Viva Leisure Limited (VVA) Earnings Call Transcript & Summary

Good morning. My name Gordian, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Viva Leisure Limited Half Year Results. [Operator Instructions] Thank you for your patience. I now turn the call over to CEO and Managing Director, Harry Konstantinou. You may now begin the conference.

Good morning, ladies and gentlemen and others, and thank you for joining us on the conference call today for Viva Leisure's First Half FY '23 Results Presentation. I am joined today by our CFO, Kym Gallagher. This morning, various documents, including an investor presentation, which we will be referring to today, were uploaded to the ASX. This presentation is being webcast on openbriefing.com and will be available for replay on the Viva Leisure investor website later today. The agenda for today's presentation will commence with some highlights and general commentary on the first half results, followed with Kym providing more detailed information on the actual financial results and then followed by operational and brand updates, including a section on our capital allocation principles moving forward. And finally, we will complete the presentation with some insight into the outlook and strategy. At the back of the investor presentation on Page 38 is a reconciliation of the statutory profit and loss to the traditional ex AASB 16 numbers. Following the completion of the presentations, there will be an opportunity for questions. A reminder that if you wish to ask a question, you will need to dial in as questions cannot be asked via the webcast. I now look forward to taking you on a Viva journey from the first half of FY '23. I would like to start off by saying that the results we present to our shareholders and investors today are the culmination of a significant amount of hard work and following and believing in the strategy, which was outlined when we first listed in 2019. Viva has always been more than just a Health Club Group. We have a diverse range of revenue and income streams. We manage and control as much of the member experience process as possible, including the back-end systems. To do things differently and to achieve the results we have today means we need to be different, and this is what our business is. In the end, you can break it down to gym equipment in a big box or in our pace in all segments of the market. And when you look at it that way, there is no difference between one facility and another. However, when you control as much of the ecosystem as way you provide for our members' experience. And when you offer multiple brands and opportunities that as members requirements keep changing, we can still cater for. And when you allow flexibility to switch between these brands by an app or members portal as easy as we do, then that is what makes us different.  Keeping our members engaged and within our broad brand ecosystem, offering them multiple training options in specialized training facilities in just the same way you don't go for your GP for specialist health is what sets Viva apart. As the Founder and CEO of Viva, it's exciting to be here today reporting a period of performance, which has not been impacted by COVID, a period where the business has been committed to shine as we always knew it would and could. Consumers are absolutely prioritizing their personal health, wellness and fitness into their daily lives. There is a lot of noise that comes and goes about how this industry is discretionary spend. It simply is not. There's nobody like today that does not want to be fit and healthy. Nobody is happy to be unfair to struggle with their energy levels and do not have the ability to enjoy life. I've always explained to the notes I speak with, that this industry is a lifestyle industry. individuals that have committed to their health and fitness have that as one of the #1 priorities in their lives. Not priority does not change as some we do not prioritize health and fitness believe because the cost is going to increase from $15 to $17 for example. Nobody changes their mind to be fit or not depending on the cost of a membership.  When you think about it, the cost of the Health Club membership ranges in price from $10 to $30 per week, earn out pace approximately $6 per week to members. This is a very small price to pay to create a better life for oneself. When COVID hit we were forced to close. Those who do not understand the industry started showing headlines around that gyms are done, nobody would ever return. How wrong they were. At Viva, we lost about 4,000 members at the peak of COVID, which was about 10% of our membership at the time. within months of being able to trade uninterrupted those members and more returned. This highlighted the lifestyle nature of the industry in which we operate. The noise we hear now in the market is that inflationary pressures are going to change people's attitudes to fitness at is considered discretionary, somehow magically because the costs are going up that I'm going to stop wanting to be healthy. I'm going to want to stop you're losing both [indiscernible] and feeling good. And then you're going to want to stop having a healthier life because things cost more. So I'm just going to go change to being unhealthy.  These results that are presented by our shareholders and investors today will highlight those who believe this industry's discretionary spend how wrong they actually are. Late-last year Viva engaged Roy Morgan, took part in an independent survey into the health and business benefits of our members, and more specifically, what would they do in an environment of increasing costs, how likely they would be to maintain their health club membership. The results were not surprising to me because I understand our members. Today, we have published the full unedited survey results as produced by Roy Morgan on the Viva Leisure website. I will discuss some of these findings throughout the presentation today. Now to the result we are here to present our result, which my team and I have always believe the business is capable of achieving in an uninterrupted trading environment, a result, which is absolutely outstanding.  Moving to Slide 3. As mentioned earlier, it is encouraging to be here today presenting an uninterrupted half year result for really only the second time since our listing 3.5 years ago. As the headline on this slide says Viva full speed ahead. EBITDA being referred to here today is EBITDA AASB 16 or what we call the traditional EBITDA unless otherwise noted. EBITDA for the first half of FY '23 exceeded all previous results, including all previous recorded full year results. This is an important message for me to highlight. Viva generated more EBITDA in the past 6 months than it ever has, including for any previous full year. Not only was our EBITDA record, but for the half year, the business generated an EBITDA margin of 20.7%, exceeding the previous half year result by 430 basis points. I mentioned in our full year '22 presentation that our target for FY '23 was to maintain an EBITDA margin of above 20%, and this is what the first half has achieved.  There was a new doubling of revenue for the first half of FY '23 over the previous corresponding period or PCP being the first half of FY '22. Not only that, we are continuing to show good growth in the second half of FY '23.The business has generated the highest impact to recorded and strong free cash flow generation, more on the free cash flow later in this presentation. Network membership, which is the total of direct corporate members and franchise members is now over 343,000 in grain organically month-on-month. Lever's direct corporate members totaled over 177,000. To put this into perspective, Australia's population aged between 15 and 69 years of age, which is our addressable market, 2% of that entire Australia wide population is a direct member of Viva owned or franchise location. With just over 17.7 million Australians aged between 15 and 69 years of age. It also means that leave us direct membership of over 177,000 represents 1% of the population. So 1 in 100 of the entire Australian population age between 15 and 69 years of age pay the fortnightly membership fee to Viva. There is no sign of our growth slowing with membership utilization, revenue all increasing since the start of the calendar year. Accordingly, we are reaffirming FY '23 guidance today and more on that a little bit later in the presentation.  Moving to Slide 4. Quickly going through this dashboard, you will note as highlighted earlier, revenue was $67.4 million for the half year, up 98.3% on the previous corresponding period. EBITDA was $14 million for the half year, up $17.8 million from the previous corresponding period in FY '22, which was a loss. Corporate members ended the half year at 173,406 up 30.4%. Network members were at 333,423 for the half year and have increased a further 10,000 members since. Those investors who have been following us for some time know we face a significant emphasis on utilization. A metric for us, which monitors the capacity of our facility and allows us to plan forward depending on that utilization. I'm pleased to say that utilization for the half year was 72.7%, up a staggering 15% from the PCP or 950 basis points. Corporate locations ended the half year at 162 and network locations at 338.  Moving to Slide 5. Management debated whether we include the guidance numbers on this slide, as indicated in the agreement Black Collins. In the end, we decided to include it because today, we are reaffirming guidance. In regards to revenue, you can see that the $67.4 million achieved for the half year was more than double the revenue we had when we listed the business 3.5 years ago. 2 guidance we achieved for the full year. This will result in an increase over the FY '22 period of 54%. The chart will show you that we are well on the way. Traditionally, our business generates better returns in the second half of the year as it has the full benefit of any acquisitions and in the greenfield locations as they mature. In regards to EBITDA, as highlighted earlier, the $14 million half year result beat any previous full year results. You will also see from the chart the guidance is well within reach. Interestingly, should the upper end of guidance to be achieved, that will represent a 445% increase over the previous full year results. Exciting times are coming over the next 4 months as we finish the financial year with my team and I, as always, fully focused on this goal. I would now like to pass on to our CFO, Mr. Kym Gallagher, to run you through the financial results starting at Slide 7.

