.7%

Statutory Profit Before Tax

 

                  5,580

 

3,091

 

80.5%

Group Operating Cash Flow

 

                18,692

 

16,421

 

13.8%

Adjusted Profit Before Tax

 

                  7,113

 

                  4,641

 

53.3%

Total number of gyms

 

165

 

134

 

23.1%

Members ('000)

 

796

 

720

 

10.6%

Average number of members2 ('000)

 

797

 

664

 

20.0%

1165 as of 30 June 2019 (vs 158 at 31 December 2018) with eight new sites opened in 2019 and one site recently closed (Birmingham Corporation Street)

2 Average number of members is calculated as the total number of members divided by the number of months in the period, excluding sites not open at the end of the period.

Revenue

The average number of members for the half year increased by 20.0% to 797,000 (H1 2018: 664,000) driven by the increased size of the estate including the easyGym acquisition from 2018. Average revenue per member per month ("ARPMM") increased by 5.6% to £15.47 (H1 2018: £14.65) due to the following factors:

·      An increase in the penetration of our premium pricing product, LIVE IT from 8.4%* at H1 2018 to 16.9% at H1 2019;

·      The inclusion of rental income from personal trainers ("PTs") as a result of the transition to our new PT model against which there are salary and other costs;

·      The addition of easyGym sites in 2019 (not part of the business in H1 2018) which have a higher ARPMM than the average in the rest of the estate; and

·      Pricing maturation in the business as a whole.

As a result of the growth in member volumes and increase in ARPMM, revenue for the half year increased by 26.9% to £74.0 million (H1 2018: £58.3 million).

*55,000 LIVE IT members out of 656,000 total non-proforma members

Group Adjusted EBITDA

Group Adjusted EBITDA increased from £18.8 million in H1 2018 to £24.0 million for H1 2019. Growth was driven by the increased size of the estate, a growing contribution from organic openings and acquisitions in 2018 and the growth of LIVE IT. Group Adjusted EBITDA margin increased to 32.5% (H1 2018: 32.2%) as a result of the ongoing maturation of the estate and a reduction in central costs as a percentage of revenue as we see the benefits of our growing scale.

Result for the period

Depreciation, which under IFRS 16 includes the depreciation of right-of-use property assets, has remained stable as a percentage of revenue at 27.4% (H1 2019: £20.3 million) in the six months to 30 June 2019 (H1 2018: 27.3%, £16.0 million). Of this percentage of revenue 12.7% was depreciation of the right of use assets and 14.7% other depreciation (which is lower than the 15.4% of revenue in H1 2018 due to a change in the useful economic life of gym equipment applied from 1 January 2019).

Amortisation charges increased from £0.9 million to £1.4 million in H1 2019 due to increased investment in software since H1 2018; within this £0.6 million related to amortisation of acquired assets (H1 2018: £0.5 million) and £0.8 million from IT/software amortisation (H1 2018: £0.3 million).

Finance costs have increased to £7.1 million (H1 2018: £6.2 million) comprising the implied interest relating to the finance lease liability under IFRS 16 of £6.1 million (H1 2018: £5.4 million) plus the interest costs associated with our borrowing facilities £1.0 million (H1 2018: £0.9 million), which have increased to fund the ongoing growth in our estate.

As a result of these factors, statutory profit before tax increased by 80.5%, to £5.6 million (H1 2018: £3.1 million).

Adjusted Earnings

 

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

 

 

 

Restated

 

 

£'000

 

£'000

Profit before tax

 

5,580

 

3,091

Amortisation of acquired assets

 

613

 

512

Exceptional administration expenses

 

920

 

1,038

Adjusted profit before tax

 

7,113

 

4,641

Tax charge

 

(1,497)

 

(899)

Tax effect of above items

 

(132)

 

(197)

Adjusted Earnings

 

5,484

 

3,545

Basic Adjusted earnings per share (pence)

 

4.0

 

2.8

 

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.

As part of our ongoing estate management, we exercised a break clause in H1 2019 and the site will close before the end of 2019. We do not believe the site will meet our long-term requirements and we have taken advantage of our contractual right to exit. The Group has incurred exceptional costs of £0.9 million in the period in relation to the impairment of assets arising from this lease break clause exercise (H1 2018: £1.0 million in relation to acquisition and restructuring costs). The decision to close our Stoke site was taken in H2 and therefore the impact of this closure is not shown in the H1 financials.

The tax charge was recognised based on management's best estimate of the annual income tax rate expected for the full financial year, applied to the profit before tax for the six-month period. On this basis, the Group's tax charge was £1.5 million (H1 2018: £0.9 million).  The Group had an income tax payable of £1.4 million as at 30 June 2019.

Excluding the tax effect of the amortisation of non-IT intangible assets and exceptional items (£132,000), the effective tax rate on adjusted profit before tax for the half year ended 30 June 2019 was 22.9% (H1 2018: 23.6%).

Adjusted earnings for the period increased by 54.7% to £5.5 million (H1 2018: £3.5 million) as a result of the factors discussed above. 

 

Dividends

The Directors have declared an interim dividend of 0.45 pence per share to shareholders on the register at the close of business on 6 September 2019. The ex-dividend date is 5 September 2019, with a payment date of 11 October 2019. The last date for Dividend Reinvestment Plan (DRIP) elections is 20 September 2019.

