The Gym Group H2 2024 Earnings Report

The Gym Group EPS Results

• Actual EPS: GBX 3
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

The Gym Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

The Gym Group Announcement Details

• Quarter: H2 2024
• Date: 3/12/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, March 12, 2025
• Conference Call Time: 5:00AM ET

The Gym Group (LON:GYM), together with its subsidiaries, operates a network of gym facilities under the Gym Group brand name in the United Kingdom. The company was founded in 2007 and is based in Croydon, the United Kingdom.

The Gym Group H2 2024 Earnings Call Transcript

Key Takeaways

• Robust 2024 performance: membership +5%, yield +7%, revenue +11% (7% like-for-like) and EBITDA less normalized rent +24% to £47.7 m, driving mature-site ROIC up four points to 25%.
• Strong cash generation & deleveraging: free cash flow rose 39%, reducing net debt/EBITDA leverage to 1.3× and fully funding 12 new gym openings.
• Expansion momentum: delivered 12 new sites in 2024 at the top end of guidance with early volumes ahead of historical averages, and remains on track to open circa 50 organically funded gyms over three years, guiding 14–16 new openings in 2025.
• “Next Chapter” growth initiatives: data-driven pricing repriced 540k members with minimal churn, a dynamic ad-tech acquisition engine and retention programs that boosted early-life retention by 3.3 pp and doubled long-term saver memberships.
• Cost efficiency & outlook: like-for-like site costs rose just 2.4% through staff model optimization, rating challenges and energy-saving projects (39% ROIC on voltage optimization), with 2025 like-for-like sales growth of ~3% and EBITDA guided to the top of analyst ranges.

Presentation

[William Orr, CEO & Executive Director at The Gym Group]

Good morning, and welcome to the twenty twenty four Full Year Results Presentation for The Jim Group. Thank you for making the time to join us in the room and on the dial in. After the presentation, we'll take your questions in the room first and then from the webcast. Our CFO, Luke Tate, and I will be doing the presenting today. And here's what we plan to cover.

[William Orr, CEO & Executive Director at The Gym Group]

I'll start with an overview before handing over to Luke to share our 2024 full year financial results. I'll then provide a progress report on our next chapter growth plan. I'll then summarize before taking your questions. So starting with the overview. I'm very pleased to report strong performance for full year 2024.

[William Orr, CEO & Executive Director at The Gym Group]

Closing membership was up 5% and yield 7%, with revenue for the period up 11%, seven % on a like for like basis. With this performance and strong management of costs, EBITDA less normalized rent was up 24% at 47,700,000.0. In turn, mature site ROIC rose to 25%. This is a four percentage point increase on prior year, and it means we've hit our midterm target for this measure in a time frame that's exceeded our own expectations. Strong cash generation is an important part of our investment case, and we've made good progress here as well.

[William Orr, CEO & Executive Director at The Gym Group]

Free cash flow was up 39% on prior year at million and net debt reduced by million in the same period. When it comes to new sites, we opened 12 in 2024. And as we'll come on to describe, their performance to date has been very strong. 12 sites was the top end of our guidance for 2024, and we're on track with our plan to open circa 50 new sites over three years, all funded from free cash flow. And finally, we're making strong progress on our next chapter growth plan, driving those mature site returns and new site outperformance.

[William Orr, CEO & Executive Director at The Gym Group]

I'll provide a progress update on that shortly. But in the meantime, I'll hand over to Luc for the financial results.

[Luke Tait, CFO & Executive Director at The Gym Group]

Good morning. Starting with a summary of our financial KPIs. The key revenue KPIs, which we announced in January, have both shown good growth year on year. We had average members of 906,000 during the year, up 4% versus last year, and average revenue per member per month was up 7% on prior year. As a result, revenue for the year was 226,300,000.0, up 11% on prior year.

[Luke Tait, CFO & Executive Director at The Gym Group]

The strong revenue growth has dropped through well to profit with EBITDA less normalized rent of £47,700,000 up 24% or £9,200,000 year on year and £2,000,000 ahead of consensus. The profit before tax of million was up million year on year. Free cash flow of million was up over million versus prior year and enabled the opening of 12 new sites and a net debt reduction of over million to million, reducing the net debt to EBITDA leverage ratio to 1.3 times, down by 0.4 times versus December 2023. We'll look at each of these key financial metrics in more detail in the following slides. Firstly, looking at the income statement.

[Luke Tait, CFO & Executive Director at The Gym Group]

EBITDA less normalized rent for the year was million, up million on prior year. Revenue was million, up by million year on year. The incremental revenue was driven 70% by the like for like estate and 30% by the new openings, reflecting the smaller number of new openings in 2023. We expect like for like and new sites to contribute more evenly in the current year. Site costs and cost of sales were well controlled in the year, with the million increase reflecting the new openings as well as the impact of inflation.

[Luke Tait, CFO & Executive Director at The Gym Group]

We'll expand on the key driver shortly, but we benefited from lower electricity rates in 2024 with a further drop expected in the current year. Central costs increase year on year relates principally to a 5% inflationary salary increase and a higher element of variable pay. There were also investments in delivering the next chapter growth plan. In 2025, the inflationary increase will be lower and there won't be significant incremental investments required, and therefore, we'd expect to see the central cost margin return to circa 11%. Normalized rent increased by £2,600,000 reflecting new site growth with an underlying inflationary increase of 2.2%.

