The Gym Group H1 2025 Earnings Report

The Gym Group EPS Results

• Actual EPS: GBX 2.80
• 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: H1 2025
• Date: 9/10/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, September 10, 2025
• Conference Call Time: 4:00AM 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 H1 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong H1 performance with closing membership up 5%, revenue up 8% (3% like-for-like) and EBITDA less normalized rent up 24%.
• Positive Sentiment: Robust free cash flow of £25.1 million (up 8%) lowered net debt by £10.1 million to £51.2 million, reducing leverage to 1x EBITDA.
• Positive Sentiment: On track to open 14–16 new gyms in 2025 (circa 50 over three years), all funded organically and aiming for a 30% ROIC on recent cohorts.
• Negative Sentiment: Site costs were down 1% in H1 thanks to lower energy rates but are expected to rise in H2, with full-year like-for-like site cost growth guided at 2%.
• Neutral Sentiment: The “Next Chapter” growth plan is strengthening mature site returns via pricing, targeted marketing, retention and refurbishments, with mature site ROIC already at 25%.

Presentation

[Operator]

Hello and welcome to The Gym Group Half Year Results 2025. If you're joining us on Zoom, automated subtitles are available, and you can turn this feature on or off within your Zoom app settings. Please note this is an automated service, and transcription errors sometimes occur. I'm now going to hand over to Will Orr, CEO. Will, please go ahead.

[Will Orr, CEO & Director at The Gym Group]

Good morning and welcome to the 2025 Half Year Results presentation for The Gym 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 on the webcast. Our CFO, Luke Tait, and I will be doing the presenting today. Here's what we plan to cover. I'll start with an overview before handing to Luke to share the 2025 Half Year Financial Results. I'll then provide a progress report on our next chapter growth plan before summarizing and taking your questions. Starting with the overview, I'm pleased to report strong performance for the first half of 2025. Closing membership was up 5%, with revenue for the period up 8%, 3% on a like-for-like basis. With this performance and strong management of costs, EBITDA less normalized rent was up 24%.

[Will Orr, CEO & Director at The Gym Group]

The market we're in remains highly attractive, and gym penetration has again reached new highs, supported by structural growth tailwinds. Within our next chapter growth plan, the program to strengthen the core continues to drive mature site performance, underpinning confidence in further progress on mature site ROIC, which we'll report on at full year results. When it comes to new sites, we're on track to increase openings to 14 to 16 in 2025, in line with our plan to open circa 50 new sites over three years, funded from free cash flow. The momentum continues, and with that, I'll hand over to Luke for the financial results.

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

Thanks, Will. Good morning.

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

Starting with a summary of our financial KPIs. The key revenue KPIs, which were released in July, have both shown good growth year on year. We had average members across the first half of 953,000, up 4% versus last year, and average revenue per member month was £21.16 for the first half, also up 4% on prior year. As a result, revenue was £121 million, up 8% on last year. The additional revenue converted well to profit, with EBITDA less normalized rent of £27.4 million, up 24% on prior year. Statutory profit before tax was £3.3 million, up £3.1 million on prior year. Free cash flow of £25.1 million was up 8% on prior year, and enabled a net debt reduction of £10.1 million to £51.2 million, reducing the net debt to EBITDA leverage ratio to one times.

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

We will look at each of these key financial metrics in more detail in the following slides. Turning to the income statement, EBITDA grew strongly in the first half of the year, up 24% versus last year. Revenue was £121 million, up by £8.9 million year on year. Approximately one third of the incremental revenue year on year was generated from like-for-like gyms, and two thirds from new openings since December 2022. Costs in the first half evolved in line with expectations. Site costs of £57.9 million benefited from a reduction in electricity costs from lower commodity rates, resulting in site cost margin improvement of 2%. I'll come back to the other key site cost movement shortly.

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

Central costs grew by 7%, with the growth rate expected to slow further in the second half, and therefore the central cost margin is expected to drop to circa 11% as guided in March. Normalized rent increased by 7%, reflecting a combination of new site growth and underlying lease inflation. EBITDA was £27.4 million, with EBITDA margin at 23% for the first half, an improvement of 3% versus prior year. Moving on down the P&L, the non-cash charge for share-based payments of £2.5 million was higher than prior year due to the delay in the commencement of the new scheme last year. Net financing costs of £10.4 million remain flat year on year, as lower interest rates offset an increase in property lease liabilities. The charge consists of £8.1 million relating to property lease interest and £2.5 million relating to our borrowing facilities.

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

Profit before tax and non-underlying items was £4.9 million, up £4.4 million on prior year. Non-underlying items of £1.6 million principally relate to the implementation of a new member management and payment system. Finally, profit before tax for the six months was £3.3 million, up from break-even last year. Revenue grew by 8% in the first half. Average revenue per member per month grew by 4%. This was principally down to a combination of yield increases in the like-for-like estate and the optimization of yield in the new site openings, including coming off introductory headline rate discounts. The average headline rate of a standard membership was £25.10, up by £1.16 year on year. Like-for-like revenue was 3% in line with guidance, with the average membership remaining at 100% year on year and the average yield increasing by 3%.

