Basic Fit NV

AEX:BFIT

Earnings Call Transcript 2022-Q4

[Operator]

Hello, and welcome to the Basic-Fit’s 2022 Year Results Conference Call and Webcast. Please note that today's conference is being recorded. [Operator Instructions]

I will now turn over the call to your host for today's conference, which Richard Piekaar, Head of Investor Relations. Sir, you may begin now. Thank you.

[Richard Piekaar, Head, IR]

Thank you, Caroline, and good afternoon. Welcome, everyone, to this conference call during which we will discuss our results of 2022. With me today are, as usual, René Moos, our CEO; and Hans van der Aar, our CFO.

This call is being broadcast live on our website, and a recording of the call will also be available shortly afterwards. As usual, I would like to point out that safe harbor applies. We will start with René, who will discuss the highlights and the operational developments, followed by a more detailed look at the financial results from Hans. After these prepared remarks, we will open the call for questions. On the call will finish no later than 3:00.

And with that, René, I would like to hand over to you.

[René Moos, CEO]

Thank you, Richard. Welcome, everybody, and thank you for joining today's call. 2022 was a year in which we recovered from two years impacted by COVID. At the start of the year, we still had to cope with all kinds of government restrictions, but as these were gradually lifted and consumers were able to join our clubs without limitations. Membership growth accelerated. And by the end of the year, our membership base had increased by 51% to more than €3.35 million.

Equally important, our 502 mature clubs were back at pre-COVID levels with both membership and profitability. This means that with our membership structure changes in France and the Benelux, with a higher average revenue per membership, we have a better starting position in 2023 for further revenue and EBITDA growth. This better starting position also allows us to deal with the impact from cost inflation.

With 185 net club openings, we ended the year with 1,200 clubs, which is an increase of 18% compared to 2021. Our revenue more than doubled to €795 million, and our underlying EBITDA was €204 million. Acting in a sustainable and socially responsible way has been part of Basic-Fit's DNA for many years.

By expanding our club network in Europe, we enable more people to work on their physical health well-being in a social way. At the same time, we aim to use our natural resources carefully, both in our clubs and in our offices by reducing our energy consumption and using sustainable energy. We aim to reduce our carbon emissions and be carbon neutral by 2030.

Our first goal is to reduce the average energy consumption per club by an average of 20% in the course of 2023 compared to 2022. Our energy department will work on further energy consumption reductions and help us achieve our long-term goals. As we work towards our 2023 goals, gas heating systems in our clubs will be replaced by fully electronic alternatives, and we are installing solar panels on our head offices and on our clubs when possible in the coming years.

Let's go to the next slide about the club openings. With a record of 185 net club openings, we have further strengthened our leading position in Europe. At the end of 2022, we had a network of 1,200 clubs with almost 650 clubs in France, and nearing the 100 club mark in Spain. We closed six clubs.

To start with Spain, we are now the clear #1 in terms of clubs and memberships. And this also means that we are now market leader in five of our six countries. In 2022, we opened our first two clubs in Barcelona, and we strengthened our clusters in regions like Madrid, Valencia and Seville. In these last two regions, we already operate eight clubs each. And last month, we celebrated the opening of club #100 in Spain and Cordoba.

In France, we further extended our leadership position with 119 net openings to 647 clubs at year-end. And with around 40 openings already this year, we are rapidly heading towards a new 700 club milestone. And our team is convinced that we will further extend our market leadership in France as we see potential to grow to 1,000 to 1,300 clubs in the coming years in France.

Our third high-growth market, Germany, we opened our first three clubs. Originally, we had planned to do more openings. But as we start to look for the right locations, negotiate contracts and apply for permits we learned it takes a bit more time to build a large pipeline like we have today in France and Spain. But we are building momentum and have already 65 new contracts signed for clubs to be opened in Germany in the next 24 months.

Lastly, our Benelux club network enjoyed a steady growth of almost 30 clubs to 460 clubs. We will continue to open new clubs with the pace in line with the past few years in the Benelux.

Let's move to the next slide on membership growth. Our membership base grew by 51% to €3.35 million in 2022. March last year, we told you that we had a strong start of 2022, and we benefited from a strong catch-up demand triggered by the lifting of all the COVID-19 restriction in all our countries, new club openings and lower-than-usual churn rates. This exceptionally strong performance with joiner and membership per club significantly above normal levels continue until September when joiner growth trends returned towards average growth rates that we had before the start of the pandemic.

Churn rates were slightly below pre-COVID levels in 2022. All countries in which we operate had a solid performance and we saw growth rates at new clubs, which were quite similar to those in pre-COVID periods. In October, the average number of membership in our 502 mature clubs had recovered to the average pre-COVID level of 3,300 memberships per club. This recovery once again confirms the strength of our business model as well as our cluster strategy.

Since the outbreak of the COVID-19 pandemic, the number of immature clubs increased from close to 400 to nearly 700 clubs. Hans will give some more further details on our mature cloud performance.

On the next two slides, I will update you about our effective marketing spend and our successful membership structure changes that helps to lift the premium membership uptake to more than 50%.

