Will Orr
CEO 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 o'clock 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. 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 GBP 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. 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. 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. 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 U.K. 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. 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 U.K. 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. 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-Kucher & 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. When you consider the value proposition I just described, that large, well-equipped, well-maintained 24/7 gym for about GBP 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 PureGym price increases noted already in H2. 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. 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. 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. 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 six, nine, 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. 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 U.K. 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 14-16 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. 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. 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 Booty Builder and Exigo. We're also being more conscious about creating spaces for members to socialize in and environments suited to posting on social media. 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. 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. 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 U.K. 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. 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. 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.
