The Gym Group plc (GYM) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to The Gym Group 2021 Results. We're going to be joined by Richard remotely. So I'm now going to hand over to Richard, who will open up proceedings.

Thank you, Mark. In a year when The Gym Group's made very significant strides in its recovery from COVID, unfortunately, I've been testing positive over the past few days for COVID myself, so sadly not able to join you in person. However, in person, we do have Mark George, our CFO; Ann-Marie Murphy, our Chief Operating Officer; and also, in the audience, Emily Kortlang, who's our new Group Brand and Marketing Director, and she'll be happy to take questions during the Q&A. So I would highlight 3 things that we've put on this page in terms of the recovery that we've had in 2021. Firstly, the very strong membership recovery of 50% in the year that we made reference to in our statement this morning. And we do expect that to continue, as members continue to recognize our high-quality products offered at a very affordable price and as the operating environment normalizes over the coming months and years. Clearly, also opening and being cash flow positive from the moment we reopened was a very positive development for us as a business. Secondly, we've restarted our rollout program in 2021, 19 openings. And these have been very strong site openings. There's one thing to talk about, as I have done previously, about the best property market that we've seen since the business started, but it's even more pleasing to see that come through in very strong member performance in its early months. And finally, I'd then just also highlight some of the developments around our product. We all know that digital fitness is going to be important in a hybrid world, and we're very pleased today to have announced that we've expanded our partnership with Fiit so that we will provide 200 high-quality digital fitness videos in our app at no extra charge for our members. We think this is really important in a hybrid world. And I think these highlights are all on the back of what are already very strong social value credentials, as you know, and some very strong people engagement numbers that we'll talk about more, as we go through the presentation. However, what really excites me is not some of the things that we've done in 2021, but some of the initiatives that we've put in place that will land in 2022. That's why we put the headline on our RNS this morning that we are accelerating the rate and pace of change to be able to take advantage of the market opportunity as we see it. And there will be more recovery to come. We announced a 15% increase in our membership in January and February, and that's despite some disruption in the first couple of weeks as a result of Omicron. And we're now beginning to see our operating environment begin to normalize, and we will be able to take advantage of that. But in terms of those initiatives, there really are 3 crystal enablers that we'll talk about more in this presentation that are really important in our view, to be able to run a successful low-cost business, and we are addressing all 3 of those in the coming year. Firstly, technology. And we are launching a new tech platform, which is website and contact management system in Q2 of this year that will help us trade more effectively. Secondly, brand. We are doing a brand transformation project in 2022 that will culminate in quarter 3 that will transform our brand awareness as we relaunch this brand around The Gym Group name. And this is a project I wanted to do since I first became CEO. And thirdly, yield management capability. Particularly important in the inflationary environment, we'll show you how we've got a GBP 4 gap against our closest competition. And backed up by some research with Simon-Kucher & Partners, we plan to close some of that gap in the coming months. And of course, we've also said that we're accelerating our rollout up to 28 sites in 2022. 25 is what we previously committed to, but we've also announced a small acquisition of 3 sites from Fitness First this morning in residential areas of London funded through debt facilities. So I strongly believe that by the end of the year, all the building blocks will be in place for The Gym Group to be able to trade even more effectively as a low-cost gym business and for us to grow our profits very rapidly as we recover the business. And we will explain in even more detail the very excellent prospects that this business has at our Capital Markets Day in May. So that's all I want to say by way of introduction. I'm going to hand over to Mark now, who will take us through the financial section.