Let's go to the next slide about marketing. Because we wanted a speedy membership recovery last year, we decided to increase our marketing bidder to around 6% of group revenue from previously anticipated 4% to 5%. The increased budget also helped us to support a record number of club openings.

If you divide our entire marketing spend by the record number of new members that we welcomed. What you will see is that the average spend per joiner was comparable to the last three years before COVID. This shows that we continue to be effective with our marketing spend. With an average length of stay of around 23 months and a gradual increase in the average revenue per membership, we think we get a good return on our marketing investment. For 2023, we again foresee a marketing spend of around 6% of revenue like last year.

Let's move to the next slide. In an environment with rising costs, basically, all our competitors had to substantially raise their pricing during 2022. Because of the low club operating costs and favorable long-term energy contracts, we were able to keep our membership list price unchanged during 2022. In anticipation of further cost inflation in 2023, we optimized the value gap between the basic and premium membership propositions to further increase the average revenue per membership.

The premium membership uptake rate increased from 35% to over 50% in the second half of the year when we introduced the basic membership for all joiners. The result of these changes was that our premium membership penetration rate rose from 23 at the start of the year to 34 at the end of the year. This means that by year-end, 11% of our member base are paying €10 extra for four weeks. But it doesn't stop here as we want to safeguard our 30% minimum return on invested capital we decided to implement another membership structure change, which involves a list price increase. By the end of the year in France, the Benelux countries followed the successful French structure change at the beginning of February this year.

With the basic membership in France and the Benelux being replaced by the €5 higher price comfort membership, we also added access to all clubs in a country. The introduction of the comfort membership did not reduce interest in the premium membership, and the uptake is still over 50% today. If this trend continues, I believe that by year-end, we could have a premium penetration rate of between 40% to 45%.

Let's move to the next slide. Year-to-date, we already grew our network by 64 clubs. And as you can see in the chart, we have a full pipeline. This year, most openings will take place in France and Spain. In this last country, We worked hard the past few years to build a pipeline with the right location, and this is now starting to bear fruit.

In Germany, we are gaining momentum and are filling the pipeline. We have already 65 new contracts signed for clubs to be opened in the next 24 months. These are the first steps in reaching the 600 club target for Germany. Lastly, in our Benelux markets, we will continue to open new clubs with the pace in line with the past few years. That brings me to the last slide about our track record.

Many of you will recognize these charts that we always include in our roadshow investor presentation. We have updated this slide with our results of 2022. And although we ourselves see 2022 as a recovery year after two years of COVID, it is clear that we are merging our track record of growth. Between 2016, the year of our IPO and 2022, our KPIs have a CAGR of between 17% and 21%.

With the recovery of the COVID and the continuous optimization of our product offering, I am convinced we will continue to deliver strong growth rates going forward. This concludes my part of the presentation.

And now I hand it over to Hans for the financial review.

[Hans van der Aar, CFO]

Well, thank you, René. This slide shows you our income statement and the underlying performance. Of course, 2022 was a recovery year for us after two years impacted by COVID. Because of that, it doesn't make a lot of sense to compare online items of the two years. Instead, I will walk you through some of the key items of 2022.

Our revenue more than doubled and came in close to €800 million. Revenue growth was driven by our strong membership development and a higher average revenue per member of close to €23. Compared to the €20.60, we had before COVID in 2019, this means an increase of 11%. Revenue in the second half of the year of €440 million was 24% higher than in the first half and shows the strong momentum we developed throughout the year.

For the year as a whole, we experienced a modest impact from cost inflation in areas like rent and wages, although on a monthly basis, cost inflation crept up in the course of the year. With rents, we have a broad mix of contracts. In the Benelux, we have a lot of contracts with caps. While in France, this is not possible. Luckily, the French government already intervened earlier in the year by adjusting in our favor, the commercial rent index on which indexation is based.

Energy was, of course, a hot topic in 2022. But with the exception of Spain, we had low fixed prices in place. On average, we spent around 25,000 a club on energy, which is comparable to previous non-COVID years. In December last year, we provided guidance for energy cost for this year of around 55,000 per club. Please keep in mind that these figures without any benefits from lower energy consumption initiatives that we are going to implement this year.

Overhead costs consist of cost of our corporate and regional head offices as well as our marketing spend. As a percentage of revenue, overhead costs were around 14%, which is slightly higher than the 12.5% or 13% range we had pre-COVID.

The reason for this is twofold. Firstly, because our group revenue was still in recovery mode, notably in the first half of the year. And secondly, because we decided to increase our marketing spend to around 6% of revenue. to enable speedy membership recovery, but also for a record number of club opening campaigns.

Before COVID, our marketing spend was around 4% of revenue. So if you look at our overhead costs, excluding marketing, then the percentage has actually come down by some 50 basis points compared to pre-COVID. Our underlying EBITDA came in at €204 million for the year, which implies €144 million result in the second half of the year. As a percentage of revenue, the underlying EBITDA margin in the second half of 2022 is now slightly higher than it was in the second half of 2019 pre-COVID, a great achievement if you ask me.