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

Looking at site costs in more detail, we've been able to control site costs in the first half despite the ongoing inflationary environment. In the first half, like-for-like site costs were down by 1%. This was driven by a further reduction in electricity commodity prices and our energy optimization program. For example, we have now installed 120 voltage optimization units across the estate. Efficiencies in the staffing model and cleaning have partially offset the national living wage and NIC increases in Q2, and rates rebates have partially offset the Q2 increase in the UBR. In the second half, we expect site cost inflation to return, bringing the full year in line with our guidance of like-for-like site cost growth of 2%.

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

This is as a result of an increase in the non-commodity element of the electricity costs from Q4, as well as two quarters of national living wage, NI, and UBR increases. Turning now to the cash flow, strong cash flow generation in the year enabled us to self-fund our expansionary CapEx, buy shares for the EBT, and pay down debt. The working capital inflow of £8 million reflects a cash-generative nature of the business model when growing and a higher proportion of pay-upfront memberships, although some unwind of this inflow is expected by year-end. After deducting the cash spend on maintenance CapEx of £7.3 million, operating cash flow was £28.1 million. The cash element of non-underlying costs was £0.5 million. Bank and lease interest was £2.5 million. It's worth noting that due to losses incurred during COVID and accelerated capital allowances, we do not expect any cash tax until 2028.

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

Free cash flow was £25.1 million. Expansionary CapEx was £12.6 million, and after refinancing and EBT share purchase cost, net debt reduced by £10.1 million during the first half. We continue to invest to grow the business and ensure a well-maintained estate. Total cash CapEx in the first half of the year was £19.9 million. Maintenance CapEx across both property and tech was £7.3 million in the first half. Property maintenance of £6.2 million was 5% of revenue. Tech and data maintenance CapEx of £1.1 million was spent on hardware, including CCTV upgrades and on our data infrastructure. Expansionary CapEx was £12.6 million, with the main spend being on new sites, as we target 14 to 16 new sites this year. Tech and data expansionary spend relates principally to investments in the website to enable next chapter growth initiatives such as product add-ons and website conversion optimization.

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

Spend on replacement member management and payment systems was £0.7 million and is expected to increase significantly in the second half as this project ramps up. We continue to expect total CapEx to be approximately £50 million for the full year. Turning now to net debt, the strong free cash flow in the first half has allowed good progress on leverage reduction. Non-property net debt was £51.2 million at the end of June, down £10.1 million from the year-end. The debt consisted of £59 million of bank debt and £1.5 million of finance leases. As a result of the reduction in debt, the net debt to EBITDA multiple reduced to one times EBITDA, down from 1.3 times at year-end.

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

Given the second half weighting of CapEx and an expected element of working capital unwind, year-end net debt is expected to be at a similar level to last year's end at circa £60 million. In June, we agreed to amend and extend our current facilities with our bank syndicate, increasing the total facilities to £102 million and extending the maturity to 2028. The new sites continue to perform well. The 25 sites opened in 2022 are expected to deliver ROIC of 30% this year. The small 2023 cohort is on track to deliver an average ROIC of 25%, with one site having been impacted by an unusual level of competitors' openings. Although early in their tenure, the 12 2024 sites are progressing well with strong initial membership volume. Overall, our confidence remains high on returning 30% on new openings. Finally, turning to current trading and outlook.

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

Current trading momentum has continued through July and August. We're now entering the key student acquisition period. We've opened five new gyms so far this year, with another eight gyms currently on site. For the full year, like-for-like revenue is expected to grow at circa 3%, and like-for-like cost growth is expected to be circa 2%. Given the current trading momentum, we now expect EBITDA at the top end of market expectations. We do not expect to pay any cash tax before 2028. We're on track to open 14 to 16 new openings in 2025, in line with our March guidance, with total CapEx of circa £50 million expected for the full year. Therefore, net debt is expected to trend back to last year's level by year-end. I'll now hand over to Will.

[Will Orr, CEO & Director at The Gym Group]

Thank you, Luke. In March 2024, I set out our next chapter growth plan and wanted to provide you with a further update on the strong progress we're making. Firstly, a reminder of the investment case, sustained growth from free cash flow, and why we think it's so compelling. Starting at 12:00 on the circle, health and fitness is a very large market that's benefiting from continued structural growth. In gyms, the high-value, low-cost sector is growing fast. As with other categories, we're benefiting from consumers' appetite for no-frills great value propositions and from new, more committed generations of gym goers. This winning proposition has high levels of customer satisfaction and is delivered by a strategically advantaged labor-light business model. We also have multiple drivers of growth listed on the right-hand side of the slide, with detailed plans on each of them.