Thank you, Harry, and good morning, all. As Harry mentioned, I'm on Slide 7. Looking at the profit and loss. For the half year, it is now fair that the COVID impacts are well and truly in the rearview mirror. As Harry mentioned, we're in record territory across all key metrics. Revenues grew by an impressive 98.3% or $33.4 million higher than the prior corresponding period. EBITDA for the half was higher than any other full year the company has recorded today. The true benefits of leverage gains through utilization and therefore, revenue improvements is demonstrated as revenue, as I mentioned, was up $33.4 million over the prior corresponding period and over 50% of this fell to the EBITDA line. EBITDA margin improved to 20.7% for the half, up from 16.4% in the January to June 2022 half. Finally, NPAT, also producing a record for the half on an ex AASB 16 basis at $4.2 million, which equates to earnings per share of roughly $0.047 under the old metrics.  Moving on to Slide 8. A strong opening cash balance of $10.1 million and low debt drawn in our senior facility allowed us the opportunity to continue to pursue rollouts and acquisitions. Accordingly, we invested in a total of 11 greenfield sites and acquired clubs, which is reflected in the movements between PPE and intangibles. As mentioned, that has remained under control with a total of approximately $21 million drawn in senior debt, and this leaves us with approximately another $21 million in available funding for further acquisitions. From a leverage perspective, total debt being total senior facilities and equipment finance has actually dropped since 30 June, while EBITDA, as we've pointed out, has improved significantly.  Moving on to Slide 9. Strong cash flows from operations were deployed into approximately $11 million in CapEx for greenfield sites and acquisitions, major works and maintenance CapEx. There's a slide further in the presentation, which I'll go into more detail on the CapEx split. There's also a slide further on the debt, which describes the level of free cash we have proved during the full half and what we're looking to into the future. An additional $1.4 million were spent on technology projects, including the Hub and Viva Pay, and Harry will go into a bit more detail on that later. The lease principal reductions line is a principal reduction of our equipment leases and rental leases, so it includes the actual property rent payment component. I'm on Slide 10. Now this is one of my favorite slides. So when comparing this half versus the prior corresponding period, which was heavily covered impacted, obviously, this shows fantastic numbers. But showing the recovery from covered quarter-by-quarter for the calendar year is far more reflective of the journey for the group. Every quarter shows growth over the previous quarter on revenue and EBITDA lines as well as improving margins. The leverage of our operations is also demonstrated by showing revenue growth between the second half of FY '22 and the first half of FY '23 being 18.7%, leading to an EBITDA growth of over 50%. It is also worth highlighting that the EBITDA margin for the December quarter finished at 21.6%. I'll now hand you back to Harry.