Cash Flow and Net Debt 

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

 

 

 

Restated

 

 

£'000

 

£'000

Group Adjusted EBITDA*

 

24,023

 

18,775

Movement in working capital

 

(1,452)

 

1,124

Maintenance capital expenditure

 

(3,879)

 

(3,478)

Group Operating Cash Flow

 

18,692

 

16,421

Exceptional items

 

(274)

 

(730)

Net finance costs

 

(845)

 

(672)

Taxation

 

(1,523)

 

(1,409)

Free cash flow

 

16,049

 

13,610

Expansionary capital expenditure

 

(15,899)

 

(19,825)

Dividends paid

 

(1,312)

 

(1,154)

Other net cash flows from financing activity

 

1,955

 

28,842

Net cash flow

 

793

 

21,473

*See page 11 for a reconciliation of operating profit to Group Adjusted EBITDA

The Group continues to deliver strong cash generation and during the period has invested in opening new sites and refurbishing existing sites as well as investing in software and other technology. Group operating cash flow of £18.7 million in the six months to 30 June 2019 increased from £16.4 million in the first six months of 2018.

The reduction in working capital was due to two factors which combined adversely affected working capital by £3.2m; (1) a new PT rental receivable arising on the rollout of New Gym Team which we will continue to have each month going forward; and (2) two additional days of membership receivables accruing due to the last day of June being a Sunday, an effect that will occur from time to time depending on the day on which the end of the reporting period falls.

As a result, Group operating cash flow conversion decreased from 87.5% in the six months ended 30 June 2018 to 77.8% in the six months ended 30 June 2019.

Expansionary capital expenditure of £15.9 million arises primarily as a result of the fit-out of new and acquired gyms. It also includes £2.1 million of deferred consideration on the initial purchase price of the easyGym acquisition. The decrease in expansionary capex compared to 2018 is primarily due to the considerable investment in the conversion of the acquired Lifestyle sites during the same period in 2018.

Maintenance capital expenditure as a percentage of revenue was lower in H1 2019 than H1 2018, reflecting the timing of spend planned during the year; we expect total maintenance capital expenditure in 2019 as a whole to be between 6-7% of revenue, as previously guided, to ensure our gyms deliver the high-quality experience our members are used to.

The Group has drawn a further £2.0 million of its five year bullet repayment facility of £60.0 million. The net cash outflow of £1.2 million prior to the drawing of the facility has resulted in an increase in non-property net debt to £47.2 million (£46.0 million at December 2018).

Outlook

 

In the first two months of H2 2019, the Company has continued to trade well and in line with our expectations. As such we re-iterate the FY2019 guidance we gave at the beginning of the year:

 

·      15 - 20 organic openings with H2 openings being weighted to the end of the year

·      New site fit-out costs expected to be between £1.3 million and £1.4 million per site

·      £3.5 - 4.0 million of capital spend on IT projects

·      Maintenance capital expenditure maintained between 6% and 7% of revenue

·      Depreciation (on a pre-IFRS 16 basis) expected to be c.15% of revenue1

·      Central costs to be 8.0% to 8.5% of revenue

·      Long-term employee incentive costs expected to be c.£1.8 million

·      Future tax effective rate, after adjusting for amortisation and exceptional items, expected to be 23% in 2019

 

1Change versus previous guidance provided 19 March 2019 - that depreciation would be c.16% of revenue - resulting from the 2019 change in accounting estimate, extending the Useful Economic Life of gym equipment

 

Principal Risks and Uncertainties

 

The principal risks and uncertainties set out in the last annual report remain valid at the date of this report and have been updated. In summary, these include:

 

·      the competitive position of the Group;

·      the delivery of the organic rollout plan;

·      providing members with a high quality product and service;

·      retention of key staff;

·      implementation of wide-ranging and significant projects;

·      dependency on the performance of IT systems;

·      data security and protection;

·      satisfactory delivery from outsourced services providers;

·      high operational gearing from the fixed cost base; and

·      adherence with regulatory requirements.

 

Management makes critical judgements in applying the Group's accounting policies in relation to depreciation and amortisation, goodwill impairment and provisions. A more detailed description of these estimations and uncertainties is included in pages 30-33 of the 2018 Annual Report, which can be obtained from the Company's registered office or from www.tggplc.com.

 

Going Concern

As stated in note 2 to the Interim Financial Statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of at least 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the Interim Financial Statements.

 

Cautionary Statement

 

This report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The Interim Management Report should not be relied on by any other party or for any other purpose.

 

In making this report, the Company is not seeking to encourage any investor to either buy or sell shares in the Company. Any investor in any doubt about what action to take is recommended to seek financial advice from an independent financial advisor authorised by the Financial Services and Markets Act 2000.

 

Directors' Responsibility Statement

 

The Directors of the Company are listed on pages 38-39 of the 2018 Annual Report.

 

The Directors confirm that, to the best of their knowledge:

·      the Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting;

·      the Interim Management Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

·      the Interim Management Report includes a fair review of the information required by DTR 4.2.8R (disclosure of relates parties' transactions and changes therein).

 

Richard Darwin

Chief Executive Officer

29 August 2019

 

Mark George

Chief Financial Officer

29 August 2019

 

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 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.

 

-       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 and interest paid and exceptional items.