[Will Orr, CEO & Director at The Gym Group]

Strong execution on those growth drivers is increasing returns in our existing estate, in turn funding the organic rollout of quality new sites. This virtuous circle of sustained growth is being powered by data and technology, two areas we continue to invest in as the foundation for any successful digital subscription business. Demand for gyms continues to grow. UK consumers now spend £6.5 billion on gym memberships, with 11.3 million of us being members. That penetration continues to grow, with another strong increase in 2025 to 16.6%. As you can see, low-cost gym growth is strong. 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 the continued trade down from mid-market. In this growing market segment, we're one of two brands that account for 80% member share.

[Will Orr, CEO & Director at The Gym Group]

Seeing the way future generations, particularly Gen Z, are embracing gyms is one of the reasons we're so optimistic about The Gym Group's future. With around 40% of our members being in this cohort, we now publish a Gen Z fitness report based on a regular independent survey of over 2,000 respondents. The most recent results are again encouraging. Nearly three quarters of this group are now saying they're making time for fitness at least twice a week, and their fitness is their top priority when it comes to discretionary spend. For a growing number of this generation, fitness is a non-negotiable. These are consumers who are highly engaged in fitness for its physical and mental health benefits, who have a growing appetite for strength training, best done in a well-equipped and affordable gym, and who increasingly see going to the gym as part of their identity and social life.

[Will Orr, CEO & Director at The Gym Group]

I should add that these trends extend beyond Gen Z and into our membership base as a whole. The future is bright for fitness and gyms. To take full advantage of a market with structural growth, you need a winning proposition, and ours resonates more than ever. For any subscription business, usage is a good health indicator, and the proportion of members visiting us four times a month or more increased again year on year, while the proportion of members rating us five out of five in satisfaction surveys has risen to a remarkable 62%. When it comes to Google reviews, we lead the market, with every one of our gyms scoring four out of five or better. The Gym Group is growing in a growing part of a growing market, benefiting from structural market growth and an advantaged labor-light business model that delivers a winning proposition.

[Will Orr, CEO & Director at The Gym Group]

The Gym Group also has a clear growth plan. As a reminder, there are three elements to the next chapter. Strength in the core is focused on increasing returns from our existing sites, principally by growing like-for-like revenue. It's the program that helped us deliver our 25% midterm target for mature site ROIC in full year 2024 ahead of schedule, and is generating the cash to accelerate our organically funded rollout of quality sites in the UK. As we said in March, those first two COGs are very much where our executional focus is for the time being, because we see so much headroom here. I will, however, also update on the third COG, broaden our growth later in the presentation. Turning in more detail to strengthen the core, we've again delivered multiple wins across three levers of customer revenue growth.

[Will Orr, CEO & Director at The Gym Group]

On pricing and revenue management, we're seeing 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, brand management, local targeting, and e-commerce skills to create a highly efficient acquisition engine. Thirdly, on member retention, we continue to increase the average tenure of our membership by taking a systematic approach. On the next few slides, I'll give you some examples of the progress we're making in these areas. In explaining why we see such a sustained opportunity on pricing and yield, I wanted to start with the UK gym market as a whole. At a Gym Group gym, you get a large, clean, well-equipped, well-maintained gym with friendly, expert people. You also get 24/7 access, and you're not tied into a contract.

[Will Orr, CEO & Director at The Gym Group]

Yet, because of our advantaged business model, we're able to offer all this at prices that, as well as being marginally lower than the direct competition, are comprehensively lower than the rest of the market. As I'll touch on shortly, we have ways to keep enhancing the perceived value of what we offer without adding to our costs. Our market position gives us a strong long-term pricing and yield opportunity. Critically, that opportunity exists in the minds of our consumers. The graph on the left-hand side is output from a large quantitative study we refreshed again in H1 with Simon Couture Partners. 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 remains underpriced in the minds of our target consumer. In other words, they continue to perceive more value than they pay.

[Will Orr, CEO & Director at The Gym Group]

When you consider the value proposition I just described, that large, well-equipped, well-maintained 24/7 gym for about £25 a month, that's not surprising. It is a phenomenal piece of value engineering. As you can see on the right-hand side of the chart, this delivers strong value for money scores, which remain stable despite increasing prices again over the last 12 months. With this opportunity in mind, we delivered several wins again in H1. All these have been underpinned by analytics and A/B testing, de-risking our decision-making as we execute. Firstly, we've increased our headline rates for new members while remaining cheaper than the competition in competing sites. We note that our main competitors continue to take a similar approach, with JD Gyms particularly aggressive in the period and further Pure Gym price increases noted already in H2.

[Will Orr, CEO & Director at The Gym Group]

Secondly, we've continued to test and innovate on promotions, seeking to optimize for return on spend. This has included more targeted treatments at site level and ongoing deployment of our churn-reducing stepped kickers. Thirdly, we've continued to revenue optimize our product range, including offering premium features like guest passes and multi-site access as add-ons to standard membership. Finally, we've developed a data model to assess site-level headroom in the mature estate, enabling even more targeted pricing and volume interventions as a result. I'll return to this data model later. Turning to acquisition, we're also taking a targeted approach here. As I've described before, to maximize return, we're spending our marketing money close to our sites where the demand will naturally be. As you can see in the graph, unprompted awareness within three miles of our sites is growing.