Thank you, Richard, and good morning, everybody. So as Richard says, 2021 has been a year of recovery, recovery in membership levels, in revenue and in profitability. And we've clearly demonstrated the resilience of our business model. Membership increased by over 30% from the low point in February to 718,000 by the end of December. Now this recovering membership alongside an improving yield meant we returned to profitability at the EBITDA level, despite being closed for the first 3.5 months of the year. We started our new site opening program again, and we opened 19 gyms in the year, 15 of those were in the second half. Now we took the decision to accelerate our rollout program because of the attractive property market that Richard just mentioned. And to do this, we raised equity from our shareholders. And as a result of this funding, we've been able to start that rollout and still end the year with relatively low levels of debt of GBP 44.1 million. So in summary, we've made excellent progress towards full recovery this year, and we enter 2022 with confidence and a strong balance sheet. In the P&L here, you can see that improving profitability versus 2020. Revenue increased 32% year-on-year, with fewer days of closure in 2021 and also that strong recovery in membership levels. Tight cost control and continued support from government in the first half of the year when gyms were closed helped to minimize the losses in the months through to April when we were closed. But from May onwards, in each month, we were profitable at the EBITDA level. And in fact, in the second half of the year, our EBITDA generated was GBP 13.8 million. So we exited 2021 with strongly improving profitability and that will set us up very well for 2022. So in the period since reopening, we've continued to see yield growth alongside the membership recovery. Continuing the pattern of the last couple of years, we've gradually increased headline prices. And as you can see on the chart here, the average headline rate for our standard DO IT membership was GBP 19.27 at the end of December. And as we'll come on to see later, despite these increases, we're still substantially cheaper than others in the market. Our premium membership, LIVE IT, continues to grow nicely and by the end of December have reached 27.1% of our membership. Now a key feature of LIVE IT is that it offers multisite access to our members, so it becomes more valuable to more members, as we increase the number of sites in our estate. So as we grow our estate, we expect this to improve. So these 2 factors combined, LIVE IT penetration and headline rate, have combined so that the overall average revenue per member per month has risen to GBP 17.60 in the second half of 2021. That's up about 6% since 2019. Now we anticipate that, in 2022, we will see more rapid increases in prices. We will be leveraging our starting point as the lowest price operator in the market to increase headline prices further, and we'll talk a little bit more about that later in the presentation. Turning now to CapEx. After a reduced program of openings in 2020, we've accelerated the pace of new site opening in 2021. We've opened 19 gyms in the year, following just 8 in 2020. And in July, we committed to opening 40 new sites over an 18-month period, and we've delivered the first 15 of those in the second half of 2021, so we're very much on track. Throughout the pandemic, we've also continued to invest in technology to press home the scale advantages that we have over our smaller competitors. In 2021, the focus has been on improving our app and building a new tech platform, which we'll launch in April 2022, and there'll be more details on this from Richard in a moment. On maintenance CapEx, we've had reduced spend levels in the last 2 years, partly, of course, because our gyms have been closed for a good proportion of this time. But we anticipate returning to more normal levels of maintenance CapEx in 2022 of between 6% and 7% of revenue. So this is a business that's now expanding rapidly again with an accelerated rollout. But just as importantly, we're also investing in the existing estate and the core capabilities that will enable our future growth. Moving to cash flow. As you can see from this chart, we returned to generating free cash flow in 2021 after a GBP 17 million outflow in 2020. Now you'll recall that in 2019, prior to COVID, we were able to fund our expansionary CapEx from our own cash flow. During 2021, in this period of recovery, that was not possible. But rather than delay the start of that rollout until cash flows had fully recovered, we raised GBP 30 million from our shareholders in July to fund the organic rollout while the business recovers. But from now on, we expect to fund our organic rollout through a combination of operating cash flow improvements and a small expansion of debt without the need for additional equity. Now a subject that is very much in the news at the moment is cost inflation. So I wanted to shed some light on how this is affecting our business. It's worth stating that we start from a really good position. We have a relatively high margin business, with a good proportion of our costs being fixed. So property-related costs represent about 40% of our cost base and comprise leases plus the associated business rates and service charges. And as you can see on the chart, most of our leases are on small, fixed uplifts, usually 2% per year and where they're inflation-linked they're usually capped at 4%. For most of our other variable costs, we're not seeing abnormal levels of inflation. We have a low labor cost model with only 2 full-time employees in each gym and the salary increases there have been manageable. Our Fitness Trainer model is somewhat hedged against cost increases because as we increase salaries to our trainers, we also increase the rent that they pay to us. The one area where we are seeing a significant increase is in utility costs, which represent about 5% of revenue for our business. We've now locked in our energy cost for 2022 with an impact of around GBP 2 million in the second half as our original very low hedge position came to an end and a new hedge has been put in place. As mentioned earlier, we'll be increasing the prices we charge our members during 2022. And whilst we don't expect this to fully cover the cost increases in 2022, because the price increases take time to feed through, we do expect price increases to more than cover the cost of inflation in 2023. We're also seeing some inflation in some of our new site CapEx costs, but not large increases overall. And again, we expect the price inflation that we will put through to offset this, such that our return on capital for the new sites that we're building now will still hit our 30% target at maturity. So overall, we are seeing some cost headwinds, but not in a way that materially changes the fundamental economics of our business. I'd like to end with an update on our balance sheet. So in addition to the equity raise last year, we've recently agreed an extension to our bank facilities, where previously, we had a GBP 70 million facility to October '23 plus a temporary GBP 30 million facility to June 2022. We now have an GBP 80 million facility all the way through to October 2024. We also have flexibility to take on some finance lease arrangements from third parties if we wish to do so as well. So with this refinancing agreed and a relatively unleveraged balance sheet, we are very well placed for this next stage of our growth. So we'll now turn to the strategy updates, which will be in 3 sections. Ann-Marie will talk us through our membership recovery, and Richard will update us on future growth initiatives and growing sustainably.