 

-       Non-property net debt - is calculated as borrowings less property finance leases and cash and cash equivalents.

 

** 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 Company changed its policy relating to the Useful Economic Life of gym equipment (see Note 2.3 below). The H1 2019 numbers in the table above reflect this new policy  and the H1 2018 numbers are based on the previous policy.

 

 

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2019

 

Note

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Year ended 31 December 2018

 

 

Unaudited

 

Unaudited
Restated
*

 

Audited
Restated
*

 

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

Revenue

3

73,988

 

58,327

 

123,884

Cost of sales

 

(700)

 

(557)

 

(1,007)

 

 

 

 

 

 

 

Gross profit

 

73,288

 

57,770

 

122,877

 

 

 

 

 

 

 

Administration expenses

 

(60,579)

 

(48,481)

 

(104,218)

 

 

 

 

 

 

 

Operating profit

 

12,709

 

9,289

 

18,659

 

 

 

 

 

 

 

Finance income

 

18

 

6

 

22

Finance costs

 

(7,147)

 

(6,204)

 

(12,681)

 

 

 

 

 

 

 

Profit before tax

 

5,580

 

3,091

 

6,000

 

 

 

 

 

 

 

Tax charge

6

(1,497)

 

(899)

 

(2,064)

 

 

 

 

 

 

 

Profit for the year attributable to equity shareholders

 

4,083

 

2,192

 

3,936

 

 

 

 

 

 

 

Other comprehensive income for the year

 

 

 

 

 

 

Items that may be reclassified to profit or loss

 

 

 

 

 

 

Changes in the fair value of derivative financial instruments

 

(133)

 

-

 

(11)

 

 

 

 

 

 

 

Items that will not be reclassified to profit or loss

 

 

 

 

 

 

Changes in the fair value of financial assets at fair value through other comprehensive income

 

-

 

-

 

(463)

 

 

 

 

 

 

 

Total comprehensive income attributable to equity shareholders

 

3,950

 

2,192

 

3,462

 

 

 

 

 

 

 

Earnings per share

 

pence

 

pence

 

pence

Basic

5

3.0

 

1.7

 

3.0

Diluted

 

2.9

 

1.7

 

2.9

 

 

 

 

 

 

 

Reconciliation of operating profit to Group Adjusted EBITDA:

 

£'000

 

£'000

 

£'000

- Operating profit

 

12,709

 

9,289

 

18,659

- Depreciation

7

20,253

 

15,951

 

34,511

- Amortisation

 

1,390

 

861

 

1,973

- Impairment

 

25

 

-

 

-

- Exceptional items

4

920

 

1,038

 

2,343

- Long term employee incentive costs

 

813

 

695

 

1,012

- Cash rent payments

 

(12,087)

 

(9,059)

 

(19,367)

- Group Adjusted EBITDA1

 

24,023

 

18,775

 

39,131

 

1Group Adjusted EBITDA is a non-GAAP metric used internally by management and externally by advisors, and is not an IFRS disclosure

*See note 2.2 for details regarding the restatement as a result of the adoption of IFRS 16 'Leases'.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

 

Condensed Consolidated Statement of Financial Position

As at 30 June 2019

 

 

 

Note

30 June 2019

 

30 June 2018

 

31 December 2018

 

 

 

Unaudited

 

Unaudited
Restated
*

 

Audited
Restated
*

 

 

 

£'000

 

£'000

 

£'000

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

 

7

370,437

 

317,618

 

366,947

Intangible assets

 

 

85,927

 

73,852

 

86,618

Financial assets at fair value through other comprehensive income

 

 

277

 

629

 

285

Derivative financial instruments

 

 

36

 

-

 

169

Deferred tax assets

 

 

364

 

1,402

 

366

Total non-current assets

 

 

457,041

 

393,501

 

454,385

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Inventories

 

 

276

 

199

 

379

Trade and other receivables

 

 

10,321

 

9,735

 

7,696

Cash and cash equivalents

 

 

3,820

 

21,929

 

3,027

 

 

 

 

 

 

 

 

Total current assets

 

 

14,417

 

31,863

 

11,102

 

 

 

 

 

 

 

 

Total assets

 

 

471,458

 

425,364

 

465,487

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

 

26,001

 

25,625

 

26,376

Lease liabilities

 

 

14,385

 

12,776

 

9,652

Other financial liabilities

 

 

888

 

-

 

3,002

Borrowings

 

8

1,000

 

1,500

 

3,000

Provisions

 

9

518

 

110

 

679

Income taxes payable

 

6

1,443

 

887

 

1,293

 

 

 

 

 

 

 

 

Total current liabilities

 

 

44,235

 

40,898

 

44,002

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Borrowings

 

8

49,369

 

41,254

 

45,165

Lease liabilities

 

 

231,857

 

201,787

 

233,567

Other financial liabilities

 

 

-

 

188

 

-

Provisions

 

9

1,201

 

807

 

1,145

Total non-current liabilities

 

 

282,427

 

244,036

 

279,877

 

 

 

 

 

 

 

 

Total liabilities

 

 

326,662

 

284,934

 

323,879

 

 

 

 

 

 

 

 

Net assets

 

 

144,796

 

140,430

 

141,608

 

 

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

 

 

Issued capital

 

 

14

 

14

 

14

Own shares held

 

 

48

 

48

 

48

Capital redemption reserve

 

 

4

 

4

 

4

Share premium

 

 

159,474

 

159,474

 

159,474

Hedging reserve

 

 

(11)

 

-

 

(11)

Retained deficit

 

 

(14,733)

 

(19,110)

 

(17,921)

Total equity shareholders' funds

 

 

144,796

 

140,430

 

141,608

*See note 2.2 for details regarding the restatement as a result of the adoption of IFRS 16 'Leases'.