Thanks, Kym. I'd now like to run you through a quick operational review. Moving to Slide 12. As at 20th of February, we now have 166 corporate locations, up from 162 at the end of the half. We have secured a further 14 greenfield locations, the majority of which are Club Lime locations and will have a further 2 acquisitions, which are agreed and binding and will settle in the next few weeks. Note that not all of the 14 greenfield locations will open in the remainder of this financial year. We expect just under half of the locations to start trading this financial year. Delays in development approvals are still the #1 issue case with our greenfield site rollout -- these continue to take anything up to 12 months, but previously, they were between 3 and 6 months. Moving to Slide 13. With December, seasonally being a month, which is not reflective of the full performance due to higher temporary suspensions with people going on holidays, we have provided both the December and January revenue numbers.  Revenue for January 2023 was 40% higher than December '21. This is important because nearly 90% of our revenue is recurring derive revenue, so the monkey revenue gives us great insight into what is coming up. Moving to Slide 14. The half year finished with 172,406 corporate members, again, not truly reflective of the entire membership base due to the temporary suspension and cancellations with members, especially students returning had. Accordingly, we have provided the February numbers, which as of 20th of February were 177,279 members or as highlighted earlier, represents 1% of the population of Australia age between 15 and 69 years of age. From December 21 until 20th of February, the business has grown by over 45,000 corporate members. Moving to Slide 15. For the half year, we ended with network membership of 333,423, an increase of 12% over the previous corresponding period. Further to that, we have added another 3% to that limited number or approximately a further 10,000 members since 31st of December. New South Wales now also represents our largest state by members, passing the ATC, which was up over 75% when we listed the business in June 2019 and now represents 32%, showing a diversification of the business and a lessening of the concentration of members and revenue in the ACT. Viva corporate members now represent 53% of the membership versus franchise members who represent 48% of the overall 343,000 members.  Moving to Slide 16. Utilization is a key metric for the business. We give our planning process, it ensures we provide the best member experience possible without overcrowding facilities, and it allowed us to roll out our hub-and-spoke model of multiple brands, knowing we have a ready-made market. Utilization for December was 72.7%, again, seasonally affected by increased temporary suspensions as people travel. And as such, we have provided the January 2023 figure of 73.6%. This figure represents the average across our Empire portfolio. In the ACC, for example, our health by portfolio operates at over 81% utilization and with over 52,000 members in the ATP alone, that is pretty impressive. For a short time in February, utilization actually hit over 74%. However, with 3 greenfield locations opening on the 15th of February, that pushed the number back below. So I expect February utilization to be above the January utilization also.  Moving to Slide 17. This is the new data we have not previously published, but I believe it's interesting enough for our investors. What you see here is that in the first half of FY '23, location EBITDA or 4-wall EBITDA, which represents the direct costs associated with the location such as rent, wages, electricity, cleaning, et cetera, increased 340 basis points from 39% to A in the PCP to 42.4%. This, we believe, is an outstanding result and one for which I'm very proud of our general managers of our brands to be able to achieve. The other outstanding statistic on this slide is our corporate cost percentage of revenue has decreased 110 basis points to 21.6%. Corporate costs cover every other cost not included in the location costs such as central marketing, head office, et cetera. This business has a fixed cost base that once you achieve breakeven with, the contributions really start to add up with every member you have, and this is evidenced in a slide like this.  Moving to Slide 19, brands and segment update. This is a slide we have provided previously, but now with updated data, it shows our key brands. What I wish to highlight on this slide is that our brands continue to target all segments of the market. This makes our offering extremely unique and difficult to duplicate. I mentioned in my introduction that you don't go to your GP boater specialist advice, the GP refers to a specialist. This is no different to the gym industry. If you wish to have great pilates or yoga work out, you go to a specialist facility rather than a general facility. This is one of the reasons why we operate multiple brands. The multi-brand strategy allows us to properly target different price points. This is most evident when you see the price point difference between, say, our Club Lime brand versus our Plus Fitness brand. Both are just as important as the other. However, they target a different market segment and offer different quality of service. Moving to Slide 20.  Club Lime, Hiit and Plus are now at 98 locations. This is more locations than any non-Franchise Health Club has ever achieved in Australia. To put this into perspective, there has never been a Club owner that has owned more than 97 clubs in Australia under the one brand. With 98 locations and 2 secured binding acquisitions, Club Lime is scheduled to achieve 100 corporate-owned locations in the next few weeks. Now it isn't all about reaching a magic number of 100 clubs providers with more economies of scale, more reach, more active to locations as a larger operator, more opportunities to launch our sub-brands like Hiit Republic and GroundUp in close proximity to Club Lime locations because there are more often. This then allows us to implement our unique hub-and-spoke model and service more members across more segments and keep them within our ecosystem of memberships and offerings when their personal fitness goals, requirements and needs change from one pipe to another. We're very excited about hitting the 100 locations.  Moving to Slide 21. I'm going to go through these brand slides very quickly so that we can have sufficient time for any questions. GroundUp, 3 locations operating over 98% portfolio utilization in these 3 locations, generating upwards of 60% 4-wall EBITDA margin. 4 more locations have been secured in both the ACT and our first New South Wales location. I expect the majority of these locations to open this financial year and provide a benefit in the next financial year with a full year of trade. Moving to Slide 22. We're in the process of relaunching the rebalanced franchise network, as previously highlighted. We are about a month or so away from this. We now have 10 corporate locations operating under this brand. Moving to Slide 23. Like Rebalance, our aim is to frame Hiit Republic. However, this is likely delayed into FY '24 at this stage. There are currently 27 operating locations with a price point and therefore, the yield increasing at most locations from previously reported to around $39.90 per week, but still with several regional locations at $34.90 per week.  Moving to Slide 24. The Plus Fitness refresh and rebrand is going well, approximately 23 locations out of a circa 200 locations are operating under the new looking field and branding. We expect to have approximately 50 locations operating refreshed by the end of the financial year. The locations which have rebranded and refreshed are outperforming the older clubs month on month, which is extremely encouraging. Our tech platform for the Plus Fitness network is not too far away also, and we believe will help give the brand a boost in their age, membership and profitability for our franchisees. I will now pass on to Kym to go through our capital allocation principles, which we have not really published in such detail previously.