[Will Orr, CEO & Director at The Gym Group]

When it comes to converting prospects into sales, our program of web conversion improvements continues, with nine successful A/B tests completed and adopted in H1. We're also progressing initiatives to be as relevant and attractive as possible to our core audience of Gen Z consumers. This includes growing our footprint in social media and enhancing the presentation of our brand and our sites. To expand on this a bit further, as you can see on the left-hand side of this chart, our social media reach, both at national and local level, continues to grow at pace, with well over half a million people interacting with us in social. This is a key channel for quality fitness advice, engagement, and of course, sales, and we'll continue to prioritize this area. We're also evolving the aesthetic presentation of The Gym Group in marketing activity and in our gyms.

[Will Orr, CEO & Director at The Gym Group]

This is one of the ways we'll continue to build our perceived value in the minds of members, supporting pricing and revenue growth. I'll return to what evolves in gym design in more detail shortly. Our focus on retention is one of the reasons we've been able to hold like-for-like membership constant while pricing up and while the average tenure of our members continues to grow. Churn rates are highest in the first 45 days of a member's tenure, which is why we developed our early life plan. Part of this plan is encouraging new members to visit more often in their first month, and in H1, we launched targeted nudge messages in the app to encourage visits. As well as this, we're enhancing all aspects of the new joiner experience. For example, we've renamed and better promoted the free Kickstart induction session we offer new members.

[Will Orr, CEO & Director at The Gym Group]

Kickstart introduces the new member to their gym and helps them get the most from it. We've seen a 37% increase in participation and 10% higher retention rates among participating members. Rejoins are also an important part of our member mix, with members benefiting from our flexible proposition. We have a program of enhancements to capture as many returning members as possible and increase the six-month rejoin rate by 6% in H1. Finally, we continue to grow our base of members on a longer-term commitment. We call these 6, 9, and 12-month products savers and have enhanced them in several ways, growing this base by 37% in H1. That's a few examples of the many ways we're strengthening the core of the business and improving mature site ROIC.

[Will Orr, CEO & Director at The Gym Group]

To remind you, we grew that measure four percentage points in full year 2024 to 25% and look forward to reporting further progress on this metric at full year results. Now turning to the second part of the plan. In line with our strategy and capital allocation policy, we're currently deploying free cash flow to accelerate the rollout of quality sites in the UK. PwC estimates 10 years plus of UK white space for low-cost gyms, so the opportunity for sustained rollout is clear, and we're taking a disciplined, returns-focused approach to unlocking that opportunity. We opened 12 new sites in 2024 at the top end of guidance and are on track to open the guided 14 to 16 in 2025. Using data to isolate the characteristics of our best-performing mature sites, we're then applying that formula to the new sites we open.

[Will Orr, CEO & Director at The Gym Group]

As a result, I'm pleased to say that the five sites we've opened so far this year are performing ahead of expectations. Given the power of data-driven site selection, we continue to enhance our methodology. In H1, we developed a new, fully bespoke site selection model with more data sources and machine learning to further increase accuracy and speed of appraisal. As referenced earlier, we're elevating design aesthetic and kit innovation in new sites. I'll provide some more detail on that now. We have great gyms with strong customer ratings and improving returns, but we've identified headroom to elevate the gym experience further, driving those high-value perceptions and supporting sustained revenue growth. The evolved approach is being applied to all new sites and, as I'll cover in a moment, being rolled out in our mature estate in a commercially targeted way within our existing maintenance CapEx program.

[Will Orr, CEO & Director at The Gym Group]

The work to do this, which has included input from a world-leading retail design agency, was based on five principles. Firstly, this is a careful evolution, so we wanted to build on the strengths we have and continue to create welcoming gyms for all our members. That said, we're evolving the look to be more on-trend and premium. This includes some darker colors, more use of original building features, more use of neon and lighting design, black kit, better changing rooms, and better zoning. Thirdly, kit is a very important part of why customers choose The Gym Group. We're innovating here with more advanced strength training equipment and in the introduction of some sought-after kit brands like Beauty Builder and Exego. We're also being more conscious about creating spaces for members to socialize in and environments suited to posting on social media.

[Will Orr, CEO & Director at The Gym Group]

Finally, and critically, through thoughtful cost engineering, we're doing all this without adding to fit-out costs. Here are some visuals of the new approach. I'm pleased to say the performance of the eight sites we've opened so far with the new approach has been strong. The rate at which we fill these gyms with members is well above our historic growth curve. At an average of 4.8 out of 5, the feedback on Google reviews is excellent too. As well as opening new sites with this improved approach, we want to apply it to the mature estate within our existing CapEx budgets. We'll prioritize this maintenance spend based on likely return. To aid this, we recently completed a multivariant statistical model to analyze potential membership headroom across the estate. This is allowing us to prioritize our refurbishment program where the returns should be highest.