 

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2019

 

 

Issued capital

Own shares held

Capital redemption reserve

Share premium

Hedging reserve

Retained deficit

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

At 1 January 2018

12

48

4

136,280

-

(15,723)

120,621

 

 

 

 

 

 

 

 

Adjustment from adoption of IFRS 16

-

-

-

-

-

(4,964)

(4,964)

 

 

 

 

 

 

 

 

Profit for the period and total comprehensive income

-

-

-

-

-

2,192

2,192

Share based payments

-

-

-

-

-

541

541

Issue of Ordinary share capital

2

-

-

23,998

-

-

24,000

Costs associated with the issue of share capital

-

-

-

(804)

-

-

(804)

Dividends paid

-

-

-

-

-

(1,154)

(1,154)

At 30 June 2018 (Unaudited, Restated)

14

48

4

159,474

-

(19,108)

140,432

 

 

 

 

 

 

 

 

Profit for the period and total comprehensive income

-

-

-

-

-

1,744

1,744

Share based payments

-

-

-

-

-

256

256

Deferred tax on share based payments

-

-

-

-

-

133

133

Changes in the fair value of derivative financial instruments

-

-

-

-

(11)

-

(11)

Dividends paid

-

-

-

-

-

(483)

(483)

Changes in the fair value of financial assets at fair value through other comprehensive income

-

-

-

-

-

(463)

(463)

At 31 December 2018 (Audited, Restated)

14

48

4

159,474

(11)

(17,921)

141,608

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

4,083

4,083

Share based payments

-

-

-

-

-

728

728

Deferred tax on share based payments

-

-

-

-

-

(178)

(178)

Dividends paid

-

-

-

-

-

(1,312)

(1,312)

Changes in the fair value of financial assets at fair value through other comprehensive income

-

-

-

-

-

(133)

(133)

 

 

 

 

 

 

 

 

At 30 June 2019

14

48

4

159,474

(11)

(14,733)

144,796

*See note 2.2 for details regarding the restatement as a result of the adoption of IFRS 16 'Leases'.

 

Consolidated Cash Flow Statement

For the six months ended 30 June 2019

 

Note

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Year ended 31 December 2018

 

 

Unaudited

 

Unaudited
Restated*

 

Audited
Restated*

 

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Operating profit

 

12,709

 

9,289

 

18,659

Adjustments for:

 

 

 

 

 

 

Exceptional items

4

920

 

1,038

 

2,343

Depreciation of property, plant and equipment

7

20,253

 

15,951

 

34,511

Amortisation of intangible assets

 

1,390

 

861

 

1,973

Long term employee incentive costs

11

813

 

695

 

1,012

(Profit) / loss on disposal of property, plant and equipment

 

(1)

 

61

 

72

Decrease / (increase) in inventories

 

103

 

(2)

 

(182)

Increase in trade and other receivables

 

(3,308)

 

(2,743)

 

(1,218)

Increase in trade and other payables

 

1,753

 

3,808

 

4,487

Cash generated from operations

 

34,633

 

28,958

 

61,657

Tax paid

 

(1,523)

 

(1,409)

 

(2,009)

Net cash flows from operating activities before exceptional items

 

33,110

 

27,549

 

59,648

Exceptional items

 

(274)

 

(730)

 

(2,105)

Net cash flow from operating activities

 

32,836

 

26,819

 

57,543

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Payment for financial assets at fair value through other comprehensive income

 

-

 

(313)

 

(432)

Business combinations

 

(2,114)

 

-

 

(18,600)

Purchase of property, plant and equipment

 

(16,966)

 

(21,666)

 

(42,341)

Purchase of intangible assets

 

(699)

 

(1,330)

 

(4,928)

Interest received

 

10

 

6

 

22

Net cash flows used in investing activities

 

(19,768)

 

(23,303)

 

(66,279)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Dividends paid

 

(1,312)

 

(1,154)

 

(1,637)

Finance lease liabilities paid1

 

(6,000)

 

(3,681)

 

(8,460)

Finance lease interest paid1

 

(6,087)

 

(5,378)

 

(10,907)

Bank interest paid

 

(845)

 

(672)

 

(1,371)

Payment of financing fees

 

(15)

 

(14)

 

(302)

Drawdown of bank loans

 

3,985

 

5,500

 

12,500

Repayments of bank loans

 

(2,000)

 

-

 

(1,500)

Proceeds of issue of Ordinary shares

 

-

 

24,000

 

24,000

Costs associated with share issue

 

-

 

(644)

 

(804)

Derivative financial instruments paid

 

-

 

-

 

(213)

Net cash flows (used in) / from financing activities

 

(12,274)

 

17,957

 

11,306

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

793

 

21,473

 

2,570

Cash and cash equivalents start of period

 

3,027

 

457

 

457

Cash and cash equivalents at end of period

 

3,820

 

21,929

 

3,027

*See note 2.2 for details regarding the restatement as a result of the adoption of IFRS 16 'Leases'.