Thanks, Harry. I'm on Slide 26. The group generated free cash flow of $5.4 million for the half, excluding tax, which also resulted in just over 38% of EBITDA fall into free cash. The launch of Viva Pay being a high-margin business will add approximately $200,000 per month in free cash flow as well. Moving forward, we are targeting 35% conversion of EBITDA falling to free cash, again, misses before tax. As mentioned on previous slides, the free cash generated was largely invested in greenfield sites and acquisitions as well as $1.4 million spent on technology projects such as the Hub and Viva Pay. Moving on to Slide 27. This show some further analysis of how our CapEx has been spent for the half. The new site CapEx is CapEx spent on greenfield sites over the period and start upgrade CapEx is major works performed in the existing sites. It is worth noting that site upgrades are more in the form of enhancements targeted to increase membership rather than simply maintain the premises. The results have shown in the sites that we did significant upgrades to improve member numbers by 22.5% in total and on a full year basis, will represent a return on investment of 75%. Maintenance CapEx is CapEx spend on existing sites does not include any equipment replacement as this is lease finance and therefore, not a cash outflow.  Moving on to Slide 28. This slide shows how we anticipate our capital will be allocated across time. We have a target of approximately 3% of revenue to be invested in maintenance CapEx, noting that this half, it was approximately 2.8%. While the Hub is nearly complete, Viva is looking to continually exploit its technology point of difference by investing in future projects and enhancements to our current tax. And accordingly, we have estimated approximately 3% of revenue to be allocated to this. We have assumed for now that free cash flow will be invested into greenfield types and acquisitions and on the basis of achieving a 35% conversion of EBITDA, we estimate growing organically by 24-plus sites per annum or 2 per month using available cash and debt resources. We also estimate this can be done while keeping our leverage between 1.5 to 2x, and that's defined as total debt to EBITDA.  Moving on to Slide 29. The slide shows our target mature site economics by brands. I won't go through this people in detail, except to say this is how we model and assess the ROI of any capital allocation. Obviously, there are factors that come into play, which allowed deviations from this such as forming a hub-and-spoke or other strategic reasons to invest in a site. So this is a typical mathematical framework. In other words, the numbers presented here are indicative of our existing network. And while it isn't one size fits all, this is generally what we aim for when investing in our key brands. The return metrics are based on standard sized club for each brand and at 70% utilization, which is where we hope to get to within 12 months of the greenfield site. So it is worth noting that the path and maturity of a rollout, which we assume to be that 70% utilization is at 12- to 18-month period, whereas cash invested in an acquisition provides immediate cash flows based on the metrics presented. On Slide 30. So in summary, based on the conversion of free cash flow we expect to achieve from EBITDA and implementing our capital allocation principles and metrics from the previous slides, we're targeting a minimum of 24 sites per annum of greenfield sites or acquisitions or 2 a month to be funded from existing cash flows and debt facilities. Thank you. I'll now hand it back to Harry...