[Will Orr, CEO & Director at The Gym Group]

It will also help us to target local marketing and pricing, as well as those in-gym enhancements. Here's an early example of the approach. The model identified membership headroom in Bristol Longwell Green. We business cased the site investment within our maintenance CapEx budget and rolling refurb program. We reopened with a new design approach and some local relaunch marketing. I'm extremely encouraged by the early results we're seeing. Across new and existing sites, we expect around 40 of our gyms to benefit from the new design approach in the full year 2025, with the program then continuing into 2026. That's some examples of the progress across the first two COGs of our growth plan. As I said earlier, we see headroom in both these areas.

[Will Orr, CEO & Director at The Gym Group]

Headroom to further strengthen the core of the business by continuing to improve mature site ROIC, and headroom to accelerate our organically funded rollout of quality sites into ample UK white space. That is why these two areas remain the majority of our focus. We have, however, continued to analyze opportunities to broaden our sources of growth. A brief update on this part of the plan. One area we've explored here is channels to market, new scale channels delivering incremental members. Wellhub is a B2B2C channel, providing a platform of fitness and wellness benefits to 1.5 million eligible employees across 450 UK companies, including the likes of Santander, Tesco, and Nationwide. We recently started a six-month pilot on the platform with a robust framework to assess incrementality when it comes to new members.

[Will Orr, CEO & Director at The Gym Group]

If the pilot delivers in line with our estimates, and we've seen an encouraging start, we'll roll this out nationally as a new source of like-for-like membership growth. We also continue to investigate other significant adjacencies, well aligned not just to fitness but also to our core competencies. We will, of course, update on this in more detail at the appropriate time. That is the progress report on the next chapter growth plan. I'd like to take the opportunity to thank the committed expert people across our gyms and support center for delivering the progress you can see. We'll very shortly take your questions, but before that, I'll briefly summarize today's presentation. The Gym Group operates in a large market with structural growth. We have an advantaged labor-light business model that delivers high value at low cost and limits exposure to national living wage and national insurance increases.

[Will Orr, CEO & Director at The Gym Group]

With a clear growth plan and significant white space, H1 saw 24% growth in EBITDA less normalized rent, underpinning confidence in full-year progress on mature site ROIC. Profit growth is converting into strong cash flow, and that is allowing us to accelerate our organically funded expansion. As a result of this strong progress and our current trading performance, we're now expecting 2025 EBITDA less normalized rent to be at the top end of analysts' forecast range. Thank you, and we'll now take your questions.

[Operator]

Thank you. If you'd like to ask a question, you can do so in three ways. If you're in the room, you can raise your hand and wait for a microphone to come to you. If you're joining on Zoom, you can press the Q&A button at the bottom of your screen, which will allow you to type your questions, or you can press the raised hand button and we'll bring you into the meeting to ask your question audibly. Please be ready to unmute your microphone at that point. I'll now pause to allow for any questions.

[Sahill Shan, Partner at Singer Capital Markets]

Thank you for that excellent presentation. Three questions from me. Just on the ending of your presentation, Will, in terms of broadening our growth part of the presentation, should we assume that as part of our strategy, moving overseas could be an option over the medium term? The second question is, given the strength of the free cash flow and self-funding and where leverage is now, how should we be thinking about capital returns going forward? The final question, I suppose this is for you, Luke. Any update in terms of what's happening to site costs relative to previous guidance? Thank you.

[Will Orr, CEO & Director at The Gym Group]

Thank you. I'll take the first one. In terms of broadening our growth, as I said, we see a lot of UK headroom, both in terms of mature site performance and white space. That is very much where our focus is for the time being. To the international piece, we wouldn't rule out anything. Periodically, we assess the landscape. For the time being, we're very much focused on the UK. That's that one. Perhaps, Luke, do you want to talk buyback and cost?

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

Sure. As you know, it was 18 months ago we set out our capital allocation policy, which I think still essentially remains the same. First priority was making sure that net debt leverage remained below two times. It is now down to one times, as we've just reported, but will increase again a bit towards year-end. Obviously, well within scope there. The second was to prioritize organic growth as long as we had high levels of confidence on achieving 30% ROIC. I think we're still there. The third was if we felt we had excess free cash flow, we would consider returns to shareholders. We're very much still looking at that actively. The returns are pretty good, and in theory, at least risk-free. That said, there is still quite a big gap between those returns and the returns we think we can get from deploying the CapEx on organic growth.

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

For the time being, we're still concentrating on that organic growth, but it is something that is under active consideration by the board. We may well make changes in the future. The third question was around site costs. We had a very strong first half in terms of site costs, so like-for-like site costs actually down year on year, driven by that continuing reduction in commodity rate, which actually we continue to see going into the future. We had only one quarter of the sort of changes imposed on us around living wage, NI, and rates. We will have two quarters of that in the second half. That adds to the inflation burden, and we will also see non-commodity rates increase in the final quarter, as I said.