Thank you, Mark. Good morning, everybody. So as Mark said, I'm going to talk about the recovery of our core business. And we've seen strong recovery and demand and membership, but this has been uneven across the country to date. You can see from the slide here that like-for-like revenue in the North of the country has recovered to pre-COVID levels as at February '19. However, recovery is just a bit slower in London and the South. This is largely to do with the different impact of pre-pandemic working patterns in those areas. However, confidence is strong. When I'm out in the gyms talking to GMs, they speak to me about how member behaviors have adapted. And in some locations, they're seeing different peaks. We can see how our members are reforming their routines and habits. And we know that this is a really important part of gym usage. The visit levels is another important indicator of our recovery, and they are back to pre-COVID levels. There is also a really clear strong focus for overall well-being post-pandemic, and this is also driving demand. So it's clear that we're well on the path to recovery, but the country is at a different stage, but there's definitely a lot more to come. So I wanted to talk now about the 3 important drivers of our recovery and future growth. And I'm going to talk through our people, our digital marketing and technology. A really important part of our success is our people, and we've delivered a strong performance across our people initiatives and have seen some exceptional results as a result. And those are having a really positive impact on member service levels. So our people engagement score outperformed market trends, and we reached a score of 10% plus year-on-year. And this, in turn, our highly engaged team have focused on really clean, friendly, inclusive gyms, and we've, therefore, seen a higher than ever OSAT, which is our member satisfaction score, at 8 points above pre-, post-pandemic. And OSAT is really important because as part of our member journey, we would expect to see our members having several periods of membership. Therefore, OSAT is really fundamental to rejoin. And in fact, our rejoin for -- sorry, 2021 was at 42% versus 35% in the same period 2019. I'm also really pleased with how our Kickstart program is going. Currently, our conversion for our Kickstarters to roll is sitting at 76%. And I think the final point on the slide here that I'm particularly proud at is that we achieved a top 100 place in the U.K. Best Places to Work from Glassdoor. We came in at 25, and we're, in fact, the only leisure company to make it into the top 100. So moving on to our digital marketing. So we are now at a scale and financial strength for us to be able to invest in our eCRM and digital marketing to enable us to engage and rebuild our membership. This is a really important part of our continued growth. We also appointed our new performance marketing agency, Merkle, in September 2021. And you can see here the strong success that we've achieved with our rejoiner rates through eCRM and by investing more in the digital marketing side where our members interact. All of this is playing a critical part to our membership recovery and our market share. We are also of a scale to have -- to be data rich and we have a great data team who are able to provide us with insight and models around member behaviors and characteristics. We have strong performance reporting, and this is enabling us to identify opportunities for pricing and promotion. We've also focused on technology. We recognize that an area that needed our attention was our app and following 5 upgrades, enhancing the product offering and the user experience of the app, we now have a top scoring app of 4.7. The busyness tracker on the app has also been a really critical part of our recovery. This has provided members with information that they need to support their return with confidence into the gyms. In fact, we've seen a shift from the pre-pandemic traffic to the member area of the website, which is halved to app uses, which has more than doubled. Finally, on this, as Richard referred to in his introduction, we believe that people will continue to return to the gym in a more hybrid way. So we've really leveraged our partnership with Fiit to provide high-quality digital content that they can use in our gym via the app at no extra cost. So I think you can see we've made significant improvements in our digital marketing and technology in 2021. There's more to come in 2022, which Richard will talk about a bit later. And in summary, for me, I think, as a result of the strong demand to return, our focus on digital marketing and technology and our highly engaged teams delivering exceptional levels of service, we've seen a strong recovery in 2021. We continue to see strong levels of growth in January and February of this year. Thank you. Back to Richard.