[Luke Tait, CFO & Executive Director at The Gym Group]

Moving on down the P and L. The noncash charge for share based payments increased to million due to the stronger trading performance and increase in the share price. Net financing costs of million consists of million relating to property and finance lease interest and million relating to our borrowing facilities. The decrease year on year was driven by lower bank interest costs due to lower average net debt during the year. It's worth noting that the IFRS 16 property lease charges are £2,400,000 higher than the cash rent costs.

[Luke Tait, CFO & Executive Director at The Gym Group]

This is expected to reverse in the next couple of years as the average age of our lease grows. A reconciliation is included in the appendix. Non underlying items of £1,100,000 was lower than prior year and a full breakdown is included in today's announcement. Finally, profit before tax for the year was million, million higher than prior year. Turning now to like for like revenue.

[Luke Tait, CFO & Executive Director at The Gym Group]

Like for like revenue for the year was 107%. As we progress through the year, the trading environment remains stable and like for like remains stronger than expected. The yield increase of 7% was delivered whilst maintaining like for like membership numbers. The increase in average revenue per member per month of 7% was driven by a combination of price increases and reduced promotional discounts and covers a full year of off peak membership dilution. Our average standard headline rate increased to an average increase of just versus December last year.

[Luke Tait, CFO & Executive Director at The Gym Group]

When we move headline rates, we continue to reprice existing members as long as our internal tests to ensure minimal incremental churn are met, and all increases are AB tested to ensure that we understand the elasticity of the increase. Site costs for the year came in, in line with expectations. There were very different trends by cost line. There was inflationary pressure in wage cost from National Living wage increase. However, our low staffing model is a competitive advantage against the mid market gym operators and results in a far smaller impact than on multi site leisure in general.

[Luke Tait, CFO & Executive Director at The Gym Group]

There was also pressure from rates with a new rating period and an increase in the uniform business rate. These were significantly offset by cost optimization initiatives. In our staffing model, we've made changes both at the management and fitness trainer level. We're tailoring our management structures using a range of roles, which enable us to align the management structure to the complexity and scale of the operations in each area. And optimizing the number of trainers to the gym level demand ensures satisfaction for members, sufficient opportunities for the trainers and maximum rents for the business.

[Luke Tait, CFO & Executive Director at The Gym Group]

On rates, we've managed to reduce the impact of the increases by challenging rateable values wherever possible. In Utilities, we've seen the higher electricity prices start to work their way out of the business in 2024 with a million rate reduction. We're expecting a similar saving in 2025. We also have a number of energy efficiency programs ongoing. We've now installed voltage optimization units in 105 gyms, which are giving an average ROIC of 39%, and we have plans for further 85%.

[Luke Tait, CFO & Executive Director at The Gym Group]

Early trials of automated lighting circuits are promising, giving a ROIC of nearly 50. Initial analysis has identified 50 sites, and we plan to carry out the first phase rollout this year. And finally, a softening insurance market has also provided savings. In total, like for like site costs increased by 2.4% for the full year. Turning now to cash flow.

[Luke Tait, CFO & Executive Director at The Gym Group]

Strong cash flow generation in the year enabled us to self finance our investments, buy shares for the EBT and pay down debt. The working capital inflow of million reflects careful cash management and a higher proportion of pay upfront memberships. After deducting the cash spent on maintenance CapEx of GBP 12,200,000.0, operating cash flow was GBP 44,200,000.0, up GBP 11,000,000 or onethree on prior year. The cash element of non underlying costs was £900,000 Bank and lease interest was £5,800,000 leaving free cash flow of £37,500,000 up 39% year on year giving a free cash flow yield based on recent share price of over 13%. It's worth noting that due to losses during COVID, we do not expect any cash tax until 2027.

[Luke Tait, CFO & Executive Director at The Gym Group]

Expansionary CapEx was million and after refinancing an EBT share purchase costs, net debt reduced by million year on year. We continue to invest to drive the business forwards. Total cash CapEx in the year was million, up on million last year. The main increase was in new site spend at million, with double the number of new openings in 2024 versus prior year. There was a high proportion of Greater London new sites than normal at eight out of 12.

[Luke Tait, CFO & Executive Director at The Gym Group]

Tech and data spend was million in 2024 as we continue to invest in next chapter growth initiatives, including on the e commerce journey and the app. We have a number of major tech projects over the next couple of years and therefore expect spend on tech to continue at at least this level. Total maintenance CapEx of £12,200,000 remain pretty consistent as a percentage of sales year on year, averaging around £50,000 per gym. Turning now to net debt. Non property net debt was CHF61.3 million at year end, down CHF5.1 million from December 2023.