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

If we're down one in the first half and then up two for the full year, you can see that the second half, we will have a bit of a much sort of more significant increase. From the point of view of what that means going into next year, that non-commodity increase will last for a year, and its two-year contract will then be flat thereafter. It's kind of one hump to get over, if you see what I mean. On the national living wage for next year, I'd be interested in your view, but we'll find out in November. I think we'll guide when we know more, which is probably early January.

[Sahill Shan, Partner at Singer Capital Markets]

Sorry, my fault. On that third question, I was thinking more about CapEx per new site. I've asked in reuse.

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

Sorry. CapEx on new sites is essentially running in line, I think, to more general levels of inflation. We do see some increase from wage costs coming through. That said, everything is tendered to a minimum of three contractors, and as a result, we're not seeing massive increases year on year. The biggest variation really is down to site level dimensions, such as is it in Central London or London, or is it outside of London? Is it a complex site to develop, or is it a nice clean industrial type box? No, nothing more than headline inflation rates.

[Ross Broadfoot, Director & Co-Head - SMID Equity Research at RBC Capital Markets]

Morning. Ross Broad for RBC. You referred a few times to average tenure continuing to grow. I was wondering if you could give any color on sort of where it's been and where it is, just to give that a bit more sort of scope. Number two, you talked about strong volumes at the enhanced new sites. I'm just questioning to what extent discounting has played a role in the strong volumes or whether there's sort of normal volume growth, if you see what I mean. Thirdly, off peak now 13% of the mix. I think previously you've said mid-teens is where you sort of see it maturing. Any update on that at all? Thank you.

[Will Orr, CEO & Director at The Gym Group]

Okay, that's one of the negative off peak. On tenure, the average tenure of our membership is sort of around 18 months with a very significant sort of dispersion around that, but the average of 18 months, and it's been ticking up nicely over the last couple of years. That's that one, and we continue to work on that. I think volume at new sites, yeah, well ahead of historical averages. I would say we've been moderately more aggressive on kind of opening offers because strategically we think it's good to fill new sites fast and then yield up thereafter, but it's not been a huge change to our historical approach. There's a little bit of promotion in there, but I would still say that what we're seeing from the kind of the new aesthetic and so on is very encouraging in its own right. That's that one. Off peak?

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

Yeah. It's not off peak, Ross. That guidance of sort of mid-teens still is our best direction. In the round, off peak has performed pretty much as expected from the trials. It has some multifunctions. It has added some volume, which has helped offset some of our price increases. It's also enabled us to price more aggressively in the other, essentially 85% of members, 87% of members. It also gives us that excellent marketing low headline rate, which we use. I think we'll continue to optimize it. We do literally set that differential on pricing at a gym level, and therefore we can control that volume depending on what we think will maximize revenue.

[Douglas Jack, Equity Analyst at Peel Hunt]

I think Tim's been trying to sit at the back too. Thanks very much. It's Doug Jack, Peel Hunt. Three questions, if that's okay. First one is, are you seeing much difference in terms of regional performance across the UK, i.e., London versus outside in particular? Are you seeing any changes in terms of competitor behavior, in terms of expansion? In terms of the refurb program, how many are you doing at the moment per annum? What does that mean in terms of that pipeline, applying your latest format to the mature estate?

[Will Orr, CEO & Director at The Gym Group]

Yeah, I mean, maybe I'll start with the last one and sort of work up from there. I think I said that between the new sites that we're opening this year and the sort of significant refurbs, we'd estimate about 40 of our sites by the end of this year will either be the new look because it's a new site or have had a sort of significant refurb. There's actually over 100 sites that in the refurb program get some form of treatment, let's say, upgrade. I think happy with the pace of that, and it will continue into 2026. I'm sort of excited by this now more granular ability to try and assess how we should prioritize that maintenance program.

[Will Orr, CEO & Director at The Gym Group]

I think as we move into next year, we'll have a significant proportion of the estate with that kind of new, more premium look and feel, if that answers that question. On competitor behavior, as we've said before, we continue to think the market is rational. I think rational on pricing, rational on site selection, and looking at trade areas and those sorts of things. We noted JD Gyms being particularly aggressive on pricing in H1, and Pure Gym doing some pricing already in H2. That direction of travel looks to be very consistent. In terms of rollout speed, Pure Gym are going faster than us. They're opening quite a lot of small sites, and we're principally sticking to our tried and trusted formula of larger sites. I think the market continues to be rational. There's a lot of white space.

[Will Orr, CEO & Director at The Gym Group]

I think there's a lot of room for everybody, to be honest, among us and Pure Gym. On regional performance, I don't think there's any particular change. We have strong performing sites right across the UK. London, Greater London has always been a good area for us, but we haven't seen any real change in that.