For the year, we recorded a net loss of €3.7 million compared with a net loss of €150 million in the previous year. However, if you look at the second half of the year, then we realized a net profit of €24 million.

On an underlying basis, we had a net profit of €11 million for the year compared with a loss of almost €100 million in the previous year. And in the second half of the year, we recorded an underlying net profit of $32 million.

Let's go to the next slide on mature club development. As you know, we consider our club mature if it's at least 24 months old at the start of the year. Because of the pandemic, we reported in 2022 only on the clubs that were mature before the start of the pandemic in March 2020. These 502 mature clubs ended 2022 with an average of 3,326 memberships. This means that these mature clubs average membership level has fully recovered from the COVID period.

Our mature clubs in all countries had a strong recovery. I find this is important to tell because you might remember that we told you last year that France and the Netherlands had a stronger start in 2022. However, as all restrictions were lifted in the first part of the year also members in our Belgium and Spanish mature clubs came back.

René already spoke about the strong start of 2023. Thanks to this. If we add the clubs opened in 2018 and 2019 to the group of 502 mature clubs, then the a large group of close to 770 mature clubs now also had as around 3,300 memberships, which is the pre-covered average level.

Lastly, also the clubs opened in 2020 have performed well in 2022 and in the first month of 2023. We have decided, therefore, to return to the original mature club reporting as from the first half of this year. That means that we will report on the performance of 891 mature clubs. With membership at our mature clubs coming back at the pre-COVID level, so is profitability. We believe that our club network embeds a lot of value, which will become visible with maturation.

In 2022, we had 502 mature clubs, which had an underlying EBITDA on average €431,000. If we assume that the 1,200 on the clubs that we started the year with will all be mature in a two years' time and assuming they will reach the same underlying EBITDA, the total underlying EBITDA of these clubs will then be €580 million. This compares to €316 million underlying club EBITDA last year. This increase in profitability we call the embedded growth potential for maturation.

With the expected increase in average revenue per membership, we expect to mitigate the cost inflation that we are currently experiencing. As we will start the year with a higher cost base and the impact of the introduction of the comfort membership and a higher uptake of the premium membership, we only gradually fit us through. We still expect that the return on invested capital of mature clubs will again be well above the 30% this year and years after.

Let's go now to the next slide on capital expenditure. In 2022, the average CapEx per newly built club was €1.17 million compared €1.15 million last year. Next to building relatively more rural clubs, the low initial CapEx is a result of further scale benefits, intelligent benchmarking selection of more cost-efficient materials and tweaks to the fitters kit in the clubs in line with trends and changing demand.

For 2023, we again expect CapEx of new clubs to be around €1.2 million. Regardless of the initial CapEx for a club, we only signed a lease contract for a new club when we expect to achieve a ROE of at least 30%. Maintenance tax amounted to an average per club compared to 50,000 in '21. The average spend per club in 2022 was in line with our multiyear planning. The lower amount in the previous year was, of course, the result of clubs being closed for 36% of the time and our decision to use that period to roll out our smart camera system in more clubs and to further optimize the club layout.

For the medium term, we expect maintenance CapEx to remain around €55,000 per club per year. Other CapEx amounted to €11.2 million, and is related to ongoing investments in software and innovations. One such development is our mobile phone app that was developed in-house.

In 2022, we again made additional improvements to the mobile phone app. Last week, when I checked the App Store ratings of , so for Belgium a 4.1 star rating out of five stars. The Netherlands and Spain each had 4.2 stars and France has got 4.4 stars. Also important to mention is that the embedded code in the app has become the standard tool for joiners to enter our clubs.

Let's go to the next slide. Balance sheet. We ended the year with available liquidity of €143 million, which allows us to continue our accelerated GOP growth program. Please note that we will do that in a sensible way. With market conditions having normalized post COVID, we will provide an update on our available liquidity when we report our half year and full year results, just like we did before COVID.

Excluding rent lease liabilities, our net debt amounted to €694 million at the end of 2022 compared with €548 million in the previous year. increase took place in the first half of the year at a time when our mature profitability was still in recovery mode. Our net debt to adjusted EBITDA ratio came in at 2.9x and is well below the allowed maximum of 3.5x as agreed with our syndicate banks.

Lastly, to once more point to the normalization of our operations post COVID. This year, we will repay the final two instalments of the government-backed facility. Our focus in the coming years is on growth and profitability. And now for the final slide of our presentation, the outlook for 2023. On the back of the positive membership development year-to-date, we remain optimistic on the outlook for 2023, and we'll continue to execute our accelerated club opening plans.

We opened 64 clubs in the first 10 weeks of the year and are on track to open at least 200 clubs. This is in line with our longer-term target to open between 200 and 300 clubs a year. We will continue to monitor macroeconomic and membership developments. So we can adjust the pace of club openings when necessary. Most clubs in 2022 will be opened in France and Spain, while we are building momentum in Germany.