Thank you, Ann-Marie. What I'd like to do is just start by reiterating the unique strategic opportunity as we see it. And really, it's in 4 areas. Firstly, recovering demand and low cost, we believe, is the most attractive part of the health and fitness market at a time when health and fitness has never been more important. Secondly, a weakened competitor set, and I think we are about to see this accelerate. There's a number of independents we know that haven't been paying rent through COVID, and now, they're about to be hit by utility shock. And I think that competitor set will only weaken further over the coming months. Our own financial strength, as Mark has spoken about, with a relatively unleveraged balance sheet. And thank you, of course, to the banks and investors that have helped put us in that position. And also, the attractive market dynamic, more sites available, fitting our criteria than we've ever seen before, particularly on retail parks. Now key to this then is how we take advantage of it. And really, we've decided to focus on 4 things: firstly, accelerating the rollout; secondly, optimizing yield; and then thirdly, relaunching our tech platform in quarter 2 and the brand transformation project that will be completed by the end of quarter 3. And I think this is a very strong, focused plan that will drive shareholder value. Let me start on the accelerated pipeline growth. We've announced today that we'll do 28 sites in 2022. That's made up of the 25 we previously announced, along with the 3 from the acquisition that I spoke about earlier. And importantly, the sites that we've opened in 2021 are trading extremely well. This remains a very strong property market. Post-COVID that means that we're able to find locations that previously we weren't able to secure predominantly on retail parks. And you can see on the table on the right-hand side, about 2/3 of our openings in 2021 have been on retail parks, and we'd expect something similar in 2022. But we're also accelerating our growth. So we always had 25 in the plan and committed for 2022. We've got 20 of those already exchanged, and we've announced a further 3 sites this morning with the Fitness First deal that we will do from our own debt facilities. I guess the key point here is that we've never had this visibility so early in the year. What it means is that we're able to concentrate our efforts now on filling the pipeline for 2023 and 2024, and that's why we've upped our guidance again this morning, up to 25 to 30 sites for those 2 years. And really important, the sites are trading well. You can see that in the graph at the bottom. Sites that have been open around 10 months have reached 98% of their appraisal value, and that is testimony, I think, to the quality of sites that we're being able to secure. And as a result of that, I think, on the back of this, we have a very clear path towards 300 sites over the next 2 to 3 years. And on the next page, what we show is that we are also growing market share at a time when others in the market aren't expanding but that there is also a further opportunity around yield. So just in terms of the market share point, 756 low-cost gyms today. Our reference point is still the PwC report that suggests the market can grow up to 1,400. So kind of close to doubling overall. Now our market share today is 26.7%. If you look back 5 years to the end of 2016, it was 17.5%. The net growth in the low-cost gym market in that time is 246 sites, of which we've grown 113. So we're really taking considerable market share as the low cost gym market develops. And we expect to continue to do that through our accelerated rollout program over the coming months and years. But the point I really want to make on this slide is there is a yield opportunity for The Gym Group. We've analyzed our sites against our nearest competition on a site-by-site basis. And on average, there is a GBP 4 gap to the competition. And we've been doing some work with Simon-Kucher & Partners over the past few months to improve the sophistication of the tools that we have to be able to identify those sites where we can take price, but also to understand the value perception of our members and nonmembers of how they perceive our products against our current price points. And this became very clear to us through this research that there is a gap between what we charge and what our members perceive the value of the product, enabling us to put up price where we need to. And so we have an opportunity to close some of that price gap of GBP 4 that we set out on that page, and we plan to do this over the coming months. I think this really demonstrates all the ingredients are in place for us to continue to grow market share, but importantly also to be able to drive profitability of our business overall. On to Page 23 and let's talk about tech, which really is a critical enabler for us to trade successfully in the low-cost gym market. And we're about to launch a new tech platform in quarter 2 that will really drive our effectiveness in terms of engagement, traffic driving and also conversion rates. So this has been a lockdown project, taking us about 18 months to get to this point, but pretty excited that we are very imminently about to launch this new tech platform. In terms of engagement, that's the first point. It's really important that about 75% of our members actually now joined through mobile. So this will transform our mobile experience, but also enable us to do more merchandising on the site and have flexibility in terms of being able to launch new products overall. But our 2 key KPIs in this area, really, our ability to drive web traffic and our ability to convert web traffic. And again, the tech platform will help in both of those. So in terms of driving traffic, we'll have about double the number of sites. So when somebody is searching for something other than gym or gym near me, then we'll have more content to drive our SEO, and we'll also be able to trade more effectively at key trading periods because we'll have greater load speeds. And then in terms of conversion and optimizing the sites, more testing tools overall, simply user journeys and also the speed at which we load pages will be radically enhanced by this tech platform. So this is a really important milestone for us, and it goes in conjunction with the work that we've already done on the app, where we've significantly improved through a number of launches, as Ann-Marie said, our app scores, both in the App Store as well as on Android such that we are at a par with any of our competitors and well ahead of the number of our international peers. So what I've always felt about our business is that we have a great product, a very attractive price point, some great locations and really engaged people, but our brand could do more for us. And so our intent is to relaunch our brand using The Gym Group name to create something that is more memorable and has greater awareness than our current brand. Now our current brand is The Gym and the only issue with that is it's too generic and therefore lacks brand awareness. And the best way to describe this is an interaction, I think, that probably happens hundreds of times a day when somebody says, "Where are you going?" "I'm going to the gym." "Which gym?" "The Gym." And I think that sums up the issues