1These two items totalling £12,087,000 represent cash rent as used in the KPI definitions

 

 

Notes to the Interim Financial Statements

 

1. General information     

 

The Directors of The Gym Group plc (the 'Company') and its subsidiaries (the 'Group') present their interim report and the unaudited condensed consolidated financial statements for the six months ended 30 June 2019 ('Interim Financial Statements').

 

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 Interim Financial Statements were approved by the Board of Directors on 29 August 2019.

 

The Interim Financial Statements have not been audited or formally reviewed by the auditors. The financial information shown for the half year period ended 30 June 2019 does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

 

The information shown for the year ended 31 December 2018 does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 and has been extracted from the Group's Annual Report and Financial Statements for the year ended 31 December 2018, save for the restatement as a result of the adoption of IFRS 16 'Leases' (see note 2.2).

 

The Interim Financial Statements should be read in conjunction with the Annual Report and Financial Statements for the year ended 31 December 2018, which were prepared in accordance with European Union endorsed International Financial Reporting Standards ('IFRS') and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Annual Report and Financial Statements for 2018 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2018 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

Further copies of the Interim Financial Statements and Annual Report and Financial Statements may be obtained from the address above.

 

2. Basis of preparation and changes to the Group's accounting policies

 

2.1. Basis of preparation

The Interim Financial Statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting' as endorsed by the European Union and the comments Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

The Interim Financial Statements are presented in Pounds Sterling, rounded to the nearest thousand Pounds, except where otherwise indicated; and under the historical cost convention as modified through the recognition of financial liabilities at fair value through the profit and loss.

 

2.2. New standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the Interim Financial Statements are consistent with those applied in the preparation of the Group's consolidated financial statements for the year ended 31 December 2018, except for the adoption of new standards effective as of 1 January 2019. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2018 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on 1 January 2019 and will be adopted in the 2019 annual financial statements. However, a change in accounting estimate (see note 2.3) and a change in presentation (see note 2.4) have been applied in the period. New standards impacting the Group that will be adopted in the annual financial statements for the year ended 31 December 2019, and which have given rise to changes in the Group's accounting policies are:

 

·      IFRS 16 Leases

 

Details of the impact the new standard has had are given below:

 

IFRS 16 Leases

IFRS 16 specifies the recognition, measurement, presentation and disclosure of leases and is being applied for the first time in the Group's Consolidated Financial Statements for the year ended 31 December 2019. The standard provides a

 

2.2. New standards, interpretations and amendments adopted by the Group (continued)

 

single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value.

 

Adjustments recognised on adoption of IFRS 16

The effect on the statement of financial position is as follows:

 

30 June 2018 as reported

Impact of IFRS16

Opening balance at 1 July 2018

 

£'000

£'000

£'000

Property, plant and equipment

141,325

176,293

317,618

Intangible assets

63,354

10,498

73,852

Current assets

35,159

(3,296)

31,863

Current liabilities

48,163

(7,265)

40,898

Finance lease liabilities

-

214,563

214,563

Deferred tax liabilities

(1,816)

3,218

1,402

 

 

30 June 2019 under IAS17

Impact of IFRS16

Opening balance at 1 July 2019

 

£'000

£'000

£'000

Property, plant and equipment

167,646

202,791

370,437

Intangible assets

77,503

8,424

85,927

Current assets

27,704

(13,287)

14,417

Current liabilities

64,257

(20,022)

44,235

Finance lease liabilities

-

246,242

246,242

Deferred tax liabilities

(3,176)

3,540

364

 

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.

 

2.2. New standards, interpretations and amendments adopted by the Group (continued) 

 

30 June 2018 as reported

Impact of IFRS16

30 June 2018 under IFRS16

Impact of new KPI definitions

30 June 2018 Restated*

 

£'000

£'000

£'000

£'000

£'000

Revenue

58,327

-

58,327

-

58,327

Cost of Sales and Admin expenses

(40,794)

10,301

(30,493)

(9,059)

(39,552)

                                              IAS 17 rent costs

 

 

 

 

 

                                         Cash rent payments

 

 

 

 

 

Group Adjusted EBITDA

17,533

10,301

27,834

(9,059)

18,775

 Add back:

 

 

 

 

 

                 - Cash rent payments

 

 

 

9,059

9,059

                 - Amortisation on IT related assets

 

 

 

(349)

(349)

Depreciation of property, plant and equipment

(9,000)

(6,951)

(15,951)

-

(15,951)

                  Depreciation of right of use assets

 

 

 

 

 

Long term employee incentive costs

(695)

-

(695)

-

(695)

Finance income

6

-

6

-

6

Finance costs

(818)

(5,386)

(6,204)

-

(6,204)

                                     Finance lease interest

 

 

 

 

 

Adjusted profit before tax

7,026

(2,036)

4,990

(349)

4,641

Tax charge

(1,353)

454

(899)

-

(899)

Tax effect of above items

(263)

-

(263)

66

(197)

Adjusted Earnings

5,410

(1,582)

3,828

 (283)

3,545

 

 

30 June 2019 under IAS17

Impact of IFRS16

30 June 2019 under IFRS16

Impact of new KPI definitions

30 June 2019 as reported

 