For the full year, we expect revenue of at least €1 billion on the back of a strong membership growth and a gradual increase of the average revenue per membership. And finally, as I explained, 891 mature clubs will have a strong underlying EBITDA as our actions will mitigate cost inflation, which will result in a ROIC of our mature clubs of well over 30% this year. This concludes the presentation.

Operator, please open the lines for questions.

[Operator]

[Operator Instructions] We will take the first question from Robert Vos from ABN AMRO.

[Robert Vos, ABN AMRO]

I have three questions, if I may. Firstly, maybe a little bit elaboration on Germany. It’s only a few data points. I know, but how was the ramp-up in memberships in the open club so far? And how many clubs do you expect to open in 2023?

And then my second question – and my third is, I think, for Hans. Where is the guidance for expected positive cash flow in the course of the second half of 2023, I don’t see that back. So maybe you can elaborate on that. And finally, I’m a bit puzzled by what I see in the cash statement cash flow statement on inventory. There’s a big – again, a big cash outflow for inventory. Balance sheet shows lower inventory. So maybe you can explain. It’s the second year in a row with quite a material inventory related cash outflow. So what should we assume for the coming years?

[René Moos, CEO]

Well, if I start with Germany, yes, we opened three clubs at the end of last year. So it’s just a few months open, the three clubs. And what we see there is normal in growth of members. So nothing extremely good or extremely bad, just a normal in growth of new club openings.

Your second part of Germany was how many clubs we would open. It will be around 10% of the clubs that we will open this year will be clubs in Germany. It also a bit depends how many clubs we open. So if it’s going to be 200 clubs, it’s going to be around – it’s going to be around 10%, so around 20 clubs in Germany. But if we will open more clubs, that number can go slightly up. So it depends how many clubs we will open this year. But I would say 10% is a good percentage.

[Hans van der Aar, CFO]

Robert, thank you for your questions about the positive cash flow. As you know, I’m always talking about positive cash flow, but it always depends on the amount of openings that we plan to do, and that also hasn’t changed. As I said, we want to keep the guidance a bit more modest. So we want to get back to the guidance that we gave pre-COVID memberships, amount of clubs and give you ample information on the other parts on a half year basis on the end of the year. So we don’t want to give too much guidance. As I said in my part of the presentation, the costs – higher cost that we experienced in the several countries due to the energy, higher energy costs and also the wages and the rent start immediately. And the impact of the new pricing because we only do that for the new members will take some time to really kick in. So in the first half year, the cash flow will be less positive and that will start in the second half of the year.

Your question about inventory, yes, that's a technical issue. As you know, we, in 2021 and also in 2022, we acquired stock of bikes to at first sell them to our members and to potential members. And in June in course of 2022, we changed that model and now it’s part of our subscription. And due to that, it went from those bikes that we still had went from the inventory to the assets. So it’s not really a cash out. At this moment, we have on our balance sheet, around 20,000 bikes, which will be part of the subscription in the coming years, holding subscription. So again, it’s a shift between inventory and assets and doesn’t have any cash impact. I come back to your cash flow question, again, like I said already for the last seven, six years, it depends on the amount of club openings and the timing of those club opens.

[Operator]

We will take the next question from line and Hans Pluijgers from Kepler Cheuvreux.

[Hans Pluijgers, Kepler Cheuvreux]

A few questions from my side. First of all, on your ROIC guidance for the full year for the mature clubs well over 30%. At the same time, you are, let's say, a more cautious for H1 due to the higher cost levels. So how should we read this guidance indeed that you, let's say, maybe for H1, you are slightly still below that. And indeed in H2, you are clearly ahead of that? And can you maybe, in general, give sort of more building blocks of that guidance, please?

Then going to other revenues, an increase ahead of, let's say, your average revenue increase, could you give maybe some feeling what are the key drivers there? And secondly, more importantly, what do you see for this year? Do you expect again that as a percentage of total sales, this will increase? And then last question from myself at this moment. In Spain, I'd say, several chains are becoming more available. how do you see the market? I know that the prices are still quite high, but how do you see especially the risk of a change in the competitive environment if several of those maybe will -- could merge. Could you give some feeling on what you're seeing paying on that?

[Hans van der Aar, CFO]

Thank you very much for your questions. I will start with the ROIC question, get you got, the ROIC of 30% that we mentioned is on a mature club level, and that's on a yearly basis. So what you see is that actually, what I already explained is that in the first half year, we'll have the higher cost and then the impact of the increases of prices for our new members will kick in later. But the number that we mentioned, the 30% is on a whole year basis, and it will be well above the 30%.

If you look at secondary revenue, it will remain a low percentage of the total revenue. So it is a growing number. Part of that is the advertisement that we do on our narrow costs and screens and things like that. It's a growing number because there's more clubs but it will remain a low percentage of our total revenue because the most important part of revenue is, of course, the membership subscriptions. And that will be always be, by far, be the most important part of our revenue.