[Jack Cummings, Associate Director - Leisure Research at Berenberg]

Good morning, Jack Cummings at Berenberg. My first question is just on site openings. It's a bit H2 weighted this year, and obviously it's accelerating next year. Could you give us a little bit more kind of color in terms of your confidence behind those targets and also what phasing we should expect in 2026? You mentioned the new add-ons like guest passes, multi-site access, etc. What sort of penetration are you getting for this? Has this been rolled out across the entire estate and all of your members? The final one is just going back to the prioritizing of that mature estate investment. Is there potentially a discussion internally actually accelerating the amount of maintenance CapEx given this headroom and the returns that you could get from it? Thank you.

[Will Orr, CEO & Director at The Gym Group]

Do you want to do a middle one or do you want to try the first and third? Phasing of new openings, I think we are confident about our guided 14 to 16 for this year. We've opened five. We're on site at another nine. I think we're on track there. It is going to be back weighted for sure this year. In terms of 2026, I think the pipeline for 2026 is looking strong already. I think we're sort of further ahead at this point than we have been historically. Not sure of exact phasing of all of that in next year, but I think net back weighted this year, confident on guidance and looking really promising actually for next year as we step up. That's that one.

[Will Orr, CEO & Director at The Gym Group]

On the mature estate investment, as I said at various times in that presentation, we're sort of trying to do it within the existing sort of envelope at the moment. To your question, we assess the performance of every newly refurb site. It takes a bit of time to assess that performance because it needs to go through a bit of a trading cycle. If we see really strong returns and really strong improvements, then we would potentially accelerate that. I think we'd sort of guide if that's something that we thought we were going to do.

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

Yes, Jack, on the add-ons, it's very early in the launch process. I think it's probably a little premature to give stats on that.

[Will Orr, CEO & Director at The Gym Group]

I think we're on site at eight, not nine. I saw Catherine looking at me in a horrified way. I think we're on track for our 14-16.

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

Thanks for warning, both. Tim Barrett from DB Numis. The first question was about yield. Obviously, the 3% price increase you put through certainly wasn't greedy versus the competition. Do you feel you might go faster in 2026? Is there scope for more catch-up? Slide 32 was really interesting about local market headroom. Can you give us an idea of what the scale was on that chart? Does it include the workforce-centric gyms? I'm just thinking whether you might be able to recoup some of the previous lost members there. Thank you.

[Will Orr, CEO & Director at The Gym Group]

Charles is, perhaps, so. Yeah. Me to say, Charles.

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

Yeah, sure. Thanks, Tim. On yield, as you say, I think 3% was proportionate to the inflationary pressures we were seeing, I think. There is definitely, as Will set out in those slides, continued mid-term opportunity to take yield. Whilst our input inflation isn't a driver, it's definitely an important consideration. We do know that particularly around that non-commodity utility rate, we will be seeing some more inflation next year. We will definitely wait and see what happens through the budget on other cost lines. I think depending on the inflationary pressure, we will flex our pricing plan to match that.

[Will Orr, CEO & Director at The Gym Group]

On that headroom piece, the headroom in certain sites, as you see on the left, is significant. That's not to say it can be automatically unlocked. It's a statistical model, and we're now applying it to sites like the one I showed and assessing the performance.

[Will Orr, CEO & Director at The Gym Group]

We've got to test the model. There are definitely a number of sites on there that look like they had good headroom. The second part, in terms of workforce, yes, the model would suggest that there's some opportunity there, but I don't think it would be our first priority, to be honest. It's something that we'll continue to keep under review, and I think you are seeing incremental return to office working and so on. I hope that answers the question. There is some good headroom in that model, we need to prove that out. Workforce, that small handful, is unlikely to be the top priority for the deployment of that effort.

[Analyst]

Can you help us a bit with the algebra on the ex-workforce ROIC calculations? Because in the 2025 presentation, you showed the 184 mature sites delivering this huge uplift in ROIC, but with the same EBITDA margin as the ex-workforce 159 sites in the 2023 presentation. It just seems strange that the EBITDA margin, admittedly, one includes rent-free, one doesn't, I think. Why isn't the margin showing a bigger improvement? Does that mean that we should be worrying about the workforce gyms? Put it another way, if there's still a 200 basis point drag from the workforce gyms, and the portfolio is 25 mature gyms bigger, should we be, is there a deterioration in the workforce gyms? I suppose it's a long-winded way of saying that.

[Will Orr, CEO & Director at The Gym Group]

I'm not sure I totally followed all of your numbers in the first part of the question, but to the second part of the question, we're not seeing any particular deterioration in the workforce, the workforce-dependent gyms, and I would anticipate a similar level of drag by year-end. I don't think that will have changed at year-end.

[Analyst]

Even though the portfolio is bigger, the drag is the same. They should be getting smaller, shouldn't they?

[Will Orr, CEO & Director at The Gym Group]

The portfolio will have increased by 4% or whatever it is. Yes, it will have got a bit smaller, but I don't think it'll be material year.

[Analyst]

Can I just follow up on rents? Are they inflation-linked by and large?