£'000

£'000

£'000

£'000

£'000

Revenue

73,988

-

73,988

-

73,988

Cost of Sales and Admin expenses

(51,395)

13,517

(37,878)

(12,087)

(49,965)

                                          IAS 17 rent costs

 

 

 

 

 

                                     Cash rent payments

 

 

 

 

 

Group Adjusted EBITDA

22,593

13,517

36,110

(12,087)

24,023

 Add back:

 

 

 

 

 

                 - Cash rent payments

 

 

 

12,087

12,087

                 - Amortisation on IT related assets

 

 

 

(777)

(777)

Depreciation of property, plant and equipment

(10,834)

(9,419)

(20,253)

-

(20,253)

                  Depreciation of right of use assets

 

 

 

 

 

Impairment

(25)

-

(25)

-

(25)

Long term employee incentive costs

(813)

-

(813)

-

(813)

Finance income

18

-

18

-

18

Finance costs

(1,052)

(6,095)

(7,147)

-

(7,147)

                                     Finance lease interest

 

 

 

 

 

Adjusted profit before tax

9,887

(1,997)

7,890

(777)

7,113

Tax charge

(1,897)

399

(1,497)

148

(1,497)

Tax effect of above items

(280)

-

(280)

-

(132)

Adjusted Earnings

7,710

(1,598)

6,113

(629)

5,484

 

2.3. 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 H1 2019 depreciation charge by £440,000, with an estimated full year reduction of approximately £900,000.

 

2.4 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.

 

30 June 2018 as reported

Impact of IFRS16

30 June 2018 under IFRS16

Change in presentation

30 June 2018 Restated*

 

£'000

£'000

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

 

 

Cash generated from operations

19,900

9,058

28,958

-

28,958

Tax (Paid)/Refunded

(1,409)

-

(1,409)

-

(1,409)

Interest paid

(678)

(5,378)

(6,056)

6,056

-

Net cash flows from operating activities before exceptional items

17,813

3,680

21,493

6,056

27,549

Exceptional items

(730)

-

(730)

-

(730)

Net cash flow from operating activities

17,083

3,680

20,763

6,056

26,819

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Dividends paid

(1,154)

-

(1,154)

-

(1,154)

Finance lease liabilities paid

-

(3,681)

(3,681)

-

(3,681)

Finance lease interest paid

-

-

-

(5,378)

(5,378)

Bank interest paid

-

-

-

(678)

(678)

Payment of financing fees

(14)

-

(14)

-

(14)

Drawdown of bank loans

5,500

-

5,500

-

5,500

Repayments of bank loans

-

-

-

-

-

Proceeds of issue of Ordinary shares

24,000

-

24,000

-

24,000

Costs associated with share issue

(644)

-

(644)

-

(644)

27,688

(3,681)

24,007

(6,056)

17,951

 

2.5. Going Concern

The Directors have made appropriate enquiries and formed a judgement at the time of approving the interim financial statements that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the interim financial statements.

 

3. Revenue

The main revenue streams are those described in the last annual financial statements; membership income and other income. The majority of revenue is derived from contracts with customers.

 

3.1 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.

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Year ended 31 December 2018

 

 

Unaudited

 

Unaudited
Restated*

 

Audited
Restated*

 

 

£'000

 

£'000

 

£'000

Major products/service lines

 

 

 

 

 

 

Membership income

 

71,994

 

57,392

 

121,515

Rental income

 

1,135

 

293

 

875

Other income

 

859

 

642

 

878

 

 

73,988

 

58,327

 

123,884

 

 

 

 

 

 

 

Timing of revenue recognition

 

 

 

 

 

 

Products transferred at a point in time

 

1,204

 

1,036

 

2,062

Products and services transferred over time

 

72,784

 

57,291

 

121,822

 

 

73,988

 

58,327

 

123,884

 

4. Exceptional items

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Year ended 31 December 2018

 

 

Unaudited

 

Unaudited
Restated*

 

Audited
Restated*

 

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

Acquisition costs

 

-

 

599

 

644

Acquisition integration costs

 

-

 

149

 

460

Restructuring costs

 

-

 

290

 

1,239

Impairment arising on the exercise of a lease break

 

920

 

-

 

-

 

 

920

 

1,038

 

2,343

 

5. Earnings per share

 

Basic earnings per share is calculated by dividing the profit or loss attributable to equity shareholders by the weighted average number of Ordinary shares outstanding during the year, excluding unvested shares held pursuant to The Gym Group plc Share Incentive Plan, The Gym Group plc Performance Share Plan, The Gym Group plc Restricted Stock Plan and The Gym Group plc Long Service Award Plan.

Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary shares outstanding to assume conversion of all dilutive potential Ordinary shares. During the half year period ended 30 June 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.

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Year ended 31 December 2018

 

 

Unaudited

 

Unaudited
Restated
*

 

Audited
Restated
*

 

 

2019

 

2018

 

2018

 

 

 

 

 

 

 

Basic weighted average number of shares

 

137,782,695

 

128,746,872

 

133,301,917

Adjustment for share awards

 

3,332,264

 

1,443,530

 

1,569,233

Diluted weighted average number of shares

 

141,114,959

 

130,190,402

 

134,871,150

 

 

 

 

 

 

 

Basic earnings per share (p)

 

3.0

 

1.7

 

3.0

Diluted earnings per share (p)

 

2.9

 

1.7

 

2.9

 

Adjusted earnings per share is based on profit for the year before exceptional items, non-IT amortisation and the associated tax effect.

