Viva Leisure Limited (VVA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Viva Leisure Limited FY 2024 Full Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Harry Konstantinou, CEO. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and thank you for joining us on the conference call today for Viva Leisure's FY '2024 full year results presentation. I'm joined today by our CFO, Mr. Kym Gallagher. This morning, various documents, including an investor presentation, which we'll 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 full year results, followed by Kym providing more detailed information on the actual financial results and details on our capital allocation strategy and guidance as previously provided. Following which, I will provide the latest developments in our strategic refurbishment program, will also explain our newly secured banking facilities and discuss the business strategy driving our future. As we look ahead to FY '2025, we're setting ambitious new goals, including the launch of innovative products, the introduction of cutting edge gym concept tailored for a younger audience, and the exciting debut of our upcoming online supplements business. I appreciate your patience with the length of this deck, but we had an abundance of great news to cover from FY '2024, and there are many exciting developments on the horizon for FY '2025. On the back of the investor presentation from Page 47 is an appendix with additional information, which we'll not be going through during this call. Included in the appendix 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'm excited to take you on the journey through Viva's achievements in FY '2024 and share the thrilling developments we have in store for 2025. So let's get started. Today, we proudly present to our shareholders and investors the results of our journey. But as I've said in previous results presentation, our story truly began some 20 years ago in 2004 with the opening of our first location. The successes we've achieved built on hard work and an unwavering belief in our strategy are a testament to our commitment to innovation, collaboration and pioneering advancements in our industry. The future is brighter than ever and we're ready to reach even greater heights. While our primary source of revenue remains membership fees, the launch of the Hub and Viva Pay in 2024 has allowed us to diversify and strengthen our income streams. We're now generating over $4 million annually in payment gateway and technology fees, supplementing our existing third-party income. To be different, you have to do things differently and that's exactly what Viva does. By embracing innovative and thinking outside the box, we've positioned ourselves for sustained growth and success. In addition to this, we've built a robust network comprising 185 corporate owned locations and an additional 178 franchise locations. Our corporate network is now the second largest in Australia, a significant asset that I believe goes unrecognized. As the Founder and CEO of Viva, I'm thrilled to be here today and sharing with our investors another period of strong performance. This success once again demonstrates the incredible potential of our business, even in the face of external challenges like significant inflationary pressures and economic headwinds. In fact, one of our highlights in our presentation shows, despite rising interest rates and inflation, our average revenue per member fees has increased along with our overall membership number. It's important to emphasize that we are a recurring revenue business, billing nearly 400,000 members every fortnight. As I've said before and will continue to say, we are part of the lifestyle and experience industry, an industry where our members consistently prioritize their health and fitness. This commitment is what drives our continued success and growth. I've said this in the past and I'll say it again, these results I presented to our shareholders and investors today were highlight to those who believe this industry is discretionary, how wrong they are. We now turn to the results. We are here to present a year that has presented some remarkable results, laying the foundation for even more growth. I will start the presentation on Slide 4, which is a summary of our performance. Revenue for the year increased 15.9% to $163.6 million, driven primarily by strong organic growth. Record EBITDA of $35.4 million increased 21% over the previous corresponding period, reflecting improved margins and operational efficiency. This is evidenced in our increasing EBITDA margin which was 21.6% for the year, up from 20.7% with the quarter 4 margin extending to 22.7%. Our net profit after tax pre-AASB 16 increased by 19.7% to $10.6 million and utilization remained strong at 72.6% across the corporate network. Even after 15,000 members were removed during the year from the exit of the Fitness Passport program. Corporate Memberships ended the year at over 200,000, up 10%, with network memberships at -- up 6.5% to 372,000 members. Since the end of the financial year, we have completed the acquisitions in Western Australia and continued our strong organic growth and corporate membership today sits above 223,000 and network membership above 395,000 members. In terms of locations, the FY '2024 was focused on our strategic refurbishment program, which we will go through later in this presentation. This resulted in 7 locations closing or merging. This meant that on a net basis, locations increased from 171 to 176 for the year. Total locations, as mentioned previously, are currently at 185. One of the key focus points for our investors over the past year has been free cash flow. This has led us to work with our bank and achieve new finance facilities better suited to our growth profile and cash requirements. Free cash flow before growth CapEx and tax was $15.5 million in FY '2024 