[Luke Tait, CFO & Executive Director at The Gym Group]

The net debt consisted of million of bank net debt and million of finance lease debt and million of cash. As a result of the reduction in net debt, the total net debt to EBITDA multiple reduced to 1.3x, down from 1.7x at year end 2023 and 2x at the end of twenty twenty two. Given the further acceleration in new openings planned in 2025, we do not expect any further reduction in net debt at this year end. In June, we agreed a three year million combined term loan and RCF agreement with our banking syndicate. The agreement included two one year extension options, the first of which we intend to request this year.

[Luke Tait, CFO & Executive Director at The Gym Group]

The facility agreement permits distributions to shareholders, but in line with our capital allocation policy set out last year, our priority remains organic new site growth when we have high levels of confidence in achieving a ROIC of 30. Moving on to ROIC. ROIC for the mature estate was 25% last year, benefiting from the strong EBITDA growth in the year. The four percentage points increase year on year delivered our midterm target early. If the 13 workforce dependent sites are excluded, the ROIC increases to 27%.

[Luke Tait, CFO & Executive Director at The Gym Group]

The gyms opened in 2021 are now delivering ahead of the 30% ROIC target for new openings. And we expect further progress this year on mature site ROIC and, as a result, have increased confidence in returning to 30% ROIC in the longer term. The new sites are performing well, with the sites opened in 2022 on track to deliver an average ROIC of 30%. Although earlier in their tenure, the 2023 sites are on a similar trajectory to the 2022 sites. The 2024 sites are progressing well with strong initial volumes.

[Luke Tait, CFO & Executive Director at The Gym Group]

Finally, turning to current trading and outlook. Revenue year to date at the February is up 8% versus prior year, with average members up 4% and average revenue per member per month up 4%. Like for like was 3%, with like for like average members flat year on year. The gym rollout is on track with a guidance of 14 to 16 new openings this year, with three gyms currently on-site and with exchanged on a further three sites. The openings will be second half weighted.

[Luke Tait, CFO & Executive Director at The Gym Group]

Looking ahead for the full year, we expect like for like sales of circa 3% and like for like site cost inflation of circa 2%. And as a result, now expect 2025 EBITDA less normalized rent to be at the top end of analysts' forecast range. And now I'll hand over to Will for the strategy update.

[William Orr, CEO & Executive Director at The Gym Group]

Good. Right. Thank you, Luke. So last March, I set out our next chapter growth plan. And as I did last September, I wanted to give you a progress report.

[William Orr, CEO & Executive Director at The Gym Group]

Firstly, a reminder of the investment case, sustained growth from free cash flow and why we think it's so compelling. Starting at twelve on the circle, Health and Fitness is a very large market with structural growth tailwinds. And in gyms, it's the low cost sector that's growing fastest. As with other categories, we're benefiting from consumers' growing appetite for no frills great value propositions and from new, more committed generations of gym goers. Our advantaged business model delivers high value at low cost, a winning proposition with high levels of customer satisfaction.

[William Orr, CEO & Executive Director at The Gym Group]

We also have multiple drivers of growth listed on the right hand side of the slide, and we have detailed plans for each of them. Strong execution on these growth drivers is increasing returns in our existing estate, in turn funding the organic rollout of quality new sites. All of this is being powered by data and technology, two areas we continue to invest in as the foundation for any successful digital subscription business. The UK gym market is benefiting from sustained structural growth. UK consumers spend billion on gym memberships with 10,700,000 of us being members.

[William Orr, CEO & Executive Director at The Gym Group]

And that penetration continues to grow with a significant increase in 2024 from 15 to 15.9% versus 15.1% a year ago. As you can see in the green part of the bar chart, that growth is being driven by low cost gyms. With a proposition that's high quality and affordable, we're introducing new generations of gym goers to something they really value as well as benefiting from continued trade down from the mid market. And in this growing market segment, we're one of two brands with over 80% member share. Looking at consumer trends in surveys, focus groups or observing behavior in our gyms, it's not surprising to see that penetration growth led by high value, low cost gyms.

[William Orr, CEO & Executive Director at The Gym Group]

I talked to these trends a year ago, and each of them continues to accelerate. Consumers' fitness IQ is growing, meaning their use of the gym is more rounded and more engaged. They tell us they want to prioritize mental health and see gyms as the most obvious way to do that. They want to look fit and shaped, increasing the need for equipment you'll only find in a good gym. And amplified by the rise of social media, consumers are increasingly seeing the gym as part of their identity and their desired lifestyle.

[William Orr, CEO & Executive Director at The Gym Group]

All this is creating increased demand for gyms, and our advantaged business model best meets that need affordably and conveniently. The growing impact of Gen Z only strengthens these tailwinds. They accounted for 42% of our average members in 2024 and embody the trends laid out on the previous chart and again here. Gen Z are giving us a generational opportunity to attract new members and help them build habits that last a lifetime. Gen Z don't see going to the gym as a chore, but as part of their identity, part of the way they want to live and to socialize.

[William Orr, CEO & Executive Director at The Gym Group]

Or to personalize it, when I was 19, I occasionally went to the gym because I thought I ought to. My 19 year old son goes every day because he wants to. In short, there is a new generation of gym goers who love our gyms and will help to fuel our sustained growth. And it's not just Gen Z. In the broader population, health and fitness is increasingly high priority when it comes to spend.