Thanks, Kym. I'm on Slide 32 now outlook and strategy. As mentioned in my introduction, Viva engaged Roy Morgan to conduct independent survey of our members focused around the importance of the Health Club membership and secondly, how likely they were to maintain or change that membership in a rising cost environment. While I've always maintained we operate in a lifestyle industry and not discretionary spend, it was important to support this with third-party research of our members. The survey was conducted by providing members contact details to Roy Morgan, and they randomized the invitations for members to participate. The survey sample size was approximately 1,000 members. I think it's important to call out a few key findings of the survey. 86% of members agree to their membership is important to the overall well-being. 89% of members agree that their Club Lime membership helps reduce their daily stress. When considering a range of lifestyle costs, 74% indicated they would maintain spending on their Club Lime membership, the highest of any lifestyle category measured. Again, full details and a copy of the survey to see the other lifestyle categories is on the Viva Leisure website or via the link on this page.  The top reason why Club Lime members engaging health and wellness activities are is member being. This is an important statistic is one that many who fly the discretionary spend flag do not understand. Mental well-being and the endorphins release and the good -- feel good nature of the gym is what it's all about. It's not about walking in without a 6-pack and walking out an hour later with a 6 pack. Finally, I wanted to highlight that 67% of members agree that their pipeline membership is an assessing model luxury. It doesn't mean that 33% are going to cancel. It means that 67% absolutely agreed that their membership is nonnegotiable to their lifestyle. Moving to Slide 33. I want to start here by saying recovery is complete, and Viva is now back from the growth strategy phase. I think this is important to highlight as there is a lot of noise stating that this industry hasn't recovered yet. As highlighted in our full year '22 results presentation in August last year, our business has recovered on a like-for-like basis and continues to improve. This is due to many factors, including our data insights into members, facilities and marketing.  Our member experience, the way we join Viva and the we leave Viva, if you absolutely must but come back and rejoin easy as well. The right-hand side of the slide is a graphical representation of Viva's diverse ecosystem with multiple income streams. We don't just sell gym memberships. We derived the majority of our income at present via memberships, but I expect over the years, this will change with Viva Pay and our Viva Lab technology being licensed more broadly. The stage is already commencing. There is no other Health Club operating in the world that has such a diverse range of brands across all segments and a technology focus that includes engineers on Star that build circuit boards to manage access security and everything in between. If everyone uses the same tools they are likely to generate the same results. At Viva, we build our tools, our own insights, and we do things differently, managing as much of the vertical ecosystem as possible from the software and tools members used to join to enter the facilities, to managing their membership, to processing their direct debits in the most cost-effective way.  Our focus for the remainder of FY '23 is very clear to our team. We are focused on maximizing free cash flow, which we believe will be the new measure of success moving forward. We are capitalizing on our unique and diverse income streams and will continue to do so. We will capitalize on what we call the self-funded organic rollout abilities of the business and acquiring where appropriate, using existing debt facilities. Over the past 3.5 years, we have built a robust business that now provides us with the opportunity to be self-funded for future growth at a minimum of 24 locations a year across our multiple brands. We expect moving forward, we will do more than 24 locations when you take into account acquisitions and the increasing free cash flow being reinvested. But it was important to put a number to the quantum of what that free cash flow can provide for the business.  We are also focused on taking advantage of our growing brand recognition and the marketing opportunities this provides us with. We are no longer a Canberra Basel Club Group. We are leading non-franchise health pub group, and we will continue to cement our brand into new territories moving forward. We will continue to differentiate. This is evidenced by our recently launched Club Lime Flex Pass app, which is the only app in the world for the industry, which allows nonmembers to access our facilities 24 hours a day, without a membership. They simply pay per visit as required by the app. Even the world's largest health cup groups cannot be access 24 hours a day without a membership as members are required to pay for a casual visit and have a pass to let them into the facility. Our technology all developed in-house by part of that. We expect to start licensing is over the next 12 months, starting with the post-fitness network.  And finally, we are focused on revenue optimization from implementing machines for selling digital signage in our facilities. These are things that we have previously put on hold to build the scale to be able to sell them properly, and we are now in a position to do that. Consumers are absolutely prioritizing their health, fitness and well-being into their daily lives and Viva is absolutely positioned perfectly to benefit from this. This -- the dislocated workforce now that we live in with people working from home and the office Suite's model of suburban metro and regional base locations concentration perfectly. Moving to Slide 35. As previously mentioned, Viva's reaffirming guidance for FY '23. We know that the first question that will come to mind is that if the business is doing so well, why are you not upgrading the guidance. FY '23 on achievement of the upper end of guidance will achieve a 445% increase on the FY '22 result. This is an impressive result in any business and will be achieved with what is in front of us now. No blue sky, no large assumptions, just exactly what we see in terms of club rollouts, data on membership growth, maturing of new clubs and improved portfolio utilization. When we have the next step in place such as Viva Pay and our tech income stream, we will update. Until then, we hope you continue to come on the Viva journey. Moving to Slide 36. It's nice when everything points in the right direction, and this is what this slide represents. Thank you, everyone, for your time today to listen to what we have to say for your support of the business and for your belief in what we are building. The results speak for themselves, and we will continue to improve. I would now like to open up for any questions.