that we have in terms of memorability and brand awareness. And we think with a more memorable brand name and a more recognizable logo, we will be able to improve our marketing effectiveness and also our brand loyalty. Now the good news is we have a very strong starting point because many people already know us as The Gym Group, and we already drive traffic to the thegymgroup.com. And so going with The Gym Group name will enable us to retain the search benefits of having the generic part of the name, The Gym, but also create a separate searchable brand identity. And we've already been using The Gym Group name in our brand marketing in January and February. And I think some of you may have already noticed that. And as a result of that, we've been able to drive our traffic up 28% compared to Jan-Feb 2020 to that particular term. The new logo, which you've just seen, has been developed by a leading brand agency. And what it does is it keeps what we're renowned for, which is the blue or the cyan that you see there, but it's developed a new icon and a new wordmark. And all this will help us drive consistency and memorability overall. And in terms of the actual transformation on Page 26, we aim to complete this project by the end of quarter 3. The first part has been to recruit a new team. So we have a new Group Brand & Marketing Director, Emily Kortlang, who I introduced earlier, who's come from Beats, which was then bought by Apple, and she was recruited kind of late in 2021. The implementation is really in 3 stages. Firstly, the completion of the visual identity assets, which is now done. Secondly, our new sites in quarter 2 will open with the new branding, and we'll move to rebrand the website and the app. And then we'll do a full brand relaunch converting the rest of the sites in terms of their signage and a marketing campaign in quarter 3. Overall, it will cost us GBP 7 million. That's GBP 5 million to the signage across just over 200 sites and also a one-off GBP 2 million in new brand creative. So this is really a key part of the plan overall, along with the tech platform to create what, in our mind, will be a modern relevant business that is both a combination of a tech business and also a multi-site leisure business. So let me finish by talking about sustainability. And as many of you know, we already have a very strong position in sustainability, and we've built on it during the past year. And that strong position really comes in 2 things: our work on social value; and our work on environmental standards. But we've also made steps in the year in terms of governance. We've got a new board committee. We've also started on our TCFD reporting and done a materiality assessment. Many of you in the audience have actually contributed to that assessment overall. And all that gives us a great baseline from which to concentrate then on our steps on social value and environmental standards. In terms of the current year, what we've done on the environment is set our carbon emission targets overall. So net zero by 2035, 50% reduction by 2030 and today we're announcing we're becoming the first gym chain that is carbon neutral. And all these are really important messages for our members primarily. And of course, as we know, on net zero, we can only truly go net zero when the government decarbonizes the grid. That's why we make that commitment to 2035. But we're already doing some initiatives in the current year. So we're beginning to phase out gas-fired boilers using heat pump technology, and that process will take us all the way through to 2030. And on carbon neutral, which is really offsetting our current emissions, we're working on projects in Africa around deforestation and also reducing emissions from cooking. And you can read more about that very extensively in our annual report. And on social value in 2021, we became the first health and fitness business -- private health and fitness business to be able to define the amount of social value that we've created, GBP 2.5 billion, since 2017, about GBP 4 million per gym per year pre-pandemic. And clearly, because we're now in recovery phase, we will be looking to recover that as quickly as possible. And really, just a couple of points to remember on social value. Firstly, it predominantly comes from health benefits and also benefits in terms of the mental wellbeings of people that work out in our gyms. And secondly, it is magnified when our members work out 4 times a month at least, and when those members are located in areas of greater inequality. And that's where we score very highly because we have 30% of our estate in the lowest income inequality areas -- the lowest 20% income inequality areas overall. And we plan to do an initiative to actually get our members working out at least 4 times per month in the coming year. So in 2021, we became the first private health and fitness business to calculate our social value. In 2022, we'll become the first one to actually link social value to executive pay, again, another piece of innovation from us in this particular area. But let me just finish on Page 31 in terms of how we see the outlook for this business. We absolutely understand our first priority is to recover our membership. And we've had a strong start in terms of doing that 50% growth over a 12-month period. Ours is a high-margin, low-cost business, and we believe there's a yield opportunity, as I've explained, to close some of the price gap to the immediate competition, giving us the opportunity, therefore, overall, as a business to hold our margins and drive profitability. Just reiterating what Ann-Marie said, the recovery so far has been uneven, but we expect it to be more broad brushed as the environment normalizes. And we expect as a business to be like-for-like revenue by quarter 4, 2022, when we compare to the pre-pandemic position. But our second priority is really to accelerate the rate of change in our business to take advantage of really what is a very significant market opportunity and some key things that we're doing there, accelerating our rollout growth to 28 sites in 2022, including the 3 top quality ones in London that we've acquired and upping our guidance to 25% to 30% in the next 2 years, the new tech platform or website launch that I spoke about. And we'll continue to spend around 3% of revenue on tech because it's so important in terms of our ability to trade. The relaunch of our brands using The Gym Group name, which is a very necessary project in our mind to drive awareness and marketing effectiveness. And we've backed that up with investments in the team and then continued commitments on social value and on the environment. Over the last 2 years, we've had to deal with a global crisis in terms of COVID. But throughout this period, my determination and that of my team has been to emerge as a business with increased market share and having put in place the developments that will enable us to trade more effectively and drive the profitability of this business, along with driving and increasing shareholder value. I have got more confidence than ever in the 7 years that I've been with this business that we are taking the absolute right steps to be able to achieve this. So thank you for listening. And we'll now move to Q&A, which I think initially will come from people in the room.