[William Orr, CEO & Executive Director at The Gym Group]

For a growing number of us, health and fitness is not discretionary, It's an essential. The 2025 RSM survey of UK consumers looks at where we're looking to cut back on spend, and only spend on our children and our pets is less discretionary than fitness and well-being. And against that backdrop, our proposition resonates more than ever. For any subscription business, usage is a good health indicator, And the proportion of members visiting us four times or more a month increased again in 2024 by 120 basis points to 53.5%, while the proportion of members rating us five out of five in satisfaction surveys has risen year on year to a remarkable 57%. So the gym group is growing in a growing part of a growing market.

[William Orr, CEO & Executive Director at The Gym Group]

We benefit from structural tailwinds, an advantaged business model and a winning proposition. We also have a clear growth plan, and I wanted to give you that progress report. As a reminder, there are three elements to the next chapter. Strength in the Core is focused on increasing returns from our existing sites by growing like for like revenue. It's the program that helps us deliver our 25% midterm target for mature site ROIC early and is generating the cash to accelerate our organically funded rollout of quality sites in The UK.

[William Orr, CEO & Executive Director at The Gym Group]

As we said in September, those first two COGS are very much where our executional focus is for the time being because we see so much opportunity here. We are continuing to assess opportunities to broaden our growth over the longer term. Turning in more detail to strengthen the core, we delivered multiple wins in 2024 across three areas of focus covering different aspects of revenue growth. On pricing and revenue management, we see a sustained upside opportunity based on our strong value for money credentials, and I'm confident we have the data and capability to continue growing yield. When it comes to acquiring new members, we're using data, ad technology, local targeting and e commerce skills to create a highly efficient acquisition engine.

[William Orr, CEO & Executive Director at The Gym Group]

And thirdly, on member retention, we're seeing improving results by taking a systematic and data driven approach. On the next few slides, I'll give you some examples of the progress we're making in these areas. We continue to see clear and sustained headroom when it comes to pricing. The key reason for this is shown on the left hand side of the slide. The graph is output from a large quantitative study we refresh annually with Simon Kucher Partners.

[William Orr, CEO & Executive Director at The Gym Group]

It plots perceived value on the X axis against perceived price on the Y axis and shows that the high value, low cost gym sector is underpriced. When you consider the gym group value proposition, that's not surprising. You get a well equipped, well maintained gym staffed with friendly expert people for about a month. It's a phenomenal piece of value engineering. And you can see on the right hand side of the chart that that has led to strong value for money perceptions, which is stable despite increasing prices in 2024.

[William Orr, CEO & Executive Director at The Gym Group]

We've talked previously about our relative pricing versus other high value, low cost competition, and I'll come to that in a second. But it's also important to point out in the box bottom right that the mid market proposition is over twice the price of ours. Again, it's no surprise that we have highly resilient value perceptions and also that we benefit from trading down from the mid market. With this pricing and yield opportunity in mind, we've delivered a number of wins in 2024. All these have been underpinned by analytics and AB testing, de risking our decision making as we execute the plan.

[William Orr, CEO & Executive Director at The Gym Group]

Firstly, we have increased our headline rates for new members while remaining cheaper than the competition in competing sites. Secondly, with those value perceptions, the higher headline rates and our three tier product architecture in place, we repriced 540,000 members in 2024 without significant churn. Then turning to off peak. Having rolled it out nationally in 2023, we continue to fine tune its deployment, including optimizing its pricing at site level. In sites where this optimization has happened, we see a 3% improvement in revenue and will continue this work.

[William Orr, CEO & Executive Director at The Gym Group]

Finally, through data testing and a wider set of promotions, in 2024, we were able to discount less generously off headline rate. Turning to new member acquisition. We're building an efficient acquisition engine. The dynamic ad tech solution I talked to in September continues to yield results, enabling small adjustments to copy that deliver significant results across hundreds of ads. We also have a web team running multiple tests to improve sale conversion.

[William Orr, CEO & Executive Director at The Gym Group]

And we're using data analytics to improve the ROI on our marketing investments, for example, so that we can upweight spend around our sites with the higher returns. As I've described before, we also continue to focus our marketing investment spend close to our sites to minimize any wastage and to win locally across two forty five gyms. And I'm pleased to say that it's working. Over the last eighteen months, we've seen consistent gains in the key metrics that support growth, including likelihood to visit our website, likelihood to join and intention to visit more often. Retaining more members is another clear growth lever.

[William Orr, CEO & Executive Director at The Gym Group]

2024 was the first year of a sustained program on retention, and I'm very encouraged by the early results that we've seen. Our highest churn rates are in the first forty five days of a member's tenure. So last year, we developed an early life plan. This included a new CRM program that delivered a 3.3% increase in day forty five retention rates. We also launched a range of new app features, helping members to get even more value from their subscription.