compared to $13.4 million in the previous year, demonstrating stronger operating cash flows. This will significantly improve in FY '2025 under the new banking facilities, which we will explain later in this presentation. We continue to reinvest for growth with FY '24 amounted to $18.2 million, which covered greenfield sites, acquisitions, technology and site upgrades, some of which was funded by the existing bank facilities. The return on investment of our growth CapEx is very positive and we will discuss the results of our strategic refurbishment program a little later, but essentially less than 6 months after the last location was completed, we are already run rating at 75% return on invested capital. Moving to Slide 5. Operationally in FY '24, we had some significant achievements that needed to be called out. Firstly, we finally launched the Hub and Viva Pay across the franchise network in Australia and New Zealand. This project was first envisaged when we purchased the Plus Fitness business in August 2020 as a synergy. Interestingly, that synergy now generates nearly twice the EBITDA that the original acquisition did. We highlighted this and the other benefits of acquiring the Plus Fitness network at the time, and together with a pipeline of priority acquisitions we receive, the investment has been very sound and is continuing to provide further upside. In addition to this, Plus Fitness new territory sales reached 21 locations during the year, a record for the company and testament to the hard work the team has put in to grow the profile of the brand in the industry and the profitability of each franchisees who continue to reinvest also for growth. We expect a significant amount of these 21 locations to open in FY '25. Secondly, another achievement is growing corporate memberships to over 200,000 for the first time. We must remember 5 years ago when we listed on the ASX, Viva had 54,000 members and 40 locations. The network now spans 400,000 members and over 360 locations. And finally, we successfully completed a $16 million cap raise to fund strategic acquisitions in Western Australia. This was our first cap raise in quite some time as our business model is largely self sustaining except for significant out of the ordinary acquisitions like these. Moving to Slide 6. This slide represents a dashboard view of the highlights for FY '24. I've talked most of these already, so I'll quickly skip to Slide 7. Slide 7 shows our revenue and EBITDA since our first year as a listed entity, which was FY '20. Impressively, CAGR on revenue is 41.4% over that period, FY '20 to FY '24, and this is an exceptional result. In comparison, EBITDA has a CAGR over the same period of 55.2%. What is interesting to highlight here is the movement from FY '23 to FY '24 in both revenue and EBITDA. Whilst revenue increased 15.9% over the period, as it should, EBITDA increased at a higher rate of 21%, reflecting the improved margin and leverage the business is generating year-on-year. The half-on-half growth in both revenue and EBITDA is impressive to follow also on this chart. I would now like to pass on to our CFO, Mr. Kym Gallagher, to run you through the financial results starting at Slide 9.

Thank you, Harry, and good morning all. As Harry said, I'm on Slide 9. Looking at the revenue growth. This chart shows the bridge between the revenue in FY '23 and the drivers of growth to FY '24, which has gained an impressive double-digit growth number at 15.9% year-over-year. Most important statistic here is the growth in revenues derived from our organic club member base, i.e., those clubs that were on foot as at 30 June 2023. When comparing the revenue numbers at 30 June '23 versus 30 June '24, these clubs exhibited growth of around 3/4 of the 15.9% total growth. This growth can in part be attributed to the completion of the refurb program, which occurred across FY '24 and which has led to strong member growth across the current period. We have a slide on this further in the presentation. We're pleased to note also that Viva Pay is finally contributing to overall revenue with approximately $700,000 added from when it went live in May 2024. Plus Fitness franchise operations also improved their revenue base as new sites were sold and rolled out across the existing franchise network. I'm on Slide 10. During the period, we removed approximately 15,000 members relating to the Fitness Passport corporate program. While this seems a significant portion of the member base, these were very low-yielding members. And note that despite this adjustment, we've grown the membership base by 7.5% across the financial year on a combined group basis. This growth has continued into the new year with further growth of 6.2% for approximately 23,000 members across July and the first part of August as we completed the acquisition of 8 new clubs in WA and had strong organic growth through our July sales. I'm on Slide 11. This chart shows the bridge of Viva owned club members between FY '23 and FY '24. After adjusting the opening number of members at June 2023 for the Fitness Passport members, we had impressive growth in members of 20% for the period to June 2024, which included a large portion of that being organic growth. The period from 30 June to 12th of August shows a further growth of 23,000 members as we mentioned, and as we completed the WA acquisitions, culminating in an impressive total of over 223,000 corporate members. Member growth typically improves from here until early in the new calendar year as the population looks to improve their lifestyles heading into summer, so we expect this growth to continue. I'm on Slide 12. For those unfamiliar with our business, one of our key metrics is utilization. This is a measure of members per square meter of floor space at a facility to monitor a capacity. We assume that 2 members per square meter of health club floor space is at