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Ladies and gentlemen, thank you for standing by, and welcome to The Gym Group Trading Update Conference Call. I would now like to hand the conference over to your speaker today, Richard Darwin. Thank you. Please go ahead.
Morning, everyone. Thank you for joining the call this morning. We'll do a short summary of trading statements released this morning and then open up the line for questions. I'll cover the operational initiatives, and then hand over to Mark, who'll cover off the financial metrics.So first, let me start with overall trade. We've made good start to the year with strong growth in the key quarter one trading period. We've also had a good quarter two maintaining membership at around the 800,000 level in that period when there are seasonal pressures on membership due to students finishing their academic year. The average member number for the first half was 797,000.LIVE IT, our premium pricing product, continues to make good progress. Penetration grew to 16.9% at the end of June, up from 11.7% as of start of the year, and we expect it to grow further in the second half.As Mark will explain later, this increase in LIVE IT penetration has been a significant driver of our growth in average revenue per member per month.Turning now to new site openings, we opened 8 in the first half of the year, which means we've had a good start, opening more in the first half than we did last year. And with a good pipeline, we remain confident about our guidance of 15 to 20 for the year. We're also progressing well to open the first of our new small box gyms towards the end of 2019. And I'm pleased to confirm that the first small box gym will be in Newark in Nottinghamshire.We've converted 2 of the remaining easyGym sites, London Oxford Street and Birmingham King's Heath, to The Gym branding, and we remain in discussions regarding lease requirements on both of these sites. The final easyGym in Birmingham Corporation Street, we've decided to mock goal for now as the conversion is significant due to structural changes we'd be required to make. As we already have an excellent site within 300 meters, which has just received a major refurbishment, we've decided to relocate the members to our Birmingham City gym, which is 23,000 square feet and is large enough to accommodate the members from both gyms. We've now ended the transitional services agreement with the former owners of easyGym, and now operate all acquired sites on our platform and systems under The Gym brand.In April, we started to roll out our new models for personal trainers. We called that the New Gym Team. So far, we have 100 gyms on the new model, and we remain on track to convert all our gyms by September. The migration process to the new model has worked well and has been well combined PT, benefiting from the expensive trial and substantial consultation that we ended during the last year.And finally, on the operations side. I just wanted to mention the innovative work we've been doing in marketing in the first half. Following up a successful PT campaign in January and February, we've recently launched our first steps offer in which any 16- to 18-year-old can enjoy free off-peak membership for 6 weeks over the summer as they go through the stress of exams and then start their summer holidays. This is an excellent way to introduce the next generation to our gyms and to encourage them to maintain a healthy lifestyle. So the business has made a good start to 2019, and we're well placed going into the second half.I'll now hand over to Mark to discuss the numbers.
Thank you, Richard. Good morning, everyone. As Richard said, we made good start to the year, with memberships 796,000 at the end of June, up 10.6% compared to June 2018. Average membership, which, of course, is the driver of revenue, was 797,000 in H1, up 20% compared to the same period last year.Overall, revenue grew by 26.9% to GBP 74 million, driven by the good growth in volumes mentioned just now, plus the; 5.6% increase in average revenue per members per month. There are a number of factors behind this increase in revenue per member. As Richard mentioned, the biggest contributor was the growth in LIVE IT penetration, which accounted for approximately half of the increase. We also had a benefited from the inclusion of the former easyGym sites in H1 this year. And as easyGyms are priced higher than the average gym in our states, this also increased the overall average revenue per member per month. The net effect of price changes across these states also benefited average revenue. This is because the ongoing price maturation in our business more than offset the impact of the price reductions we implemented in certain sites at the end of 2018. The impact on average revenue per member per month of these price reductions from Q4 has been limited as it moved prices back up quite quickly in these sites after seeing a good pick up in volumes.And finally, there was benefit to average revenue per member per month from having an increased number of personal trainers paying us rent as we move to our New Gym Team model. This accounted for 15p of the increase. Although, of course, we have salary and other costs to these personal trainers, which as previously guided are greater than the uplift in rental income.We'll be providing a full financial update in our interim results, which will take place on August 29. These results will be published under IFRS 16 and will include the new KPIs we set out in our recent presentation, which can be found on our corporate website.That's all we wanted to say. By the way of introduction, we'll now open the line up for any questions.