[William Orr, CEO & Executive Director at The Gym Group]

For example, after improving it, we saw 159,000 more members use our member workout area in H2 twenty twenty four versus the same period in 2023. Our Acquire to Retain program delivered a new stepped promotional mechanic that delivers higher retention by reducing bill shock post introductory offer. And we also initiated a plan to grow our base of saver members who sign up for six, nine or twelve months. We more than doubled that base in 2024 with more enhancements to the product landing this year. And finally, we improved the experience for new members with increased staffing at new member peaks and better availability and quality of inductions.

[William Orr, CEO & Executive Director at The Gym Group]

New members who get a warm welcome and have an induction stay longer. So that's a few examples of the many ways we're strengthening the core of the business, increasing like for like revenue, mature site returns and free cash flow. In line with our strategy and the capital allocation policy set out in March, we're currently deploying that free cash flow to accelerate the rollout of quality sites in The UK. And as you recall, PwC recently estimated ten years plus of UK white space for low cost gyms. So the opportunity for sustained new site rollout is clear, and we'll take a disciplined returns focused approach to unlocking it.

[William Orr, CEO & Executive Director at The Gym Group]

We opened 12 sites in 2024 at the top end of our guidance. As we explained a year ago, we've been rigorous in identifying the characteristics of our best performing sites as set out on the left hand side of the slide. We then applied that formula in a disciplined way to the 12 new sites that we chose to open. Every gym on this page is delivering a winning proposition in a high population density location. With ample space, 20 fourseven access, great equipment, friendly staff and an affordable price, each gym has the proven ingredients to deliver 30% ROIC.

[William Orr, CEO & Executive Director at The Gym Group]

And I'm pleased to see the performance to date of our newest openings. The graph on the left hand side shows the growth in members from launch date with all 12 sites ahead of our historical average. The key drivers of that outperformance are set out on the right hand side and our teams have done a great job. Against each of these drivers, we have clear plans for further gains And what we're seeing gives me real confidence we can open new 30% returning sites sustainably. Looking ahead, we're on track with our guided aim to open circa 50 high quality new gyms over the next three years, funded from free cash flow.

[William Orr, CEO & Executive Director at The Gym Group]

Our guided range for this year is 14 to 16 new sites, and we're making good progress with our 2025 pipeline and indeed with our '26 pipeline. With this year's cohort getting out of the blocks fast, I'm excited that we still have lots of areas to build on for further acceleration. Firstly, we can apply the best of our strength in the core program as we mature the new sites, whether that's data driven pricing, marketing, gym product innovation or site cost management. Secondly, we can further innovate on-site build costs, a real focus for 2025. Thirdly, we're upgrading the design of our sites.

[William Orr, CEO & Executive Director at The Gym Group]

We see headroom to make them look and feel more modern cooler, for want of a better word. And we've retained a world class design and build company to support on all sites moving forward. We will also test former innovations to take full advantage of available U. K. White space.

[William Orr, CEO & Executive Director at The Gym Group]

And finally, we're adding new data sets to our site appraisal model. So our growth plan has momentum with more to come. As you see on the left hand side, this year will continue many of the 2024 focus areas because they will deliver benefit over multiple years. And we also have exciting new initiatives in 2025. The list on the right is not exhaustive, but to give you two examples.

[William Orr, CEO & Executive Director at The Gym Group]

In Q4 last year, we commissioned a major piece of data analysis to identify where there is membership headroom in our existing estate. In other words, sites where the statistical model says we should have more members. That gives us a data driven list of sites that we can go after to increase their membership. This might mean refreshing a particular site's equipment, design and or giving it a new marketing push. Either way, it will enable a focused approach to site level membership growth.

[William Orr, CEO & Executive Director at The Gym Group]

Or to give you one other example, in H1, we'll deliver a slicker rejoin process. Given our flexible no contract proposition, we want to make it as easy as possible for lapsed members to return to us. In short, I expect 2025 to be another year of progress in multiple areas, delivering further growth in mature site ROIC and strong performance on new gyms. So that's the progress report on our next chapter growth plan. I'd like to take the opportunity to thank our committed expert people across our two forty five gyms and our support center for delivering the progress that you can see.

[William Orr, CEO & Executive Director at The Gym Group]

We will shortly take your questions, but before that, I'm going to briefly summarize today's presentation. The Gym Group operates in a large market with structural growth tailwinds. We have an advantage business model that delivers high value at low cost and limits exposure on national living wage and national insurance. With multiple ways to grow, we increased profit by 24% last year and delivered our midterm returns target on mature sites early. And we expect further progress on this metric in 2025.

[William Orr, CEO & Executive Director at The Gym Group]

Profit growth is converting into strong cash flow, and that's allowing us to accelerate our organically funded expansion. And as a result of this strong progress and our current trading performance, we're updating our guidance once again and look to 2025 with real confidence. Thank you. So we will now take your questions. I think you're going to hear a voice that's going to instruct you on what's going to happen.

[Operator]

Thank you. Yes. If you have a question and you're in the room, please raise your hand and wait for

[Douglas Jack, Equity Analyst at Peel Hunt]

Okay. Douglas Jack, Bill Hunt. I've got a couple of questions. The first one is, can you talk about the trajectory to 30% return on invested capital on the new sites and any read through you have to the existing estates in terms of best practice there? And in terms of the 2025 expansion, obviously, last year, you were largely in London.

