The Gym Group Plc

OVERVIEWAs a result of significant cost saving measures,plus valuable Government support in the formof business rates relief and furlough grants,the impact on profits was mitigated as far aspossible but nonetheless Group AdjustedEBITDA Less Normalised Rent fell to a lossof 10.2 million in 2020 from a profit of 48.5 million in 2019. The management teamhas focused on preserving cash and liquidityto maintain balance sheet strength throughthe crisis; tight cash management, a wellsupported equity raise and an increase inour debt facilities enabled us to end the yearwith net debt of 47.3 million vs total borrowingfacilities of 100.0 million.Managing through the pandemic forour stakeholdersIn this report we provide more detail of theprogress we made in 2020 in terms ofsustainability, which has always been at theroot of our business. Our purpose is wellaligned with Promoting Health andWellbeing, one of the 17 UN SustainabilityGoals, and our values and strong focus onbusiness ethics are part of our DNA. Thiswas evident in our work to engage with andsupport all stakeholders throughout thepandemic crisis, in the ultimate belief thatthis is central to the sustainable success ofour business. We are excited to publish inthis report the social value our businesscreates every year, a measure that isperfectly aligned with our business purposeand highlights the significant positive impactwe have on the communities we serve.We have sought to manage through thepandemic for our stakeholders, providing asafer environment for our members to workout, clear communication for our people,working with our suppliers and landlordsand engaging with our shareholders andlending banks.We have had first class communication withmembers and froze membership so theyneed never worry that we would charge themwhen our gyms were closed and supportedthem during lockdown with free onlineclasses. When we reopened our membersatisfaction reached new highs as membersappreciated the physical and mentalwellbeing benefits of being back in the gymwith high confidence in the safety procedureswe put in place. We have developed ourCOVID-secure operating protocols to giveour members confidence to return to gymsettings, and have been pleased to see verylow incidence of COVID-19 cases attributed tothe UK fitness and leisure sector since firstreopening in July, as reported by ukactive inDecember 2020.We have kept colleagues engaged, evenwhen so many have been furloughed forlarge periods of the year, and been open inour communication through some difficultbut necessary restructuring. With our‘People First’ mindset we rolled out trainingSTRATEGIC REPORTprogrammes for all employees focusing ontheir health and wellbeing. We also havemaintained our important work on Diversity& Inclusion, signed up to Business in theCommunity’s (‘BITC’) Race at Work Charterand launched our Diversity & InclusionManifesto. We have worked with suppliersand landlords to negotiate agreed outcomesthrough these extraordinary and changingevents. Our lending banks have shownsupport and flexibility in providing financialcapacity and our shareholders readilysupported an equity raise.We are looking forward to continuing ourengagement with our stakeholders in 2021to further inform them of our sustainabilitystrategy and to build together on thefoundations laid.Our shareholdersLike most businesses severely affected bythe pandemic, given macro uncertainty wedid not pay a final dividend in relation to2020. We have made strong efforts to betransparent and timely in our reporting tokeep our stakeholders informed of ourrobust position and actions in the face of thepandemic. Our Executive Directors leadshareholder dialogue, but given allcircumstances, I proactively communicatedwith our top shareholders towards year endto check in for feedback. They wereunanimous in their satisfaction with the waydecisions had been taken and eventsmanaged and I held a number of follow-upconversations which were supportive andfocused on the fundamentals of our businessto recover and indeed to be even morecompetitive in tougher economic times.Whilst our share price, along with mosthospitality, leisure and travel companies, wasimpacted by wider pandemic relatedconcerns through the year, some recovery isevident as newsflow has improved with theprogress on vaccinations. We remainfocused on delivering for shareholders andpleased that more colleagues participated inthe Savings-Related Share Option Scheme(‘Sharesave’) than in 2019, aligning colleaguesand shareholder interests even more closely.Our work as a BoardKaty Tucker joined our business as CompanySecretary in January and has served a morethan busy period as the Board in the initialcrisis period met weekly and has maintainedmore frequent communication and decisionmaking as required throughout the year. I amgrateful to Board colleagues who also readilygave up their Directors’ fees in Q2 to showleadership and support in a financiallystressed year. For much of the year, inaddition to achieving financial resilience, ourwork focused on taking the right