Owen Shirley from Berenberg. Three questions, if that's okay. The first 2 were just on competition. So firstly, I wondered if you could comment on what behavior you've seen from JD Gyms since they bought Xercise4Less. Secondly, how many -- Richard mentioned that you're sort of absolutely certain that some competitors haven't been paying rents. So if you could give any indication on how many gyms in the market you think that might apply to, that would be really helpful. And then the third one was just your views on LIVE IT penetration. Obviously, it's done exceptionally well. It looked like it might be flattening off in the last few months. Do you have any views on how that could fare over the next couple of years?

Okay. Owen, let me take the first couple and then perhaps, Mark, you can do with the LIVE IT question. I think in terms of competition, clearly, JD bought Xercise4Less. They haven't converted all of them. They closed some others. We think there's about 10 or so that are still trading as Xercise4Less. And what -- we're seeing them a little bit active in the market, but no kind of -- nothing like ourselves or, obviously, even Pure. So I think that -- I've always said this. They will become a third force in the market, but it's -- we have the scale benefits and we're using those scale benefits to improve our effectiveness in how we trade. And I think that is absolutely fundamental in this market. I think in terms of competitors, very difficult to put numbers on those that haven't been paying rents. I mean we hear, anecdotally, a number of independents or smaller chains that haven't been paying rents. And undoubtedly, I expect that we will pick up some sites as a result of that, where landlords choose to take back the property and remarket it, because they really think that the amount of back rent is quite substantial. Very difficult to put a scale on the -- how big that opportunity is, but it will definitely be a trend in the market over the coming months. And as I said, I think the utility shock will just exacerbate that overall.

Yes. And then in terms of LIVE IT percentage, we launched that 4 years ago. And clearly, when you go from a standing start, you expect to see acceleration in those early years, which is what we absolutely did see, as you know. So it's quite natural that as it matures, it will slow down a little bit. But I think there are 2 trends that will help it continue to grow from this point, perhaps at a slightly slower rate. So the first trend is what I mentioned in the presentation, which is the more sites we have, the more valuable it is from a multi-site access perspective to our members. And the second thing is that if people do spend a little bit more time working from home and they're working week of 7 days -- or their week of 7 days is split a bit more evenly between work and home, we think that might attract people to want to be working out in 2 gyms, one at home and one near their office. So both of those trends, I think, will help LIVE IT in the longer term.

It's Anna Barnfather from Liberum. Two questions, please. Firstly, just revisiting the competitive landscape and the 3 gyms you bought. Can you give some metrics around that acquisition and any other future potential acquisitions? And then the second point is kind of a mix of everything. The GBP 7 million rebranding, the yield management, the price increases, alongside guidance to get back to like-for-like, flat pre-COVID by Q4. That suggests volumes down quite a lot, I'd have thought. Can you just give me a bit more information on how we should think about volumes? And is that branding necessary to drive that pricing?

Let me deal with the first one, Anna. And then Mark, perhaps, you can do the volume piece. So the 3 gyms that we've acquired, one of the strongest parts of recovery we've seen in the London market has been those sites with parking. All 3 of these sites have got parking. And the sort of kind of typical size on average that we've currently got in the estate, there's a chart in the back that demonstrates that we're about 16,000 square feet, and that's what these sites are on average. So we've got a lot of confidence in our ability to drive very strong returns on capital on those. And as a result of that, we're spending GBP 5.5 million buying and GBP 2.5 million converting them, but we would expect these to hit our normal returns on target. And certainly, that's what we're targeting. So a very kind of incremental acquisition but in areas where we've traded extremely well in the past and where we're seeing the market recover very effectively.

Yes. So in terms of your question on volume versus yield, part of it was around the brand spend and part of it was pricing changes. So the brand is something we've been working on for a long time. It's not just about membership recovery from COVID. It's something that fundamentally we think is going to be right for the business in the long term. And it's been planned for quite some time. So it's not just a knee-jerk reaction to trying to recover faster from COVID. But clearly, volume is down. We were 82% like-for-like at the end of December compared to December 2019. That's edged up a little bit across January and February because we had a good January and February. But clearly, that is still going to take time. And as Ann-Marie showed, that's been uneven across the country. It will normalize, and we expect that like-for-like number to improve from here, but it is a little bit lower. Now I think one of the things we will talk more about is what you referenced, which is the like-for-like revenue recovery. Because from our perspective, what really matters is revenue. Now membership is clearly an important driver of that. But actually, with the work we've done with Simon-Kucher & Partners and also just reassessing some of our very busy gyms, some of the busiest gyms that we had pre-COVID, we now actually think it will probably make sense to operate those gyms with slightly lower member numbers and slightly higher yield. So the work we're doing at the moment and we'll be doing over the next few months is to optimize revenue between volume and yield. It won't just be about recovering volume or costs. So hopefully, that gives you a bit of a picture of what we're trying to achieve. And that's why we're talking about like-for-like revenue recovery rather than like-for-like membership on its own.

Tim Barrett from Numis. I had 2 things as well, please. Firstly, can you talk about the transmission mechanism on price increases? You made very clearly the point about the gap, but it'd be really interesting to know how that will come through over time. And then secondly, just looking at London, which is obviously the slowest to recover. Just be great to hear of any anecdotes around how that pickup is coming through. And obviously, it hasn't stalled, but it would just be nice to know that.

Mark, perhaps you do the first one, and I'll talk a little bit about London.