[Douglas Jack, Equity Analyst at Peel Hunt]

Were you looking to be expanding in 2025? And are you looking at bigger sites on average compared to the existing estate?

[William Orr, CEO & Executive Director at The Gym Group]

The second one. So maybe to take the second question first. So yes, I think, as you say, 2024, our site locations were weighted towards Greater London. And this year, we'd expect that to be more sort of fifty-fifty across the sort of 14 to 16 sites. So Greater London is a really strong performing area for us, but so is other sort of major urban conurbations.

[William Orr, CEO & Executive Director at The Gym Group]

And then in terms of size, yes, we'll continue to open on average sort of 14,000, 15 thousand square feet, but we'll go up to 20,000 square feet. And in terms of returns, we look for gyms where the top line can be really strong, and that often is bigger sites. So that's where we'd expect the balance to be.

[Luke Tait, CFO & Executive Director at The Gym Group]

And Doug, I think in terms of the sort of aspiration to return to 30%, we've obviously made significant progress in the current year going from 31% to 25%. We are obviously guiding to further growth, EBITDA growth this year, and that's the key driver of mature Site ROIC. So I don't think we set out specific time frame. But in the longer term, I think it does give us confidence we can keep moving that forward.

[Tim Barrett, Head - Travel & Leisure research at Deutsche Numis]

Tim Barrett from Deutsche and Numis. Can I just first ask about the rollout a bit more? Obviously, there's a step up implied in 2026 as you talked about. Keen to understand the kind of rent deals and landlord contributions, that kind of thing, just in terms of what's happening on underlying market conditions? And secondly, on repricing, I think you said 540,000 members repriced.

[Tim Barrett, Head - Travel & Leisure research at Deutsche Numis]

What's the approach to the other 400,000? Is it continuous? Or do you sort of look at it quarterly, periodically, that sort of thing? Thank you.

[William Orr, CEO & Executive Director at The Gym Group]

Yes. Okay. So on rollouts, I think it's true to say that landlords like gyms because they can see it's a growing market in mixed use developments and so on. It drives footfall and likewise on the High Street. So I think there's really strong availability for us.

[William Orr, CEO & Executive Director at The Gym Group]

And in terms of our 26 pipelines, Luc said, we're building three. We've exchanged on another three. And I think we've got good line of sight to the 14 to 16 for 2025. As Luc said, it will be H2 weighted. So I think, yes, good availability and good progress on that pipeline.

[William Orr, CEO & Executive Director at The Gym Group]

And as I say, I think people welcome gyms into high streets and retail parks and so on.

[Luke Tait, CFO & Executive Director at The Gym Group]

And Tim, on repricing, we have quite a sort of scientific approach to the way we reprice. And we look a bunch of different characteristics, so sort of membership ten year usage of the gym, whether or not they're on student products, etcetera, etcetera, to decide how and when we reprice. And as a result, you'll never reprice the entire sort of state at one time. And it is very granular. It is literally down to small quite small cohorts of membership

[Luke Tait, CFO & Executive Director at The Gym Group]

types.

[Jack Cummings, Associate Director at Berenberg]

Jack Cummings at Berenberg. Just wanted to first ask, you mentioned on the site level member headroom that you're looking in 2025. Should we expect there to be volume growth year on year in, like for like terms in 2025? And then just secondly, on capital allocation, leverage has come down significantly over the past two years and is expected to remain in pretty healthy levels.

[Jack Cummings, Associate Director at Berenberg]

What goes into the decision making process when you're thinking about dividends and buybacks and how that's balanced against your growth opportunities? Thanks.

[William Orr, CEO & Executive Director at The Gym Group]

I think on the first one, I think we guided last year and will continue this year that we're seeking to optimize for revenue. And the way that we're doing that for the time being is to sort of take the yield opportunity that we can see and we think will sustain for some time to come. So we'd expect our like for like revenue growth to be weighted towards yield. That said, we don't want to decrease our like for like membership. So as last year, we'll be trying to at least keep that 100 like for like but sort of yield weighted.

[William Orr, CEO & Executive Director at The Gym Group]

Yes, that said, we've got a number of programs that look at volume and that site level headroom, I think, is a kind of a new piece of analysis that should help us with that. And Jack, on capital allocation.

[Luke Tait, CFO & Executive Director at The Gym Group]

So this time last year, we set out a sort of capital allocation policy that prioritized organic growth as long as we felt really good certainty on delivering that 30% ROIC. I mean, I think we remain sort of open minded. I mean, essentially, we will follow the returns for shareholders. So there is a place when the share price gets to a point where we think the returns can be as strong as the returns on organic growth and essentially with no execution risk. So we remain open minded to whether or not we need to reorder.

[Anna Barnfather, Equity Analyst at Panmure Liberum]

Anna Panfather from Pamyol Liberum. Just on the build costs, you mentioned you're getting bigger, but you're also looking at how to optimize and innovate on those designs. Can you expand a little bit more on average build costs and where you think there's some design savings on there? And then, second question on IT development and spend. Obviously, some is capitalized, some is expensed.