actions toreopen gyms safely and welcome backmembers and colleagues. Our work later inthe year has focused on the judgements torestart growth and prepare for regainingmembers in large numbers.GOVERNANCEFINANCIAL STATEMENTSWe have also worked on Board composition.The report of the Nomination Committeeprovides a fuller description of our decisions.The business has benefited from continuity atBoard level since IPO five years ago but weagreed it was time to start rotation and toattract new skills and experiences to our team.I am delighted that Rio Ferdinand and WaisShaifta have joined the Board and I am excitedby the different perspectives they bring as werethink how we can be more relevant in ourpursuit of affordable fitness for all. At the sametime I am enormously grateful for the supportPaul Gilbert has shown to me and to thebusiness in the nine years he has served, firstas Chair during private equity ownership andthen as the Senior Independent Director sinceIPO. He has done more than most in shapingthis business from near start up to theenterprise it is today. He retires at our AGM inMay with our best wishes and thanks. I ampleased that Emma Woods & David Kelly havereadily taken on significant responsibilities toChair the Remuneration & Audit committeesrespectively and Emma as SeniorIndependent Director.Strategic confidenceWhilst our financial condition has beenimpacted by the pandemic – with higherlevels of debt and lower membership thanplanned – we remain as confident as ever inour proposition. Providing affordable fitnessfor all through gym membership is evenmore relevant as society is encouraged toimprove health through physical andwellbeing activity and looks for great valuefor money in harder economic times. We aresufficiently confident that we have prudentlymaintained our pipeline growth and have theexperience and plans to address thechallenge of recovering membership levels.Whilst it will take time to recover from theimpact of COVID-related closures, ourlonger term strategic outlook andopportunity is as strong as ever.We recognise that the COVID-19 pandemichas caused considerable hardship andstrain for many people, and it has affectedour stakeholders in different and oftendifficult ways. On behalf of the Board andeveryone at The Gym I would like to extendour sympathies to all of our people,stakeholders and supporters who have beenimpacted by this crisis.Finally, congratulations and thanks to ourleadership team, led by CEO RichardDarwin, who managed calmly throughunprecedented circumstances. On behalf ofthe Board our thanks to them and to allcolleagues, members, suppliers andlandlords, banks and shareholders for yoursupport, flexibility and encouragementthrough 2020 and the year ahead.Penny HughesChairwoman18 March 202107

08THE GYM GROUP PLCANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTCHIEF EXECUTIVE’S REVIEWGNIKLOODRAWROF2020 was the mostchallenging year forour business in its12-year history.We entered the year in a strong positionwith 794,000 members and low gearing ofless than 1.0x EBITDA. Our approachthroughout the year has been to ensure thatour business exits the crisis in a strongposition, well-placed to welcome ourmembers back to their gyms and to takeadvantage of an altered competitivelandscape. Decisions taken have been forthe long-term benefit of the business.Our February 2021 membership is 547,000and with a reopening date of 12 Aprilannounced, we are confident that theseactions have given us as strong a base aspossible from which to rebuild ourmembership. Our gearing remainsmanageable and having successfullyrefinanced during the year we have theflexibility to deliver on our plans. This healthcrisis has demonstrated the importance ofphysical activity for all of the UK population.As a result, we are confident about futuredemand for our low-cost product as partof the ongoing trend for people to leadhealthier lifestyles.The COVID-19 pandemic meant 45% of ourtrading days in 2020 were lost to closuresfrom government restrictions; 2021 hasstarted with a further national lockdownonce again closing the entire estate.TOS BEENAHHACSSAPPRO OUR BUSINE NGRUO“E THAT S IN AS STRORUSNESIHE CRI POSSIBLE.”TSTIXESTION AISOPARDRICHAIN, CEODARW

OVERVIEWFor a low cost gym business such as ours,periods of closure mean virtually nomembership acquisition and increasedattrition immediately after the closureannouncement (although this has lessenedwith the later lockdowns as we reach a corelevel of loyal members). As we have seenfrom previous reopenings, the benefit of asubscription business such as ours is theability to restart member payments from theday of opening.There are three groups of stakeholders thatdeserve particular thanks for helping us tomanage through this crisis. First, our teamresponded with speed and agility to adapt tothe initial crisis and to get us ready for thepost-COVID operating environment. Thisincluded locking down the estate to reducecash burn when it first closed in March andthen, prior to reopening, adapting our modelto make the estate COVID-secure for