[Operator Instructions] And first question comes from the line of Douglas Jack.
I have a couple of questions if that's Okay. First one is in terms of the net debt position, obviously, it's pretty flat, and you've opened a site. Can you just sort of talk about how much work in progress in terms of openings for the second half you've already put into the CapEx in the first half? In other words, what I'm trying to establish is whether or not your expansion program is now completely self-financing? And then the second question is, which is on cost pressure, have you seen any change in the cost environment for your business over recent months?
Okay. Let me answer the first one, and then Mark will deal with the cost pressures one. I mean in terms of -- and I will refer to what the analysts forecasted effectively is that consensus pretty much has a reducing debt marginally in 2019. So in that respect, the business is self-financing.In terms of the particular distribution of when the second half sites will be opened, which I think kind of goes to your point, we would expect as we've seen in previous years that the second half openings will be reasonably back ended and albeit we have got, for instance, another site opening next week in Colliers Wood. So we're pretty pleased with the way that the sites are coming through in terms of openings overall.
Yes. And then in terms of costs, we're not seeing any particular change in cost environment. Obviously, the dynamics are changing with effect to salary costs as we bring personal trainers into our business. So that's being well flat, and you'll have the numbers sort of behind that. And in terms of other cost areas, it will be very similar to previous years. Marketing tends to be a little bit front-loaded into the first half because of our January-February campaign, and you'd expect that, of course, but the cost environment hasn't changed substantially.
And the next question comes from the line of Christine Izzo.
A couple of questions from me, if I may. Firstly, on pricing. So you mentioned you moved up prices quickly up of the sites as sort price structures in November. Can you break this down for us at the full year? You said 51 sites, and 17 had prices increased and another 10 are planned. Could you tell us what that balance perhaps is right now?And my second question is just on the first steps campaign. Would you be able to share with us path of what the take up has been like or any just general initial feedback you might have heard?
Okay. Mark, you want to do the pricing, I'll do the first steps.
Yes. So in terms of pricing on the 51 sites, most of those, 49 I think, have had an increase of one form or another. We're holding about 10 of those sort of price that's very similar to the low point that we had probably accounted about the low points. So most of them have increased by either all the way back to where they were over partial increase back to where there were. So I think 49 of the 51 have moved back up.
And in terms of first steps, I mean, I think we're very pleased with the take-up that we've seen with tens of thousands of visits from those 16- to 18-year olds that have signed up for first steps. Clearly, there's a commercial angle associated with this, which is that we've given the 6 week off-peak membership, and then we look to either sign them up on the monthly direct debit, or as we go into September and October, we typically do a 9-month upfront package that students can buy, and we'll look to sign them up on to that. So I think it's a strong initiative that is very much in line with our aim, which is to create a very diverse membership across our states.
And the next question comes from the line of Anna Barnfather.
I have 3 questions, please. The first one is on the small box format, which I know is still kind of early days, but could you just give me an idea of how long you would need to run the trial before you accelerate that potential rollout of that product? Second question, just on FLEX IT. What you'll do if people do freeze membership, will you take that out of the membership stats? And does that really at all just to try up-sell LIVE IT or do you expect the take up of that to be good? And then the final one, just on multiple sites. Is that a long lease? Or what's the financial implications in terms of exiting or owners' lease provision on that lease?
Okay. In terms of small box, what we've said previously and we still say is that small box is really an extension of what we do already, albeit it's in a smaller square footage. So between 5,000 to 8,000 square feet. The first one in Newark will be around the 8,000 square foot mark overall. So we will get one open in 2019, but we do expect to do a roll out thereafter, and because really what this is doing is enabling us to go into towns, such as Newark, that wouldn't be big enough for us to have a large box format. But we think we can run a successful gym at around 8,000 square feet or even slightly smaller. So we're obviously not very happy. We were going to roll out in 2020, but we do expect to do a rollout in 2020 of the small box gym. In terms of FLEX IT, the membership fees is not a new thing. So members have previously been able to freeze membership for GBP 5, and so that for that has always been in our numbers. Actually, the number they freeze is very limited. And so it doesn't have any significant impact. Overall, in our membership, but obviously, any impact would come through in terms of the overall yield. Flex IT, again, is only a trial at the moment in only 2 sites, very early days. So perhaps, we may have a little bit more to say about that as we come into the interim.And then -- so multiple sites is really just an economic decision. So clearly, we're still incurring the costs and the rent associated with the sites that we've multiple, but we're not incurring the operational costs. And that will, by moving the members across into the Birmingham City Gym, then we think overall that creates a more profitable unit when you add the two together. And so it's very much just the right economic decision. It doesn't rule out the fact that we may look to reopen that site at some point in the future.