[Anna Barnfather, Equity Analyst at Panmure Liberum]

What is the total amount spent in 2024? And where will that increase to in 2025 and beyond, please?

[William Orr, CEO & Executive Director at The Gym Group]

Yes. I think on build costs, I think, yes, in absolute terms, we are, as we were talking about moments ago, Anna, sort of looking to build relatively large sites. And sometimes, that's sort of more like the 1.5, one point six type level. But we're good with that because some of those bigger sites are returning very good returning very well and have a very strong top line. So there's something about the absolute number and just the sort of size of the gyms that we're building.

[William Orr, CEO & Executive Director at The Gym Group]

And then on-site cost innovation, it's a sort of it's really a new program for 2025. We've hired Hamish Laksimir, who's in the room here, who has just joined us from Aldi, where he was National Store Development Director. So I think he can he will bring a lot to that agenda. And we've got a kind of whole list of items that we're working through. And perhaps when we do this in September, we'll try and give you a bit more granular detail.

[William Orr, CEO & Executive Director at The Gym Group]

But I think important when you look at the absolute number to recognize that we open quite large gyms.

[Luke Tait, CFO & Executive Director at The Gym Group]

And on the tech CapEx, so sorry, tech spend altogether, we don't we haven't given sort of line item detail on cost lines for the P and L, but I would say that the CapEx is higher than the OpEx. And I think the sort of key change really that we've seen lately is that change in accounting policy where you can't capitalize SaaS implementations. And so that's why I think it's appropriate to report the projects we're just sort of commencing now as non underlying because they're so lumpy in nature that I think it just distorts the underlying picture of trading.

[Sahill Shan, Partner at Singer Capital Markets]

Morning. Sahil Shah from Singa Capital Markets. Three questions, please. Firstly, in terms of the commentary on current trading this morning, it's clearly positive. Just wanted to understand a bit more relative to where you were this time last year.

[Sahill Shan, Partner at Singer Capital Markets]

What's been the key learnings, key insights? What have you done differently this year around to sort of give you a lot more confidence around that trading over January and February? And then secondly, the slide on retention, if I remember correctly, the focus was on the members who joined in the first forty five days or so. So the question is, how much scope is there more to improve retention in that area? But more importantly, anything you can share about the rest of the membership cohort, how retention has fared over the last twelve months vis a vis that cohort?

[Sahill Shan, Partner at Singer Capital Markets]

And final question, just anything else worth sharing in terms of what you're seeing vis a vis the competitive landscape at the moment? Thank you.

[William Orr, CEO & Executive Director at The Gym Group]

Shall I make a start on the trading? I'll go on current trading and retention and maybe to your competitive landscape.

[William Orr, CEO & Executive Director at The Gym Group]

Sorry, so maybe

[William Orr, CEO & Executive Director at The Gym Group]

to your third one. Yes. So on yes, look, I think on current trading, we're pleased with how trading went through the January, February peak. And indeed, we're quite pleased how it went last year as well. So I would say in terms of new learnings, I think the first thing to say is that this year, it was kind of a build on last year.

[William Orr, CEO & Executive Director at The Gym Group]

So we sort of try and take the best elements forward. So we're not sort of trying to reinvent the wheel each time. It should be sort of higher risk thing to do. But I think a strong, clear marketing campaign targeted around our existing sites. We did do a bit more what we call sort of priming the pump.

[William Orr, CEO & Executive Director at The Gym Group]

So we did quite a lot of media activity between Christmas and New Year to just get awareness levels up once the peak trading started in earnest. So that was an evolution. But in many ways, it was essentially the same campaign based around the sort of key benefits and a media buy that's very digital and very focused on the existing sites. And I think we're seeing a consumer who has disposable income and will spend it on things that they really value. And gyms, fortunately for us, are one of the things that they are really valuing.

[William Orr, CEO & Executive Director at The Gym Group]

So I think that's some trading. I think on retention, yes, we've had a particular focus on that early life cohort, but the retention program goes right across the base. And we have seen some improvements this year. So the average tenure of our membership grew year on year towards sort of eighteen months. And so yes, we saw improvements right across the piece on retention, though the program is year one of a multiyear program on retention.

[Luke Tait, CFO & Executive Director at The Gym Group]

And on competition, I mean, I think probably the best way of describing it is, I think we've got pretty good and capable competitors, but everyone's taking economically rational decisions at the moment, both in terms of headline rates and how they're sort of moving them and sort of flexing to inflation and also I think in terms of source site selection?

[Caroline Gulliver, Equity Research Analyst - Consumer at The Gym Group]

Good morning. Caroline Gallagher from Equity Development. I just wanted a little bit more color around your staffing model, if possible. You talked about making efficiencies. And I just wondered if you could give us some more color on the learnings that you're taking into your new sites when you're looking at how to staff new sites.

[Caroline Gulliver, Equity Research Analyst - Consumer at The Gym Group]

And then secondly, you also mentioned that wage inflation was coming down from last year, but just wondered if you could quantify what you expected for wage inflation for this year.