ourmembers. Second, our thanks also go to ourmajor suppliers, including our cleaning firms,equipment suppliers, contact centreoperators and vending suppliers who allfurloughed staff to ensure that contractualcosts were minimised. Third, and by no meansleast, we are grateful for the decisive actionstaken by the UK Government to support oursector through 2020 and into the new year –without the immediate relief from furlough,rates relief and VAT deferral, businesses suchas ourselves would have been in a verydifferent financial situation. At the peak of theclosure we have had over 95% of ourworkforce in the gyms and central support onfurlough. Along with rates relief governmentsupport in 2020 has been worth 16.0 million.Our financing partners have also beensupportive through the crisis. In April weboosted our liquidity with an equity placingsupported by our shareholders raising netproceeds of 39.9 million – this was animportant part of our COVID recovery plan.At the same time our syndicate of threeleading banks agreed an additional 30 million of debt facility which has nowbeen extended to a two-year term. Thisincreased total available bank facilities to 100 million and along with the equity raisegave us good levels of liquidity to see usthrough the crisis and for us to be able tocontinue with a limited amount ofSTRATEGIC REPORTexpansionary capital spend. At the end of2020 our Net Debt was 47.3 million – thesame level as the beginning of 2020 –enabling us to enter this latest nationallockdown in 2021 with a good level ofliquidity. Again, we are thankful for thesupport of our investors and banks. As partof our measures to preserve cash, we havehalted dividend payments.Through the crisis, the business hasdemonstrated its agility in being able toadapt its ways of working to deal with theCOVID restrictions placed on our business.We were assisted in this by working with theAdvanced Wellbeing Research Centre atSheffield Hallam University who performeda review of our COVID procedures. Thesemeasures included the purchase of screensplaced in front of banks of cardio equipmentto reduce the spread of aerosols andspecialised cleaning equipment to makethe cleaning of equipment more efficient.The government guidelines limit capacityto 100 sq. ft. per member and we are ableto accommodate this through limiting entrywhere necessary using the existingtechnology embedded in the gyms’entrance portals. The guidelines have alsorequired social distancing which has beenpossible through markings on the floor andthe goodwill of our members. Our largewell-ventilated facilities with an average sizeof 16,500 sq. ft. mean that we have beenable to keep to original 2 m social distancingguidelines. Our procedures havedemonstrated to our members the importantsteps we have taken to make our gyms asafe place to work out and are an importantway of giving them confidence to continuewith their routine of coming to the gym.The measures we have put in place havebeen welcomed by our members and in theperiod of opening we have seen membersatisfaction scores around 10% higher thanpre-COVID. As a sign that memberconfidence is growing, visits per memberalso increased during August andSeptember to a point where members wereusing the gym on average 1.2 times perweek, a level higher than the previous year.Independent surveys also recognise thatthere is a group of ex-members who intendto return but will only do so once the riskGOVERNANCEFINANCIAL STATEMENTSNUMBER OF GYMS183NUMBER OF MEMBERS578,000from COVID-19 is reduced and the vaccineis rolled out. Given the progress the UKgovernment is making on the vaccine rollout,this gives us confidence about our ability torecover previous levels of membership oncewe are open.The financial results in 2020 weresubstantially impacted by the periods ofclosures, which reduced trading days by45%. Revenue was 80.5 million (2019: 153.1 million) down 47% vs 2019 and ourGroup Adjusted EBITDA Less NormalisedRent was (10.2) million down from 48.5million in 2019. There was a statutory loss of 36.4 million (2019: profit of 3.6 million).These results show the significantoperational gearing within our businessmitigated in the year only by the governmentassistance and the substantial cost savingmeasures implemented. We have sloweddown our rollout as a result of the pandemic,preserving liquidity to cope with a rapidlychanging crisis. During the year we openedeight sites, with four opened prior to start ofthe pandemic and four in August oncecontractors were able to resume on sites.This brought our portfolio up to 183 sites atyear end. In addition, we completedsignificant refurbishments of two of theformer easyGym sites in London at Fulhamand Oxford Street. Oxford Street in particularwill be a real flagship for our business; itincludes all the latest equipment andshowcases our new virtual group exerciseconcept. In 2021 we will have three newgyms opening in April and one further gymin May, with four additional locations goingon-site shortly.09