[René Moos, CEO]

Yes, the question about Spain being changed for sale. We have -- we saw that two companies are trying -- are for sale. Our focus will continue on building our own new clubs. We are very comfortable with building new clubs. It is for everybody a good experience. Everything is new, new staff, new members, everybody happy. Well, if you do acquisitions, you never know exactly what you're buying, you will change the structure for staffing, for customers. So it's a lot of work. So it has to be a really good deal if we would go for a big acquisition.

So for us, we are not looking at it at the moment. And depending what will happen those change if we look at it in a later stage. But our focus is building new clubs and not doing acquisitions.

[Hans Pluijgers, Kepler Cheuvreux]

Okay. Maybe one follow-up question. On the membership went in the first few months, you already a number, but you’re looking at the mature clubs. Is there also – do you see continued growth in that? And then I’m talking more about the 502 mature clubs the end of last year to the still continue to show growth in average number of members?

[René Moos, CEO]

Yes. So what you see is two things. So we are opening a lot of new clubs next to the old ones. And even though we are opening so many new clubs in the cluster next to our 502 old ones, you still see a small increase in members. So yes, it is still an increase, even though we open more clubs next to the old ones.

[Operator]

We will take the next question from Ed Young from Morgan Stanley.

[Ed Young, Morgan Stanley]

The first one is you said that the price rises will come through gradually understand obviously, that’s the case of premiumization as well. I wonder if you could give us any metric whether it’s around churn or kind of ARPU, how you expect that actually to be during the year. I appreciate it goes up during the year, but any more detailed color on that would be useful.

The second question is around consensus EBITDA. Since January, you’ve frozen or fixed more of your costs. You’ve obviously put through these price rises. I appreciate you haven’t given any formal commentary on EBITDA, but could you give any commentary generally about how you feel relating to what consensus underlying EBITDA is for 2023 as it stands?

And then third, just a final follow-up on the cash breakeven comment you made, you’re saying it depends on the pace of club openings. If we just accept that you’re doing the lower bound of 200, which is kind of what you intimated the last time you gave that guidance. Is there any reason to expect you wouldn’t be cash flow positive in H2 as you previously guided. I understand what you’re saying is if things are good, you might accelerate and that might change things a little bit, but is that still a fair underlying assumption to understand that.

[Hans van der Aar, CFO]

Well, your first question is about how – what will be the timing of the growth of the growth of our average revenue. It’s a bit difficult to predict, but because it depends on the amount of joiners that we get during the coming months. And now many of those will take the premium membership, and I will – many will take the comfort membership. We now see that the uptake of the premium membership is above 50% of the new joiners. And of course, the remaining part is the comfort membership. But it’s more difficult to really calculate the amount of people who – how the yield will develop in the coming months. So I won’t go into that detail because it’s too hard to predict that.

What we see is that on a membership base, of course, at the end of the year, we expect that it will be more 40% to 45% of our members will have the premium membership. Consensus, if we are happy with the consensus on EBITDA, what we explained is that we don’t want to give any guidance anymore on EBITDA performance for 2023. We want to get back to the guidance that we gave pre-COVID. During the COVID, we thought it was important to give more uncertainty to our investors what we will do and what our EBITDA would look like. We think we’re now back to a normal status. We want to move forward again on our mature club levels. We are very happy how the performance of mature club is going. We gave guidance on that. I won’t go that far to give guidance on our EBITDA for the coming year. I hope you understand that and I appreciate that.

And on the cash flow breakeven, it’s yes, it’s based on the amount of openings that we do. And if we go to the 200 clubs, which we are – is in the low end of that range in which we expect to open, it also has to do with the timing of the openings. So we are now looking at around 100 club openings in the first half year, but can even be a bit more. It depends on when the permit is achieved – received and when we are allowed to open that club. So it’s hard to say when the clubs will be opened, and the opening date is also crucial for seeing a cash flow positive. But I expect to be cash flow positive in the second half of the year. But again, it depends on the amount of openings. And if we do very well with our member development, we can also decide to open more clubs and that will have clearly an impact on our cash flow. But we’ll definitely look at our cash flow position, and we will make sure that we have enough liquidity available to finance that growth.

[Operator]

We will take the next question from the line of James Wheatcroft from Jefferies.

[James Wheatcroft, Jefferies]

I’ve got three questions, please. Firstly, could you just remind us the shape of utility cost fixes as they run through the next year or so just in terms of timing, et cetera? And secondly, what proportion of your new customers were members at were previously? And how much has that changed, if at all? And then you sort of change in consumer behavior around the usage of the gyms, et cetera? And then thirdly, just in terms of the financial model for Germany, I’m assuming that it’s going to be very similar financial models to elsewhere. Any thoughts on the pricing model there, please?

[Hans van der Aar, CFO]

Well, you talk very quick. But the first question is about utilities. And what we get guidance on that we will have on utilities, energy cost per club that will grow from the €25,000 that we have in 2022 to around €55,000 per club on average for this year. So it’s a significant increase. What’s not taken into account in that number is the outcome of our energy savings program. We expect to reduce usage of energy with around 20%. We have a task force in place who’s only looking at energy saving and what we can do with all our clubs. We expect to have a saving there of around 20%, the €55,000 has not taken that saving into account. So it can be lower, but we put in the maximum position, and that’s based on the contracts that we signed and already had signed in the Benelux and also signed a new contract in France. So based on those contracts, we now calculate with a €55,000 cost backlog for energy.