[Operator Instructions] And the next question comes from the line of Kathryn Leonard.
Sorry if it has already been asked, but just wondering, could you just break out the 5.6% yield growth you showed -- seen in the first half? And then what we should attribute to LIVE IT, and perhaps, the underlying yield profile? And could you just confirm the positive -- I don't actually see that in mature and immature in the first half? I know you typically don't give that, but I think in the statement you mentioned they are increasing and despite the dynamic approach pricing you've taken. And just lastly, could you just comment a little bit about the capacity backdrop in some of the peers and how they're performing of latent, the approach to pricing that you're seeing in the market and the capacity allocations you're seeing?
Okay. Mark, you do the first, and then I'll do.
So in terms of the yield group average revenue per member per month, 5.6%, 1% of that 5.6% is the increase in PT rental income, which of course, has an offsetting cost associated with it, so -- which is being flat. So in many ways, it's sort of a 4.6% net increase.From the 5.6%, about half of that growth is from LIVE IT penetration, which obviously now 16.9% is very encouraging. And during the time last year, of course, it was just really getting going, but quite a year-on-year uplift. And very encouraging take-up in the easyGym sites, in particular to that, where the LIVE IT penetration is almost as high as the rest of these gyms, which is really encouraging because it's only been a few months of conversion for those sites.Of the difference, what's left, it's the combination really of 2 things. One is easyGym itself has added to the average revenue per member per month because it's on average higher than the rest of these states. And so in 2019's numbers, but not in 2018. And the balance is the maturation of price in our business, which is a combination of LIVE IT tends to lead on slightly lower rates than newcomers coming in. So that gives us a bit of a lift up. And also the fact that new sites are normally slightly lower sites because they are on maturation curves than mature sites. And as our proportion of new gets smaller without growing mature states, then obviously there's a bit of mix effect that helps you with the maturation effect.You asked about new versus mature. Both -- there's positive uplift in both. So that's encouraging because, obviously, it would absorb the price reduction in Q4 that we had and still manage to grow in the matured state. So a good balance of where we got the yield growth from.
And in terms of the competitive backdrop, I mean I think that this market is playing out very much as we've been talking about in that 3.5 years since the IPO, which is that you get 2 players, ourselves and Pure Gym that have scaled, have the infrastructure, and therefore they take the majority of the openings and the subscale operators that struggle to compete. And I think we've seen that.There we've seen, for instance, SWEAT!, which had 7 sites that went out of business, and Xercise4Less, which is at #3 or #4, and has started opening program, whereas what you continue to see is both ourselves and Pure are opening at similar sort of rates as what we've opened in the past. And so that's something that we've been talking about for a while, something that we expect to continue. In terms of pricing, I think the market continues to be very rational, and we've clearly shown good price levels of price increase over the 6 months. And I think that's the same if you look at some of the other players and the market is increasing rational as it plays out.
Great. And just finally, if I may, just on the LIVE IT. Obviously, I mean it was very impressive performance in that particularly so versus the February statics that you provided at the prelims where you had 13.5% of memberships. So you've increase that by 340 bps just in the last few months and outside of the peak membership acquisition period. So in terms -- I don't know if you're able to give any granularity on where that might run from here or what's been driving that. I've seen that is still the case that it's predominantly new memberships. So I guess it's on the benefits as a turnover -- membership turnover and those maturing sites profiles.
Yes. So we gave guidance on LIVE IT simply because, as we've always said, it's a new product. It's pretty unclear exactly where it will play out, but I think it's fair to say that we're encouraged by the LIVE IT performance that we've seen in the first 6 months. And what we've seen is that it clearly -- in new members it continues to be new members as opposed to conversions and right across the board. But what we've also seen is particular bits of strength, firstly, from easyGym, and this is something that we said at the time of the acquisition because of the concentration that we expect to see really good take-up in easyGym, and we've seen that give you an indication. The penetration in easyGym state is almost up from the level of penetration that we've seen across the whole state. So we're kind of very encouraged by that, but we also could see take of LIVE IT in the new sites that we're opening as well. And all those are contributing to a good LIVE IT performance.