10THE GYM GROUP PLCANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTCHIEF EXECUTIVE’S REVIEWCONTINUEDISIS,THE CRNIORTEGT SUPPY STAULPRADELURU“ AT AN IDED WE WO CENTRE OF O MCGE FROAT THEW E DEE EMER ITION”TEAMSWREUROUOFPOSNSS, TO ERONGTNSOIATACC INN D EM ITHE PAIN, CEODARWDRARICHREVENUE 80.5mGROUP ADJUSTED EBITDALESS NORMALISED RENT (10.2)mWe remain very confident about our longterm positioning in the market. We are theonly listed health and fitness operator andwith low levels of gearing we present astrong covenant for landlords. Ourimmediate priority is to secure high qualityopportunities in locations that havetraditionally been difficult for us to findaffordable sites and we are increasinglybeing offered these excellent sites bylandlords on attractive terms. In addition, weexpect to attract displaced members fromother gyms that have closed as a result ofthe pandemic. The landscape has changedsignificantly with around 20% of localauthority sites not reopening and furtherdifficulties for mid-market and premiumoperators. The size of the low cost sectorhas been stable in 2020 with 735 sites intotal (2019: 728 sites) but as the impact of thepandemic recedes, we believe that the highquality low cost operators have strongopportunities for growth and the market willreturn to expansion once again.Strategic prioritiesAs we enter a recovery period, our strategicpriorities are based around two keyinitiatives:i) Rebuilding our membershipii) Securing a high quality new site pipelinei) Rebuilding our membershipKey to our recovery will be a strong uplift inmembership numbers, recovering the manythousands who have left over the past year.We are very experienced in executing plansto grow membership numbers both in ournormal seasonal trading and when openingnew sites, and we will use this experienceover the months to come. The pandemic hasreduced our site membership on average tothe levels that sites would have reached a fewmonths after opening. Sites typically have atwo-year maturation profile so we now expectthat as part of the recovery, sites will need togo through a maturation phase once moreand our success recovering from thepandemic will be reflected in how far we canshorten this maturation profile. Our averageprice point is now 18.81 which makes us verycompetitive within the low cost market andwe anticipate that this attractive price pointwill underpin the recovery in membershiplevels in a difficult economic environment. Allsites that were open at the start of 2020 havelower membership levels today than beforethe pandemic although not all sites havebeen impacted equally; some of the citycentre sites have experienced higher levelsof membership loss and the start of theirsustained recovery period will depend on thereturn to offices in the city centres.As part of our preparations for rebuilding ourmembership, we have continued throughoutthis period to invest in and enhance ourtechnology capability and improve ourcentral infrastructure – this is a fundamentalrequirement for operating a strong low costbusiness at scale. The key development for2021 is to build a new website which we planto launch in the autumn. A new website willgive us a number of advantages enablingimproved web merchandising, the ability tocreate new products as well as improvedupsell and SEO capability. In 2020 weconcentrated the technology advancesaround supporting the COVID operatingexperience for members. Contactless entrythrough the use of QR codes on our appwas introduced upon reopening – memberacceptance of this development has beenvery strong. Our app has also beenenhanced to include a busyness tracker thatenables members to see how busy thegyms are at any point in time.I am very confident that the strength of ourtechnology team and their innovation willcontinue to drive competitive advantage inthis area over the coming years.We have also taken the opportunity to reviewour member value proposition to ensure thatour future product is even more relevant toour members in the post-COVID world. Aswe approach 200 sites we will maximise thebenefits of product consistency across thewhole estate. Part of the work includes therelaunch of our group exercise offer, wherea common range of classes will enableconsistent quality of delivery across thebusiness. We have also launched a newvirtual group exercise product in two sites,Oxford Street and Tottenham White HartLane, using online classes provided by ourpartner, Fiit. The virtual content supplied byFiit is part of a wide ranging partnership thatalso includes discounted Fiit membership toour members available through our website.We intend to offer a combination of virtualand in-person content in more sites as weextend this trial further across the estate.ii) Securing a high qualitynew site pipelineWe believe there is a compelling opportunityfor our

increase gym usage and headroom for significant growth remains with the number of low cost gyms in the UK forecast to almost double by 2026. Our technology-led business model has re-engineered the traditional gym operating model, removed costly underused facilities and enabled us to offer a high quality gym experience at a very low price.