[René Moos, CEO]

I think the second part was consumer base of consumer behavior, I’ll discuss both then consumer base is what we saw during COVID is that we had a lot of young members joining. So age group 17 to, let’s say, 27 years old. That was the big block of joiners. Female were behind. That is almost back, I would say, it is back again. And the other members, let’s call it the 60-plus age group is still behind. So very, very slowly returning. The behavior is -- it is busy in the clubs. So people are visiting a lot more than pre-COVID. So we have a lot of usage in the club. But having only on average 3,300 members on a 1,200, 1,300 square meter club, but that is not a problem. So the consumer behavior is more or less back to normal. Germany, again, it’s – some of the clubs are open now for three months, the other one, four months. So it’s very early days. It’s just a new club, there’s not much really to add to those clubs for four months. But it’s – the German market is a very good market.

The fitness penetration, we think, can really rise. We still have the old pricing in place because we just started there. We didn’t want to with one or three club openings changed the price immediately after we opened. That is something we might do at the end of this year, same story for Spain. So we started with our biggest country, end of last year. We changed the Benelux in February, and we will look how Spain compared to the Benelux and France is going and probably change our pricing in Spain in September and maybe Germany as well.

[Operator]

We will take the next question from James Rowland Clark from Barclays.

[James Rowland Clark, Barclays]

Just one question from me, please. Just on the competitive backdrop, I wondered if you could comment on what you're seeing from your main peers in your markets in terms of pricing trends and marketing trends. And a follow-up to that would be you to describe how perhaps the smaller gym players in the market were going to struggle once COVID support have fallen away. Is that something you're seeing today? Or do you think that still needs to play out?

[René Moos, CEO]

Well, we do see some smaller gyms struggling and stopping or going bankrupt. So we do see that as we speak. It's not huge, big numbers, but more than normal. Competitive pricing, the competitors, we saw price -- in the low cost, we saw price increase between €5 and €10, but some exceptions even increased price with €15. So we are still the cheapest in the countries where we are. And with the current way we set up the pricing, we always have the possibility to bring the basic back in. So if you look at our pricing now, you have the premium membership for €29.99 for four weeks. You can use all the clubs in all the countries and you can unlimited bring a friend. So that's our most expensive membership, €29.99. And then we have now the comfort being €24.99, then you can use all the clubs in one country, so let's say, 230 clubs.

But if necessary, we can introduce, of course, again, the third membership having the basic back in with only one club and then you can go below the again if you think that is necessary. So I think it is good now we are focusing on the comfort and the premium, so all clubs in the country or all countries and bring friends and maybe in time when prices and inflation and everything normalized again, we can decide to bring back all because of competition or whatever reason we can decide to bring back the basic membership again to allow you to to join for a low price for GS1 Club.

[James Rowland Clark, Barclays]

So which markets are you seeing smaller players going bankrupt in?

[René Moos, CEO]

Well, we’ve seen it in all countries. And we also seen – what we’ve also seen is that we were offered a lot of clubs actually in all countries for next, let’s say, €4 million. They have been offered to us again in the last one or two months for half that price. So there’s a lot of things --- there’s a lot of movement there. Again, we will maybe buy one or two clubs, but we are not really focusing on buying existing clubs. We were focusing on building new ones. It has a lot of advantages having the lay out exactly how you want it and a happy moment for everybody, for the staff and the members who join.

[Operator]

[Operator Instructions] We will take the next question from Hans Pluijgers from Kepler Cheuvreux.

[Hans Pluijgers, Kepler Cheuvreux]

Few follow-on questions. Looking mainly at H2, you saw, first of all, the cost of goods sold to the services went down in H2 despite the fact that non-membership revenue continued to increase. Is there any specific reason for that? And as you did read it as a trend. Then H2 also other income, an increase in H2. If you give maybe some feeling on that? And then OpEx in H2 went down compared to H1, as I understand from 124 down to 120 despite a more clubs. So what’s driving that? And one question on the bikes again coming back. You moved it to assets. So is it now in PPE? Or is there any impairment on those bikes? Could you give maybe some background, more background on what happened there?

[Hans van der Aar, CFO]

Thank you, Hans, again, for your questions. Let’s start with the last one because I can remember that one. The bikes was actually from inventory and now register as an asset. We have to do that because it’s still our property. And we – part of our subscription, we went out that bike. So it’s part of our inventory – not our inventory or PPA. So that’s actually true. It’s part of our PPA. So we changed that from inventory to PPA. At first, we aim to sell the bike tender for the inventory, good held for sale and now it’s part of our assets. So it’s part of the PPA.