 

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Year ended 31 December 2018

 

 

Unaudited

 

Unaudited
Restated
*

 

Audited
Restated
*

 

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

Profit for the year

 

4,083

 

2,192

 

3,936

Amortisation of non-IT intangible assets

 

613

 

512

 

1,038

Exceptional administration expenses

 

920

 

1,038

 

2,343

Tax effect of above items

 

(132)

 

(197)

 

(185)

Adjusted earnings

 

5,484

 

3,545

 

7,132

 

 

 

 

 

 

 

Basic adjusted earnings per share (p)

 

4.0

 

2.8

 

5.4

Diluted adjusted earnings per share (p)

 

3.9

 

2.7

 

5.3

 

6.  Taxation

The major components of taxation are: 

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Year ended 31 December 2018

 

 

Unaudited

 

Unaudited
Restated
*

 

Audited
Restated
*

 

 

£'000

 

£'000

 

£'000

Current income tax

 

 

 

 

 

 

Current tax on profits for the period

 

1,808

 

1,175

 

2,323

Adjustments in respect of prior years

 

-

 

-

 

22

Total current income tax

 

1,808

 

1,175

 

2,345

 

 

 

 

 

 

 

Deferred tax

 

 

 

 

 

 

Origination and reversal of temporary differences

 

(311)

 

(276)

 

69

Change in tax rates

 

-

 

-

 

(28)

Adjustments in respect of prior years

 

-

 

-

 

240

Total deferred tax

 

(311)

 

(276)

 

281

 

 

 

 

 

 

 

Tax charge in the Consolidated Statement of Comprehensive Income

 

1,497

 

899

 

2,064

 

The income tax expense was recognised based on management's best estimate of the annual income tax rate expected for the full financial year, applied to the profit before tax for the half year ended 30 June 2019.

Excluding the tax effect of the amortisation of non-IT intangible assets and exceptional items (£132,000), the effective tax rate on Adjusted Profit Before Tax for the half year ended 30 June 2019 was 23%.

The net deferred tax assets recognised at 30 June 2019 was £364,000 (30 June 2018: £1,402,000; 31 December 2018: £366,000). This comprised deferred tax assets relating to tax losses and equity settled share-based incentives totalling £4,001,000 (30 June 2018: £3,218,000; 31 December 2018: £4,239,000) and deferred tax liabilities in relation to accelerated capital allowances and acquired intangible assets totalling £3,637,000 (30 June 2018: £1,816,000; 31 December 2018: £3,873,000).

At 30 June 2019 there was a net unrecognised deferred tax asset of £nil (30 June 2018: £nil; 31 December 2018: £nil) relating to unrecognised tax losses.

               

7. Property, plant and equipment 

 

Assets under Construction

Leasehold improvements

Fixtures, fittings and equipment

Gym and other equipment

Computer equipment

Right of use asset

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

 

 

At 1 January 2018

2,368

118,075

9,452

57,713

1,950

-

189,558

 

 

 

 

 

 

 

 

On adoption of IFRS 16

 

 

 

 

 

202,574

202,574

 

 

 

 

 

 

 

 

Transfers

(23,412)

16,403

247

6,465

297

-

-

Additions

23,409

10,403

827

4,143

519

54,788

94,089

Business combinations (Restated)

-

9,165

183

2,357

-

-

11,705

Disposals

-

(191)

-

(987)

-

-

(1,178)

 

 

 

 

 

 

 

 

At 31 December 2018 (Unaudited, Restated)

2,365

153,855

10,709

69,691

2,766

257,362

496,748

 

 

 

 

 

 

 

 

Transfers

(9,612)

6,778

86

2,660

69

20

0

Additions

12,847

1,223

202

504

130

9,768

24,673

Disposals

-

(150)

-

(88)

-

-

(238)

 

 

 

 

 

 

 

 

At 30 June 2019

5,600

161,705

10,997

72,767

2,965

267,149

521,183

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

At 1 January 2018

-

25,944

4,163

24,981

1,114

-

56,202

 

 

 

 

 

 

 

 

On adoption of IFRS 16

 

 

 

 

 

40,119

40,119

 

 

 

 

 

 

 

 

Charge for the year

-

9,868

1,310

8,021

511

14,801

34,511

Disposals

-

(139)

-

(892)

-

-

(1,031)

 

 

 

 

 

 

 

 

At 31 December 2018 (Unaudited, Restated)

-

35,673

5,473

32,110

1,625

54,920

129,801

 

 

 

 

 

 

 

 

Charge for the year

-

5,873

661

3,999

302

9,417

20,253

Disposals

-

(150)

-

(88)

-

-

(238)

Impairment

-

782

47

95

7

-

931

 

 

 

 

 

 

 

 

At 30 June 2019

-

42,178

6,181

36,116

1,933

64,338

150,746

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

At 31 December 2018 (Unaudited, Restated)

2,365

118,182

5,236

37,581

1,141

202,442

366,947

At 30 June 2019

5,600

119,527

4,816

36,651

1,032

202,812

370,437

*See note 2.2 for details regarding the restatement as a result of the adoption of IFRS 16 'Leases'.