[Will Orr, CEO & Director at The Gym Group]

They are by and large inflation-linked with collars and caps. Hannah?

[Anna Barnfather, Equity Analyst at Panmure Liberum]

Thank you very much, Anna Barnfather from Panmure Liberum. A lot of questions have been asked already. Can I just drill a bit deeper on marketing costs? Obviously, you changed your approach to be more local. Can you give us a sense of where that is as a % of revenues and how that will trend? A bit of a technical one, Luke, on business rates. You talk about sort of the inflationary impact of the rise in the second half. Business rates may well be reviewed in the budget, who knows? Can you just give me a sense of what business rates are as a % of revenue as well?

[Will Orr, CEO & Director at The Gym Group]

Yeah, sure. Marketing costs, I think we've historically said marketing costs are around about 5% of revenue, and we're not materially outside of that. I think what we would say is as we continue to sort of optimize the way we spend the marketing money on media and get a better and better understanding of CPAs and particularly incremental CPAs, we are trying to move into a world where we see marketing costs almost more as a variable cost, as in if we think by deploying more at any given moment that we can drive new members at the right incremental CPA, then we would do that. Essentially, I think for modeling purposes, probably 5% of revenues is the right assumption. On business rates, I don't think we've ever sort of given that as a margin. It's a significant cost, but not the biggest cost.

[Will Orr, CEO & Director at The Gym Group]

We have seen UBR rates, I think, increased at 6% this year. It was sort of similar, 6% to 7%, similar to living wage. What we've heard about rates going into next year is that there'll be quite a meaningful reset where I think the ratable values are expected to be increased quite significantly, but offset by reductions in UBRs, particularly in properties which have annual rental charges of less than £500,000, which broadly speaking is us. I don't know what will happen in November, but there is a possibility of some good news.

[Anna Barnfather, Equity Analyst at Panmure Liberum]

Just on the marketing then. Sorry, just to follow up on the marketing cost. Maybe I asked as a % of revenues, do you look at it internally? Acquisition member cost of acquisition per member?

[Will Orr, CEO & Director at The Gym Group]

Yes, absolutely. Absolutely.

[Anna Barnfather, Equity Analyst at Panmure Liberum]

Is that trending down?

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

It varies by month within the year. Generally speaking, there is inflationary pressure on media costs, but we have been able to offset the majority of those through continued efficiencies in how we deploy it. There has been inflation in media historically, if that makes sense. With that, the percentage staying largely constant, we'd expect marketing spend to increase, but only in line with revenue growth.

[Will Orr, CEO & Director at The Gym Group]

On CPA specifically, if we decided to push a bit harder, you might actually see your CPA go up, but we'd only do that if the LTV of the acquired members justified that incremental CPA.

[Douglas Jack, Equity Analyst at Peel Hunt]

Yeah, Doug Jack again at Peel Hunt. Just a couple more rather boring accounting questions. IFRS 16 is still a headwind in these results. When do you think it will become a tailwind to you? The second question is, historically, fixed asset depreciation for sites being much higher than what you've had to spend on maintenance CapEx. You've been very conservative on that. Can we expect depreciation per site to perhaps come down in the future?

[Will Orr, CEO & Director at The Gym Group]

Thanks, Doug. On IFRS, I expect the drag to be about £2 million this year, and I think most of that should be gone within the next two years. In theory, we're actually in a place where we see a benefit. On fixed asset depreciation, yes, you're right. A big chunk of the leasehold improvements will never be replicated through maintenance CapEx, and therefore we should continue to see maintenance CapEx below fixed asset depreciation. As the estate matures, which is obviously also a driver of that IFRS point, we should see sites starting, as you say, to come off that original maintenance depreciation cycle, and therefore it should be a benefit.

[Operator]

Just a reminder, if you're on Zoom and you'd like to ask a question, you can do so by raising a hand or typing a question into the Q&A box.

[Ross Broadfoot, Director & Co-Head - SMID Equity Research at RBC Capital Markets]

Ross again. Just a quick one on the pilot, the B2B2C. When do you think we'll hear more about how that sort of pilot is going? Is that something you would expect to see nationwide in part two? Could that actually be a benefit then for the workforce-dependent gyms? Thanks.

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

There are two parts to that. The pilot is a sort of roughly six-month pilot. I'd expect we'd update on that in March, potentially. The second part of the question is, this isn't specifically a workforce site play. Already we're seeing participation right across the estate because it's more about where we have gyms that fit with that particular employer. It's a like-for-like volume play right across the estate. Very early days. I just think by March, I'd expect we could give an update on that.

[Will Orr, CEO & Director at The Gym Group]

Thank you for all your questions. I will now hand back to Will for any closing comments.

[Will Orr, CEO & Director at The Gym Group]

Thank you for coming, tube strikes notwithstanding. Thank you, and I think that's it.

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

Thanks.

Participants

Executives

• Will Orr, CEO & Director
• Luke Tait, CFO & Executive Director

Analysts

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