The question about whether the lower cost goods of cost price of goods are sold. Of course, our other income now increased in the second half year by selling more narrowcasting revenue. So advertisement from companies on our narrow casting and there’s no cost price on that. So we have a higher income but no cost of sales. So that’s the reason why that – and that was partly done in the – mostly done in the second half of the year because companies want to advertise to get more staff in and we are able to get more advertisement on our narrow casting. Again, it will be a low number. Our focus will still be on getting more members in. It was the other revenue was around €5 million this year. And we don’t expect that it will be higher, but not much higher.

[Hans Pluijgers, Kepler Cheuvreux]

And then on the operating – other operating income in H2 and operating expenses of H2 versus H1.

[Hans van der Aar, CFO]

Yes, that’s a timing issue. There’s not a significant change of operating our clubs that our costs went down. It’s only a minimum increase of costs in the second half year. So there’s no really reason for that. I can be partly the first consequence of the inflation kicking in. Of course, we saw that but it’s not really a big reason why those costs went down over.

[Hans Pluijgers, Kepler Cheuvreux]

Okay. Maybe one follow-up on average maintenance CapEx. I know you give it, let’s say, for a total number of clubs. Could you give me some guidance on the average maintenance CapEx per mature club.

I was calculated with about €100,000 and also from your filings in Belgium, that’s the case, it looks like that at least. Is that a correct number to calculate with for mature clubs?

[Hans van der Aar, CFO]

Well, if you look at the minus CapEx, it can be for one club, it can be if we change all equipment, and we do a really real big rebuild, it can be €600,000 on the mature club. So it really depends on the club, the performance of the club, the length of the rental contract that we still have. So it varies. But if you look at the average maintenance CapEx on our mature clubs. Again, on the average, it’s around €70,000 to €75,000 per year.

[René Moos, CEO]

But if you combine it with the new club openings, it is the €55,000 that we have just mentioned. The average is €55,000.

[Operator]

We will take the next question from line [indiscernible] from KBC Securities.

[Unidentified Analyst]

Thank you for the presentation. I have a question on the rental cap that you’ve mentioned. I was wondering if you could tell us the limit for country. And if you see any changes in the current negotiations in new club openings. And then the second question I had was on the churn. I was wondering if you could give any guidance on this.

[Hans van der Aar, CFO]

Well, if you look at the rental cap, we have rental caps in the majority of our contracts in the Benelux and that the index is there cap to around 3%. So it can’t be increased more than 3%. In France, unfortunately, that’s not possible, really, it’s not possible to put in a cap on those contracts. But due to government measures, we see the index now in this year with all the inflation that we see, that’s not more than a 5% increase of the rent. But the cap is on the Benelux contracts in new contracts for the Benelux, always put in the cap of 3% maximum increase.

Your question about –the churn, well, we used to work with the churn of around 4% per year. And what we saw in post-COVID logically in the first year, post COVID, we didn’t have a lot of joiners during COVID. And all the people that want to leave already left. So there, we saw a very low churn. But it’s very good to see that now also in 2023, in the last months of 2022, we see the churn going down. Now it’s less than 4%. It’s more getting into the 3% to 3.5% churn. So that's actually good. So we think that also with the new pricing, we keep our members longer in. And we’re really focusing now on retention, keeping our members in we’re very successful on that.

[René Moos, CEO]

Yes. So our old members who are paying €19.99 are still allowed to join every club in all countries. So when they cancel their membership. We, of course, send them a text saying, well, you have a very good deal now, you sure. And we see actually a lot of members rethinking and staying in. So I think the price increase also helps the retention. And then on the rental caps, you mentioned the Benelux and France, what about Spain? Spain and Germany, we – again, it’s not per country, right? It’s contract by contract. So some landlords is somebody who owns building, then you can make maybe a cap of 2% and other – and building owners are big change that – so it’s really not country by country, but it’s really contract by contract.

The only big change is in France, there is not allowed. So by law, it’s not allowed. If you put it in the contract that you have a cap of 3%, and nobody has to follow it because it’s not allowed.

[Operator]

We will take the last question from line Marc Zwartsenburg from ING.

[Marc Zwartsenburg, ING]

I have a couple of questions left. First of all, on the clip openings. Can you give us a bit of a split also between what you intend to open in France and it's same, please, to start with that one?

[René Moos, CEO]

Yes, the club opening in France and Spain, I'm doing it now on the top of my head, but I would say that in Spain, we will open 40 clubs this year. And in France, I think it will be around 100 clubs.

[Marc Zwartsenburg, ING]

Okay. And then if you look to the first 10 weeks, you opened 65 clubs, but somewhere already in the pipeline since Q4. I don't think you will be able to achieve the 100 gyms that I think was a bit targeted by the end of April. Is it right? Are you running a bit lower? Or can you give a bit more color there?

[René Moos, CEO]

No. We have -- if you look at the Slide #7, you see that we are actually currently building 78 clubs. So that means that it's not going to happen, by the way. But for instance, next week, we could open the the 78 clubs that are under construction, but that will not happen. But for sure, we will reach more than 100 clubs, let's say, in the first half. It is true that you cannot really predict exactly when the club is going to open. It is very unpredictable, especially the last 1.5 years. But that's why we have such a big pipeline so that we do not take, so we don't see any problem reaching the 200 openings this year. But yes, it could -- it could be one or two months later. That's what we saw also in last year, right, when we said, we're going to grow to 1,250 clubs and we're going to grow to 3.5 million members.