Yes. So pricing for us, when we put a price increase on to our website for a particular gym, and we do this, as you know, on a very regular basis, first of all is that the methodology behind it. We're becoming increasingly sophisticated in identifying which gyms would require a price increase or decrease. I mean, most of them are increases, but there will be times when we feel a decrease is appropriate. But the overwhelming balance is on an upward trend. And we do that in a very targeted way. There's -- we look at the levels of competition. We look at capacity in the gym, the business of the gym, and then we make a decision site-by-site. And we always -- although that's driven by models, it is always then passed through the local operations team to make sure they're happy that there's nothing going on locally -- the model doesn't know about before we change the price. Then the transmission, which I think is what you're getting to, is how that then comes through into the overall yield that we see as a business. So the first step is that we put the price up, but that's the price that new members joining will face. It's not the price that the existing members will face immediately. However, what we then do over the next few months is we have a process of going back and repricing some of the members who were existing before the price rise. What we tend to do is we don't do it with all of them. We only contact some of them. We have various criteria for which ones we select. But what we also do is we don't put them quite the way up to the full price. We try and reward loyalty. We might push them up GBP 1 or GBP 2, but we always do that slightly below what the prevailing rate is as a reward for their loyalty. So there's a timing effect for 2 reasons. One is, as more and more new members come on, the proportion of the base paying that headline rate that's gone up is higher, but then it takes some time also do to the repricing of the existing base.

The like-for-like revenue on London even further, what you would have seen is a difference between London residential with parking versus London residential with no parking. And actually, London residential with parking, again, is getting close to 100% in terms of like-for-like kind of revenue. So partly, we put that down to people's working patterns and how much they're using things like public transport. But Ann-Marie, you're out in the gyms, so could you be able to add perception about London?

Yes, absolutely, Richard. I think that's exactly right. You can see a stark difference between where there's parking and where the gym is relying on public transport. But as every week and every day goes by, you can see it coming back. They're getting busier. And as I said earlier, there's a slight shift in many respects as to when their peak trading, when their peak times are. It's slightly longer in the morning than it was before. It used to finish by 9, but actually, it's going on till 10 or 11. And I think some of that is it's working through this hybrid working, where people are perhaps not just -- not only working a couple of days in London, but they're also doing shorter days, some work at home, some in the office. So some of that is finding what the new normal is, but it -- day by day those gyms are absolutely recovering and are busier and are finding what their new pattern is going to be.

Douglas Jack, Peel Hunt. I think most of my questions have been answered, to be honest. But just in terms of the price increases, how do you think the sites in lower income areas are performing? Looking at that chart about the North, it sounds that some of them are probably doing okay. And do you think price increases will be similar in the lower income areas as it will be in the higher? That was the first question. And the second one is in terms of new sites, if you could give a kind of split between smaller catchment areas versus standard? And to what extent will that affect the size of buildings, the building costs and, of course, the rate of building cost inflation you're seeing at the moment?

Yes. Thanks, Doug. Let me just take the point about low-income areas. I think you're absolutely right. Actually, we've seen some very encouraging recovery in some of those areas, partly because some of those areas are in the North. One of the criteria -- and I spoke about the fact that we have more sophisticated tools to be able to identify the areas where we can take price -- one of those criteria would be price sensitivity, clearly, and that would be something that would go into our modeling in terms of deciding where we can take price. And so therefore, absolutely, we'll take account of the particular area. And it's this kind of constant hand on the tiller between volume and yield that we're seeking to optimize. And that's really what the work from some [ feature ] has helped us do overall. And second question, Mark, do you want to...

Yes, in terms of new sites, so obviously, we talked about the small box concept that we launched with Newark and some of you came to look at that. But actually, it's much less binary than a small box or a large box. So in 2021, for example, we opened everything from a 7,000 square foot facility to a 21,000 square foot facility and everything in between. And we've opened a number of 10,000, 11,000 square feet that we would actually call standard box, but they're just at the smaller end of it. So it's quite hard to say x percent small box, y percent large. However, I know that some of you model this in that way. And I think if you were modeling the small box sort of economics that we described to you when we launched that versus the large box, probably about 20% small box would be a good way of doing it, and then you'll end up with about the right blended rate. So in 2021, the average square footage was 12,000 square feet for the new sites that we opened and we think will be very similar for 2022 as well. So typically, as you know, 15,000 is the sort of the median point for our large box and 7,000 to 8,000 for our small box, but the blended average is about 12,000 at the moment. In terms of building cost inflation, you mentioned, hopefully, the chart will help with that a little bit. So we are seeing some cost inflation, but it's not dramatic at this stage. We think it's very manageable, particularly with some of the price inflation that we intend to put through.

Mark Irvine-Fortescue from Stifel. Two things, please. One on the estate and one on the consumer. You mentioned on the estate some interesting differences in the shape of recovery across the estates. City center is lagging suburbs. It feels like some of those changes are going to be quite structural potentially. Is it affecting how you allocate capital? Do you think the estate will look a bit different in 5, 10 years' time? Is there less going into city centers? And then the one on consumer was just that picking up on the point you made about, I think, 30% in the lowest 20% economic group. With the cost-of-living headwinds, are you seeing any higher churn or pushback on yield in that kind of cohort within your consumer profile?