[Operator Instructions] Your first question comes from the line of Sue Wright from Citi.

Just 2 questions from me today. The first one is, can you just touch on what's causing the delay around getting approvals for your greenfield sites and when you expect this might start to improve?

Yes. So that's related to councils. So obviously, with over, people working from home, all the councils fell behind in the development applications. So it's just taking a lot longer. We do have some states and councils that we deal with that development approvals are back to normal and coming through quickly. But generally, they are taking up to 12 months for us, which is a little bit disappointing and sort of -- and flows out our pipeline a little bit. But we've got enough with 4 to do locations that we hope that they're going to come out, but it's basically outside our control.

Sure. And just the second one, I understand it's a small portion of your revenue, but how should we be thinking about the growth contractor of Plus business and the timing of the 20 additional locations you've flagged in your presentation, just understanding that these 20 of has been flagged at your full year results.

Yes, so, the 20 that have been flagged rate agreements that have been signed. They face the same difficulties that we do with delays in getting approvals on site. So that's why you're not seeing much movement there. There have been sites that opened in terms of the modeling for that, do you want to take that one?

Yes. So I mean, look, we model it in on the basis of how we see the timing of the rollouts coming forward. So end. So in other words, we -- for the next 6 months, for example, we're concentrating on reserving those types. And as DAs come through, then we'll continue to model them in. We've taken a very conservative approach heading into 30 June about the financial accommodation of these into the forecast numbers. So if they should exceed to the upside, then we see that as further upside to the result. But as Harry said, it's a little bit difficult to predict with 20 sites from the go at once in various jurisdictions, what the timing is going to be like for the DA approval with the council.

Sure. Understand that. Lastly on that then would it be fair to assume there's a possibility the number of locations could decline, meaning that you guys are acquiring some of the cost ones as well?

The portfolio of clubs will continue to increase, like there's 200 open locations, of which we -- or 24 of them are corporate locations. And we will continue to couple on that pipeline for franchisees that wish to exit. But the 20 territories are our third parties. So the overall network will grow to 221 all those locations open. And yes, we will continue to acquire. But it's really -- the strength of our franchise network is the franchisee. So we don't really want to own all of the whole franchise network. We acquire where we see a benefit and where a franchisee also wishes to exit.

Our final question comes from Nicholas McGarrigle from Barrenjoey.

I guess I just had -- wanted to cover up on the return on invested capital slide that was really interesting. Can you just give us some grounding on if that's based on scenario analysis and modeling or is that a combination of expected with reality from the returns you've seen to sites you rolled out and acquire.

Yes. So I want to -- thanks, Nick. On one of the previous slides, Harry had talked about the fact that the group for a while group EBITDA margin was sitting at around 42%. That's obviously a blend of all of the different brands that we're running through. But the scenarios that we put on that capital allocation slide are largely based on that mathematical framework, if you like. So ideally, as we've said many times over, our sweet spot for a Club Lime is about 700 square meter site and at 70% utilization; the rough EBITDA numbers that we're achieving from this and the EBITDA margins are reflected in that table. And same for the other brands like Hiit Republic, RoundUp and the Plus site; again, that's just taking an average across the 24 Plus sites that we've acquired. Independent ones are probably the ones that swing a bit, but what we've assumed there is that they've also come in at rounding out the same metrics as what we get for a 700-square meter Club Lime on the basis that we'll achieve the synergies to bring it in line with the same operating metrics.  So what we've got there is a capital allocation strategy based on those numbers. But as I said earlier through the presentation, there are some strategic reasons for picking up other sites, which may not necessarily reflect these metrics, such as putting in a boutique to pursue a hub-and-spoke model or alternatively now strategically buying a club that may stop a competitor from coming into one of the markets. So the metrics may vary slightly. But when modeling anything, we need to take kind of the law of averages. And we think that this fairly reflects what our current operating margins and numbers look like as well as what we look to invest in.

[indiscernible] then, please talk through the Club Lime for acquisitions versus greenfields, -- and I guess given that table, you're getting pretty strong returns on greenfields, given the given capital availability, do you refocus more on greenfields in the mix versus acquisitions? Or do you sort of opportunistically?

Just on that, Nick, I mean, as Harry mentioned before, there was -- we're experiencing some delays in the DA approvals and whatnot to get the building done, and then we own for 12 to 18 months here that 70% utilization rate, which, therefore, gives you the numbers as presented in this spreadsheet -- but acquisitions, we can deploy 30% cash, 70% debt and get an immediate cash flow return with very little expense. So our Plus Fitness, for example, is effectively a turnkey operation for us. Whereas an independent site will rebrand and probably spend, call it, $100,000 in refreshing, rebranding those sites. But again, there are immediate cash flow benefit. So you get a certainty as to when the minute settlement happens that you're going to start to generate revenue. So that's a key difference there. The greenfields probably have a bit of a longer tail, but the acquisitions are more immediate.