When we said in September, October we were not reaching that. We got a lot of calls, a lot of discussions. We said a couple of weeks later. So we reached 1,250 clubs and 3.5 million members a few weeks later. But yes, you can hardly predict that. That's why we are not giving guidance to the exact numbers anymore because it's hard to predict. It's not in our control when the government gives a license, and it's not in our control when we are allowed to open the clubs. So yes, we can miss that by one or two months.

[Marc Zwartsenburg, ING]

And if I look to Germany, you have the contract signed. Does it also mean that the permit, sorry, is that been seeing or --

[René Moos, CEO]

No. That means the permits are not in -- that means that we have the deal with the landlord and that we are working on the permits. And that is a very unpredictable outcome, how many clubs we are able to open this year. But we have enough clubs in the pipeline to make sure to open the 200 clubs. And that's what we're also focusing on for next year that at least, let's say, if we want to do, let's say, 250 clubs next year, that will lay have 300 or more clubs ready contract signed because you never know exactly when we're going to get the license. We know exactly how many weeks we need to open a club to build a club, but we don't know when they're going to show up to open a club. For instance, we have now a few clubs ready. But yes, we're waiting for the government to give us a stamp so that we can open. So it's a bit unpredictable, not completely but a bit. So we can be off one or two months like we were off in September, October last year.

[Marc Zwartsenburg, ING]

Now talking about the revenue outlook for this year. So the €1 billion at least. I could take a bit of a -- take the 3.5 million members as a starting point, you have a normal ingrowth of the gyms again this year. it basically seems to suggest that yield per member actually is based on that number, even slightly lower than what you performed last year, which is not that rationale given the premium uptake and the price increases. So is it then the conclusion fair to say that the €1 billion is a very cautious outlook number?

[René Moos, CEO]

Yes, it depends again, Marc, when we open the clubs. So if we don't get the license in and we open all the clubs in December, then it could be a stretch. So it depends really when we're opening the clubs. And that is what we said before. Yes, that could vary a few months.

[Marc Zwartsenburg, ING]

So there will be the same that mark --

[Hans van der Aar, CFO]

We also see a gradual increase of what we said, a gradual increase of the yield improvement, right? So all the existing members still pay the and only the new members are paying the new pricing. So it will take some months to really have an impact of those new pricing. So the yield improvement will definitely be there in 2023, but it will be gradually done.

[Marc Zwartsenburg, ING]

Yes, true, but the premium uptake already ramped up quite significantly last year. So a bit of follow-through effect from that this year.

[Hans van der Aar, CFO]

So look at that member development is also the two periods where we really see the member increase, and that's in the first months as we see now, and then in the summer, not a lot happens. And then the memory increase is skewed to the August, September campaign. So -- and then we have, of course, only four months or three months of revenue with those MEMS. So it's -- you can't -- it's -- I understand your calculation, but we made our budget. And based on that, we gave the guidance that will be more than €1 billion of turn over.

[Marc Zwartsenburg, ING]

Yes, because implicitly, and you also gave a guidance a bit on EBITDA with your ROTE on the mature gyms. You have 900 mature gyms 30 plus ROTE pleasure on this. you already know where you are, and then you only have to make an assumption on the mature games, they are going to both be on it. So I know the analysts, especially more experienced analysts can do them up.

[Hans van der Aar, CFO]

I'll ask for me to give that guidance.

[Marc Zwartsenburg, ING]

Yes, start maybe one for you to announce free cash flow. Looking at net working capital, what do you think of net working capital development in '23? Will it be an inflow for the year? Or would it be a small outflow? What do you think?

[Hans van der Aar, CFO]

I personally think that will be an inflow of working capital. it will be around 10% to 50% of revenue, minus, of course. So we will expect -- we have a lot of differences now in the working capital due to the impact of those buy transition. But normally, we'll see a negative working capital between 10% and 50%. So we see an inflow of out of the working capital and the cash flow.

[Marc Zwartsenburg, ING]

And then maybe a final one for René. Is there any update on planned Fitness that were quite vocal and maybe also teasing competition, but maybe we will move to Europe. Is there any update on letter noise or are you cast?

[René Moos, CEO]

No, no. Not that I know. I think Planet is, of course, a very successful company. We – the product that they’re having is more or less similar to what we’re having, even though we are – we have the personal training, we have live crude classes, so we have some small differences. But no, we have not seen or hear anything yet. No.

[Operator]

Thank you. We have reached to the end of today's conference call. I would like to hand over to Mr. Richard Piekaar for any closing remarks. Please go ahead, sir.

[Richard Piekaar, Head, IR]

Well, thank you, Caroline, and thanks, everyone, for joining us today's call. I hope we had the time to answer your questions, but not or any other questions come up, please give us a call or cohesion. Have a nice day. Bye-bye.

[Operator]

Thank you for joining today's call. You may now disconnect.