Mark, thank you for those questions. So I think in terms of the allocation of capital, we have, for probably the last 3 to 4 years, actually not been locating in city centers. I can think of one significant site perhaps that we've opened in the city center, but that was a very strong student site. And typically, where we're opening in city centers today, it's because they're kind of close to areas where the students live or even where they study. A lot of our allocation of capital already -- and this is a pre-COVID piece kind of based on where we saw the opportunity to actually go into untapped areas of the market -- have been in residential areas, particularly in the suburbs. So testament to that would be, if you go back 6 years, we had one site in Birmingham. Today, we've probably got about 12 in kind of Greater Birmingham and a lot of those are in kind of the residential areas. And that has been the same sort of trend that we've seen in many of the other areas. So I think in terms of, is it a structural change, actually, we don't see it that way. What we see it is that people just haven't established their patterns. It was beginning to happen in late autumn. And then obviously, we've got the work from home guidance again associated with Omicron. And so that's just delayed things. So we don't see this as a kind of a fundamental that we won't recover like-for-like revenue. What we see is just an initial timing issue associated with the fact that Omicron came when previously it wasn't expected that we would have further work from home guidance. And then in terms of the consumer point, are we seeing higher churn? Not necessarily. I mean, what we have seen is when we first reopened, clearly, we have a lot more new members. You can see that. We've grown our estate by 50% over the last kind of 12 years. And one trend that has always been with us is that kind of more recent joiners will churn slightly higher as opposed to some other kind of more long-standing members. So it just takes us a bit of time to establish that. Now that is not something to do with the post-COVID market. That is just the way that our business works and so, therefore, the kind of the normalized churn patterns. And actually, in this current year, we're seeing kind of churn beginning to reduce again overall, which is something that we expect, but we also just expect it to take a little bit of time.

So we're just going to ask some questions. The first question is from [ Nicholas Holmen from Blunt Eye Capital ]. And the question is, what's the number of mature gyms in 2021?

Mark, do you want to take that? I mean, obviously, the maturity has been slightly confused by COVID effectively. But going into that, we would have ordinarily said it's the ones that we opened kind of last year and the ones that we're opening kind of this year are the ones that aren't mature. So we would probably say kind of 183 in a kind of pre-COVID world.

Next question is from [ Michael Maher from CCAP ]. He says -- asks, given your maintenance CapEx forecast for 2022 of 6% to 7% of revenue or GBP 12 million in absolute terms from today's press release, this implies 2022 revenue of GBP 171 million to GBP 200 million. Is this a realistic assumption?

Yes. I mean it wasn't intended to be specific guidance on revenue by reversing the calculation. But clearly, that is what it implies. And I think if you were to look at the analyst consensus, looking at the people in the room, you'll find that revenue sits in between those 2 numbers.

So over to you, Richard. Do you have anything else to add?

Okay. So I think that's -- is that the end of the Q&A?

Okay. And I think -- let me just kind of pick up. I want to pick up on one question that Anna asked and then perhaps just invite Emily to say something, because you mentioned, Anna, about brand. And let's just kind of ask Emily to talk a little bit about the importance that she sees of brand awareness because I think we didn't properly cover that question when you asked it.

I'm Emily Kortlang, the new Group Brand and Marketing Director here at The Gym Group. So my first mission here is to rebrand The Gym Group as The Gym Group. And we've gone from The Gym, which is a very generic name. It's the category norm. It would be like calling Westfield, the shops. So it doesn't kind of stick in your -- in one of those nodes of your brain of what you remember. Because when you're thinking about joining a gym, which gym, The Gym is very, very generic. So we needed to add a word to the end of The Gym because you need, quite clearly, the category name within your product as most do within our category. We needed a second word, and we did take a very good look at what that second word could be. And the Group is something we already own. We already have a fantastic equity in it and search benefits from an SEO perspective. We already have equity in it with our member base already. Some of them already know with the The Gym Group. And we already have the URL, which we have fantastic benefits from a conversion standpoint. So the next job is to make The Gym Group famous. So when you think about joining a gym, you think about The Gym Group. So we think the new logo is kind of the first step in that, but there's obviously a lot more to do around kind of brand awareness. So the new logo will be the full Gym Group name. It's a unique typeface and font, which gives its a significant memorability and standout in the market. We see a lot of our competitors are using standardized fonts, which are very normal to see and ours is a unique creation. Meaning that it has more distinct standout, and that will lead to more awareness. And awareness is kind of the first fundamental in the marketing funnel. So if you're not aware of a product, you can't buy it. So hopefully, you'll see that roll out in 2022.

Very good. Thank you, Emily. So [ Nader ], is that the end of the questions?

Yes.

Okay. Well, thank you to everyone for joining for this combination of both in-person and virtual event. And we hope to be able to see all of you completely in person at our Capital Markets Day in May -- on May 19. Thank you very much.