[William Orr, CEO & Executive Director at The Gym Group]

Yes. I mean, I think on staffing model, if you go to one of our gyms, what you'll see is a large, clean, safe space with a lot of great equipment in it and some friendly people. But what you won't see is a receptionist, somebody sort of collecting towels, somebody cleaning swimming pools because they don't have swimming pools. In other words, it's a no frills proposition. And therefore, we're able to staff in a very cost effective way.

[William Orr, CEO & Executive Director at The Gym Group]

So I think that's essentially how we approach the model.

[Caroline Gulliver, Equity Research Analyst - Consumer at The Gym Group]

That's always been the case, though. So what have you changed differently? You mentioned you made efficiency more of a

[Caroline Gulliver, Equity Research Analyst - Consumer at The Gym Group]

specific year as well.

[Luke Tait, CFO & Executive Director at The Gym Group]

Yes.

[Luke Tait, CFO & Executive Director at The Gym Group]

So for example, we've changed some of the management structures. So if we've had two or three small gyms, smaller membership gyms in an area, we might look at a cluster manager, we might look at your site manager, we might look at fitness instructors rather than system general managers. So there's a we've sort of broadened the range of roles that we have so that we can tailor those roles to the complexity of the local sort of operational picture. And on your second question about wage inflation, so that was specifically a comment about central costs. Unfortunately, we don't get to set most of the wage inflation in site level costs, but we are expecting central cost wage inflation at about 3%.

[Analyst]

Jane Henderson, Ocean Wall. Turning to your ROIC at mature sites, can we assume that the graph or the numbers that you're giving us is comparable to the 159 sites that you put in the presentation last year? Secondly, can we push back a little bit more on the lease environment? Because retailers are all talking about shortening leases and the whole concept of upward only rent reviews seems a thing of the past. So a bit more color on that would be helpful.

[Analyst]

And thirdly, because your marketing team seems to be well embedded and firing on all cylinders now, Will we see anything a little bit different, like a bit more corporate membership activity or corporate deals or something of that nature?

[William Orr, CEO & Executive Director at The Gym Group]

Shall I try one and three? I think on leases, I don't think we're seeing anything hugely different. Our leases will tend to be fifteen years with a break at ten years. So I think that side of things is relatively stable. On your third question, yes, we've got a great marketing team.

[William Orr, CEO & Executive Director at The Gym Group]

To answer the question of corporate, yes, I think there's opportunity there. I mean, we do have corporate members. We have grown that base, but it is a relatively small part of the mix. And actually, we've got some quite sort of significant experiments planned in that area, if I could put it that way. And again, again, that's something we could probably come back and update on perhaps in September.

[William Orr, CEO & Executive Director at The Gym Group]

But for sure, corporates, as I'm sure you know, want to offer their people fitness and well-being because, again, they know that it's high priority. So yes, I think there's more to come in that area.

[Luke Tait, CFO & Executive Director at The Gym Group]

And on your question about, Jane, on the ROIC of a mature site perimeter, so it was the same perimeter but plus one new cohort that falls in as mature sites. So every year, we add essentially one more cohort in.

[Operator]

We have a question from online, which is from Patricia Lopez from Two Playbook. She says, are you looking to grow in other markets outside of The UK?

[William Orr, CEO & Executive Director at The Gym Group]

Yes. As I said in the presentation, we are currently focused on The UK because we see further headroom to grow the returns on our existing estate as we've talked to in that sort of journey to 30% and the progress that we've made there and because we see ten years plus of white space to roll out into in The U. K. So that's absolutely our focus. And then periodically, we sort of have a look at other possibilities to broaden our growth.

[William Orr, CEO & Executive Director at The Gym Group]

We sort of have a strategic look at that each year. But for the time being, we're very consciously focusing on The UK.

[Operator]

We have another question online from James Gilbert. He says, congratulations on great results. Please can you talk about how you see the tech and data spend? You have it as exponentially. So how do you see ROIC given the large amounts involved?

[Operator]

Thank you.

[Luke Tait, CFO & Executive Director at The Gym Group]

Sorry, I'm not quite sure I understood the second half of that.

[Operator]

How do you see the ROIC given the large amounts involved?

[Luke Tait, CFO & Executive Director at The Gym Group]

Yes, yes. Okay. So obviously, every major tech investment we make, we assess the returns that we expect to get from it, and we treat it very much like a normal capital item, albeit sometimes the business case is a little bit more difficult to discern, particularly when you're in areas around sort of revenue optimization. But essentially, we do look for ROIC increase on that CapEx spend as well.

[Operator]

There are no further questions from online. Thank you.

[William Orr, CEO & Executive Director at The Gym Group]

Okay. Well, thank you for coming. I think that's that. And yes, thank you.

Participants

Executives

• William Orr, CEO & Executive Director
• Luke Tait, CFO & Executive Director
• Caroline Gulliver, Equity Research Analyst - Consumer

Analysts

• Douglas Jack, Equity Analyst at Peel Hunt
• Tim Barrett, Head - Travel & Leisure research at Deutsche Numis
• Jack Cummings, Associate Director at Berenberg
• Anna Barnfather, Equity Analyst at Panmure Liberum
• Sahill Shan, Partner at Singer Capital Markets
• Analyst