And just maybe, member trends into the new year. Obviously, January is a pretty strong month for sign-ups has that been better or worse than you've been expect for January?

So January comes. I mean, we often see that new year's resolution impact. We didn't see it last year simply because we Omicron was still lingering around. And where isolation was required for 5 to 7 days if you were testing positive for Omicron. So we saw a bit of a lagged impact on the member return to February last year. It kind of started around about Australia, though. But this year, we had an enormous growth as you've seen on one of the charts between December 31 and 20th of February, we just published the results from a couple of days ago. So we see very strong returns in membership this year and far exceeding what we saw last year.

And then EBITDA margins are really strong into the second quarter. Are there any headwinds we should think about in the second half like energy utilities? Or will those things be offset by things like the daily tasks?

Yes. So we contracted we do contract across the calendar year period for our large sites for energy consumption. But what we're seeing is that we've probably got somewhere between a 20% to 30% increase in those utility costs across the month of January versus December. This was all well enterily anticipated because, obviously, we based any energy contract on the ASX Energy futures, and we've been monitoring those for quite some time. So we've factored all of that into the models in order to hit the guidance numbers. We see Viva Pay is not necessarily always completely independent of those numbers and that when Viva Pay gets up and running, it will be in addition to the guidance numbers that we presented, not simply to cover off some other unknown caustic extensions that we didn't anticipate.

Our next question comes from Dan Stein from OC.

Yes, I just wanted to follow on from a couple of next questions. Just with respect to that member growth that you experienced in January and February, were there any acquisitions in that number, 5000?

So there was one acquisition in there, which was about 1,200 members, which was included in the numbers.

Yes. Okay. So I think you mentioned 2 -- so how big was the other acquisition?

No, I think it was 200 total. There's 2 acquisitions on the 400 miles a smaller sites. So there were sites that we have acquired to offset these DA delays. So there are sites that were slightly underperforming, and we're able to acquire them at appropriate pricing and then refer them very, very quickly without waiting for [indiscernible]. So it's another approach that we're looking at. So we've got greenfield sites. We've got well-performing acquisitions, and then we've got acquisitions that aren't just performing as well as they are, but the vendor wants to get out and it offers an opportunity. So now with those 2.

I think $300 million or $500 million.

Sure. And then is that a difference of multiple or what you normally pay?

It was lower than we normally pay, pure because we need to improve them. So for example, one of the sites was Sunnybank up in Queensland. And we acquired that. It's now closed for refurbishment for about 4 weeks. It's another 2 weeks ago. I will reopen as a Club Lime. It will reopen with the existing membership base of about 500 members as we said, maybe some of them have dropped off while we've been closed for 4 weeks, but they'll get a brand-new club. And it's like a presale because you've opened that club, like I said, with the 500 members it had when it closed and we acquired it. And yes, so that's how that works.

Now that sounds good. And sorry, if you kind of strip those out, you're still kind of growing plus 1,500 members a month? -- organically in that? Is that sort of the -- is that right? And do you think you can kind of maintain that sort of rate?

Yes. Look, when we gave full year guidance numbers, you would remember that we modeled to grow at a net amount of 800 members a month. We're well and truly above that, and some of the data that we provided in, say, November show that. I think we will continue to maintain that. I think it's slightly more than 1,500 a month when you look at it.

Dan, we actually anticipated a slowdown, as Harry said, to like 800 members net per month simply because we had -- from a conservative perspective, we'd assume that there may be some cost pressures would slow down the decision-making aspect and some prospective members to actually join the gym. Yes, we haven't experienced any date at this point.

Magical to hear, guys. So the other thing I was wondering was that corporate cost line, I appreciate the additional disclosure. So that's helpful. And that it's growing sort of 30% half-on-half. Can you kind of give a bit more color around that growth and whether that sort of growth is what we should expect for the next half?

Look, I don't think so. I think it will continue to come down as a percentage of revenue. Look, the bulk of that is to do with like 60% of that cost is kind of head office wages, which is 60 to 70 people employed by the head office department. Some of the cost increases obviously came from 1st of July in relation to those increases. But across that period as well, we've run slightly higher marketing campaigns. So we normally run at about like 250,000 a month. It's now jumped to $300,000 a month. So therefore, you see increase in percentage terms. But out of those 2 cost lines, you're talking about 70% of the total costs. So as said, as a percentage of revenue, we see it to continue to decline. And the cost pressures from all cost covered in corporate overhead, but we don't see expanded significantly across the remainder of the calendar year.

Maybe you just give us a bit of color on that January revenue because it looks like the names a bit higher than what you had for the half? Just give us a bit more color on what happened in terms of income?