 

Outstanding capital commitments totalled £2,645,000 (30 June 2018: £4,973,000; 31 December 2018: £1,041,000).

8. Borrowings

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Year ended 31 December 2018

 

 

Unaudited

 

Unaudited
Restated*

 

Audited
Restated*

 

 

£'000

 

£'000

 

£'000

Non-current

 

 

 

 

 

 

Facility A

 

10,000

 

10,000

 

10,000

Facility B

 

40,000

 

32,000

 

36,000

Loan arrangement fees

 

(631)

 

(746)

 

(835)

 

 

 

 

 

 

 

 

 

49,369

 

41,254

 

45,165

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

Revolving credit facility

 

1,000

 

1,500

 

3,000

 

The Group's bank borrowings are secured by way of fixed and floating charges over the Group's assets.

On 12 November 2015, the Group entered into a five year bullet repayment facility with HSBC and Barclays. The facility comprises a £10.0 million term loan ('facility A') for the purposes of refinancing the Group's previous finance leases, a £25.0 million term loan ('facility B') to fund acquisitions and capital expenditure, and a £5.0 million revolving credit facility. On 14 September 2017, the Group agreed a facility amendment increasing the facility B commitment from £25.0 million to £35.0 million to enable the acquisition of the Lifestyle Portfolio of Gyms. On 4 July 2018, the facility B commitment was extended by £5.0 million to £40.0 million; and the revolving credit facility was extended by £5.0 million to £10.0 million for financing the easyGym acquisition. Interest is charged at LIBOR plus a 2.5% margin.

At 30 June 2019, facility A and B were fully drawn; and £1.0 million of the revolving credit facility was drawn.

There have been no changes to the valuation techniques used for financial assets or liabilities held at fair value and no transfers in the hierarchy of financial assets or liabilities.  The carrying values of all financial assets and liabilities are considered to represent their fair values.

Other than the fair value of contingent consideration (classified as other financial liabilities) and the fair value of an unlisted equity investment (classified as financial assets at fair value through other comprehensive income) that are categorised as Level 3, the fair value of all other financial assets and liabilities are categorised as Level 2.

9. Provisions

 

 

Dilapidations

 

Other

 

Total

 

 

£'000

 

£'000

 

£'000

At 1 January 2018 (restated)

 

740

 

917

 

1,657

Business combinations

 

143

 

217

 

360

New provisions

 

242

 

462

 

704

Utilisation of provisions

 

-

 

(917)

 

(917)

Unwinding of discount

 

20

 

-

 

20

 

 

 

 

 

 

 

At 31 December 2018

 

1,145

 

679

 

1,824

New provisions

 

45

 

113

 

158

Utilisation of provisions

 

-

 

(274)

 

(274)

Unwinding of discount

 

11

 

-

 

11

 

 

 

 

 

 

 

At 30 June 2019

 

1,201

 

518

 

1,719

 

 

 

 

 

 

 

Due in less than one year

 

-

 

679

 

679

Due in more than one year

 

1,145

 

-

 

1,145

At 31 December 2018

 

1,145

 

679

 

1,824

Due in less than one year

 

-

 

518

 

518

Due in more than one year

 

1,201

 

-

 

1,201

At 30 June 2019

 

1,201

 

518

 

1,719

 

Other provisions are primarily in relation to costs arising from the restructuring activities associated with changing the personal trainers operating model within the business, and for remedial works at acquired sites.

 

10. Issued capital

During the six months ended 30 June 2019, the Company issued 22,924 Ordinary shares of 0.01 pence each in relation to matching share awards under The Gym Group Plc Share Incentive Plan.  The shares were then allocated to award holders via an Employee Benefit Trust, subject to satisfaction of continued employment conditions, for nil consideration.

The total number of issued share capital as at 30 June 2019 is 137,782,695.

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 six months ended 30 June 2019 are similar in nature to those awarded during 2018.

In the six months ended 30 June 2019, the Group recognised a total charge of £813,000 (six months ended 30 June 2018: £695,000, year ended 31 December 2018: £797,000) in respect of the Group's share based long term incentive plans and related employer's national insurance (£728,000 and £85,000 respectively).

12. Related party transactions

Identification of related parties

The Group has related party relationships with major shareholders, key management personnel and family members of the Directors.

 

Closewall Limited is a company under the control of a family member of a Director, J Treharne.

 

Transactions with related parties

The following table provides the total amounts owed to related parties for the relevant financial period:

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Year ended 31 December 2018

 

Unaudited

 

Unaudited
Restated
*

 

Audited
Restated
*

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

Closewall Limited

178

 

-

 

98

 

178

 

-

 

98

 

 

 

 

 

 

Opening balance

98

 

2

 

36

Purchases

1,361

 

3,748

 

2,405

Repayments

(1,281)

 

(3,714)

 

(2,343)

 

178

 

36

 

98

 

 

 

 

 

 

Representing:

 

 

 

 

 

Trade and other payables

178

 

-

 

98

 

13. Subsequent events

 

On 22 August, we communicated to members that our gym in Stoke will close on 23 September 2019. This decision was taken as part of our ongoing estate management as we do not believe the site will meet our long-term requirements. This closure is expected to give rise to exceptional costs of approximately £0.5m in H2 2019.We do not anticipate any further closures in the foreseeable future.

 

 


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2019 Interim Results - RNS