And the next question comes from the line of Ben Toso.
Congrats on good set of results. I just wanted to ask how closely you monitor initiatives of peers, like Basic and Planet, things that they're doing? I like the idea with the introduction of this free membership for 16- to 18-years old, but is there anything else that peers are doing that you guys could take as learning and apply to Gym Group's business? And the second question is maybe a bit weird one, but I haven't heard you speak before about what visibility you have of nonmembers using membership -- members' entry codes and whether you have any desire or plan to limit that if it might be an issue.
Okay. So in terms of your first question, I mean clearly, we look -- have always looked very closely at what other international peers are doing. Actually, the first step wasn't copied from Planet. It just so happened that kind of Planet also were clearly thinking about doing something at the same time that we were planning this. So -- but I mean that clearly -- it's good that you've got 2 international peers kind of effectively both doing the same sort of initiatives. On Basic, again, they're closer to home so we take kind of interest anything they're doing. As we know that they've had YANGA in for quite a while, we've now brought YANGA in about 44 sites, and we plan to roll that out more extensively in the second half, and that will be encouraging thing for us. I think in terms of other things that Basic do, we'll have a look at what they're doing in terms of virtual classes, for instance, and that will be coming -- likely to be on our development path in the future. I didn't quite understanding your question on nonmembers. Mark, maybe you...
Yes. Actually, from our point of view, we think it's a very small impact in terms of the number of nonmembers trying to come through on members in entry codes. We have CCTV. And if we spot anything, it's very easy to manage. It's a go back and identify those people. And of course, when the people going through the port all at the same time, it's got to be a member to put in the code, and then we're able to talk to that member. And so it's a very limited impact. We've done quite a good job in limiting that percentage. It's still an operational factor, but it's not a big factor at all.
[Operator Instructions] And we have one more question that comes from the line of Owen Shirley.
I just wanted to ask, would you be able to split out the revenue growth, excluding the easyGyms in the first half? And then secondly, just a follow up on the Birmingham site, how long was the lease? And are you looking to have someone else take it on effectively? Or do you think that you would reopen it at some point?
Just to check, are you speaking of easyGym in the first half this year or last year for comparison?
The first half of this year because you acquired it I think in July.
Yes, yes. So the first thing, if you're looking at the total members numbers for this year compared to last year in June, we've got a pro forma number in there of 720,000, which includes the easyGym number of about 63,000. So you wanted to do a like-for-like comparison, excluding easyGym for first half of last year, you can take 63,000 off that number. And that, of course, explains part of the already explained the difference in growth rates between our June versus June number, which is 10.6% up, and our average member across the half, which is 20% up. Going forward, we're not planning to disclose easyGym or Lifestyle member numbers, they're part of our state now. And so it's not something that we are going to give specific numbers on. We're pleased with progress and particularly pleased with easyGym in two respects. For the moment, one is, we've now got all of the sites branding onto our systems, which is great. And as Richard mentioned, we've ended the temporary services agreement with former owners. And the second thing is the LIVE IT penetration, which we're very encouraged by.And on Lifestyle, we've had good pickup in growth, which we talked about at the [indiscernible] in March and that's continued, and so we're pleased with the progress there as well. They are a little bit of ahead of easyGym, of course, because we converted those earlier, but we're not planning to give out individual easyGym and Lifestyle numbers going forward.
And then on Birmingham, we're not planning to dispose that lease at the moment. As I mentioned earlier, we've got a few options in terms of what we can do. So again we don't rule out reopening that site at some point. If we do that, it'll be kind of part of an overall kind of larger Birmingham City Gym. Likely, the membership would apply across both sides. And so we're just evaluating the sort of options that we may put into that site overall. So no plan to dispose of it.
And we have no further questions at this time. You may continue.
Okay. So thank you very much for joining the call this morning. As I said, this has been a good start for the year, and we're well placed to deliver our targets through the second half. We look forward to seeing you at our full update in our interim results in August. Thank you very much.
Thank you. And that does conclude our conference for today. Thank you all for participating. You may all disconnect.