Yes. Okay. So as you'll note, we didn't publish average revenue per member in this document simply because across that December, January period, you have a large number of suspended members, as Harry mentioned, we also have areas like SWIM School closed for -- across the holiday period, which impacts both December and January. And you're talking about 3,000 paying members across theSWIM School. So when you couple that with the extended suspensions moving to, say, 7,500 then we suspended when typically, it's about 3.5%. If you take out the SWIM School members, it heavily impacts that average revenue per member. So we didn't want to necessarily show a number that might be misleading nor adjust it for something which is more arbitrary. So we'll probably publish that number again in the future. But the way that we see it moving forward, that average revenue per member, which I think we published last in November that we do see it coming back to that level and probably higher from February onwards.

I appreciate the additional disclosure and the capital allocation framework.

Your next question comes from the line of Ed Woodgate from CCZ.

So just wanted to see check in relation to the numbers, AVA on members. Absolutely, a lot of the investors we've been seeing have been curious as to like how many currently don't attend the June and how it compares to the industry average. I guess, obviously, compared to say the past Fitness, where quite a lot of the numbers down attended expecting to have a low [indiscernible] there any kind of disquiet provide abdicates for confidence.

We a no contract operator. So we've been like that for 19 years. So if you're not using it, you can down to it. You're not stuck in a contract that's artificially maintaining the numbers higher. What we do see on a daily basis is about 30% of our sign-ups on a daily basis are returning members. So they've had a profile with us sometime in the last 18, 19 years. In regards to how often are they attending. It's an interesting thought because what you measure that on. Do you measure that on a week. You haven't turned up this week or are a shift worker or I measure over 2 weeks by measure every month is once a month in after once a week enough. So we do look at a lot of that data. We don't disclose a lot of that data in any -- on our reporting, but we do look at that data, obviously. But for us, we don't -- one of the things we don't publish is joining us. We just published the net number. And previously, we have published term numbers and percentages and things like that. But it's hard to determine and there's no real industry data to say that are 15% of our members never haven't turned up for 3 months and the average in the industry is 20%, so we're doing better. There's no real data out like that.

Yes, sure. Design, I guess, you probably have better insights, but we understand that, that might be difficult to report... Okay. And then just could you talk to the mature utilization that you saw in January 23 that you got to disclose the proved portfolio? What did that look like?

The mature utilization of the portfolio in January. Is that the question?

Yes.

Because we didn't stood it out this time for mature and non-mature. What we're seeing is nearly every state of health clubs is over 80% other than Victoria, still catching up. And the -- we disclosed the GroundUp, which is at like 98%. What's lagging and bringing the number down is the Hiit Republic, and that is one of the things why we're sort of delaying the franchising of that while we play with some price points and things like that and see how that goes before we franchise it. But Yes, we didn't disclose the mature versus non-mature utilization. We did open 3 clubs in February. We didn't open any clubs in January, but we did do acquisitions for 10 members in January. But those acquisitions were running at a very low utilization because they were just marginally profitable.

Okay. Great. And then just one more. To D&A, if you exclude the volume there, so there's about $4.6 million in that capacity maintenance CapEx or 2. But you just talk through what the main reasons for the data is and whether that, that's sustainable, those levels and maintenance?

Yes. So I mean, as I said, the maintenance CapEx, we're looking at targeting around about 3% of revenue. It's been online with that for probably the last 12 months. And even including the January result, we pegged it as well. So that's kind of what we're looking at as far as the maintenance CapEx is concerned. The other question was on the D&A. What was that question?

Yes. Just basically, the D&A, if you exclude the right of use CapEx is quite a lot lower than the maintenance CapEx. And so just wondering if there's any particular reason are you depreciating the plant equipment or your leasehold improvements when you fit out a lot quicker. I mean presumably, you don't have to then that CapEx for the leasehold improvements like very regularly.

Yes. So obviously, lease hold improvements like when you're sitting at a greenfield site at those lease hold improvements sit on the balance sheet and get amortized over stable term of the leaf, there's generally no need to replace that across that term of the lease. The more regular replacement to your equipment put things, which are under the lease finance, which also sit in the depreciation and amortization charge that we account for on the AASB 16 numbers because they've always been there anything missing from that is rental. So the reason that you will see a higher D&A compared to CapEx spend is simply because the finance component of the equipment replacement.

Okay. And then just the last question. I'm sure -- sorry if you cut going forward your rent, the majority of those are fixed contracts or CPI? Or can you just break down the current proportion there.

Yes. So we've got about 170 to 180 leases on foot at the moment. We've got about 20% of those are based on CPI increases. The remainder are based on, say, 3.5% or 4% increase and so on a blended rate, we forecast all of that going into the guidance numbers that we provided at somewhere around 6% in total. So we think we've got enough headroom there to cover that off. But yes, that 20% are based on CPI increase the remainder received.

I turn the call back over to Harry for final remarks.

So thanks, everyone, for listening in and rolling into our results presentation. We appreciate the support. And we'll reach out to -- please reach out if you have any questions on the presentation or you would like a one-on-one meeting if we haven't already booked one for you. Thanks again.

With that said, concludes today's conference. Thank you for attending today's presentation. You may now disconnect.