capacity and 1 member per square meter at our boutique facilities. The realistic long-term target of the group is an average of 75% to 80% utilization, and we're currently sitting at 72.6% at June 2024, which is up from 68.4% in June '23 on a like-for-like basis, that is, after adjusting for the removal of the Fitness Passport members. This is one of our key drivers of the business, particularly for our EBITDA margin. Each new member improves utilization, creates revenue and most of this falls to the EBITDA line. I'm on Slide 13. Firstly, the results shown throughout this section have been normalized for adjustments and are predominantly based on ex-AASB 16 basis, which is also consistent with prior periods. As we've already mentioned, but worth mentioning again, the full year-ended with revenues up $22.4 million to $163.6 million or up 15.9%, and EBITDA has improved to $35.4 million, or up 21%. In addition, we've managed our cost base effectively such that we've improved our margin from 20.7% in FY '23 to 21.6% in FY '24. Our Q4 margin landed at 22.7% at the upper end of our estimated guidance range. And finally, NPAT also finished up 19.7% on an ex-AASB 16 basis. I'm on Slide 14. The balance sheet was strengthened by a cap raise completed in June, with cash improving to $22.3 million at financial year close. The capital raise was undertaken to assist with the 2 WA acquisitions and we're pleased to report that these were completed in late July and early August. There was again a significant investment in our strategic refurbishment plan, which is now completed, together with the continued investment in our technology. With the new banking facilities recently announced, we will have significant firepower to continue our growth across FY '25. We'll discuss this in more detail a bit later, but for reference $130 million Facility A, which is to be used for acquisitions, equipment finance and greenfield sites, has approximately $70 million of headroom as at 30 June. I'm on Slide 15. Cash flows from operations improved by 12% over the prior corresponding period. To gain a better understanding of how operating and free cash flows work, the next slide better demonstrates this, but as per our strategy, operating cash flows were deployed into growth projects such as the refurb plan, tech rollout, new greenfield sites and acquisitions. These projects were funded in part by drawing on our debt facilities. And as previously noted, we also successfully completed the cap raise in June to fund our WA acquisitions. This left us with a closing cash balance of $22.3 million at June. I'm on Slide 17. This slide has been slightly restated from previous periods, now clearly identifying rent payments and showing free cash flows prior to growth CapEx and tax. Using this metric, free cash flows improved by 15.7% over the prior corresponding period. As in previous periods and as mentioned, we invested the bulk of our free cash into the expansionary projects such as the completion of the refurb program and, of course, our tech. The next slide goes through this in more detail. And as mentioned on the balance sheet slide, the new bank facility should free up significant additional cash as our core loans become interest only, as opposed to the current principal and interest repayment structure. For perspective, the debt repayment shown at $14.4 million for FY '24, which included principal repayments on our senior debt, as well as equipment lease payments, will no longer be required. These repayments will be replaced by a cash sweep mechanism when certain leverage triggers are hit. I'm on Slide 18. This shows some further analysis of how our CapEx has been spent for the year. The new site CapEx is CapEx spent on greenfield sites over the period and site upgrade CapEx is the major works performed in existing sites under the refurb program. On these projects, we spent $7.3 million, of which was subsequently funded at $3.4 million and had a target return on the initial cash investment was around 80% within 12 months. To date, we have nearly reached this target despite the last of the refurbs only being completed in late May and early June, with approximately $5.5 million annualized EBITDA already achieved. Harry will talk about this in more detail on a later slide. The technology CapEx was predominantly for the finalization of the Hub and Viva Pay for the franchise network, as well as the commencement of other tech initiatives, which again Harry will discuss. Maintenance CapEx is CapEx spent on existing sites, but does not include equipment replacement which is lease finance, and therefore, not a cash outflow. The goal is to keep this below 3% of revenue which we achieved. I'm on Slide 20. At the half year results, we announced the following full year guidance metrics. FY '24 revenue range of $162 million to $164 million and we achieved $163.6 million. FY '24 EBITDA range of $35 million to $35.5 million and we achieved $35.4 million. This is despite continuing difficult economic conditions. This result depicts, not only the resilience, but also the predictability of our business. I'm on Slide 21. We also announced some quarter 4 guidance metrics. Quarter 4 were revenue range of $42.5 million to $43.5 million and we achieved $43.2 million for an annualized rate of $172.8 million in revenue. Quarter 4 EBITDA range of $9.5 million to $10 million and we achieved $9.8 million or $39.2 million annualized. In addition, we had a strong margin in Q4 of 22.7% as previously mentioned. Thank you. I'll now hand back to Harry.

Thanks, Kym. Whilst Kym has provided you with performance against the previous issued guidance for FY '24 and Q4 run rate, it is not our intention to provide FY '25 guidance at this point. Instead, we've highlighted the potential upside opportunities by projecting the replication of the Q4 FY '24 run rate into FY '25. We see upside in these key pillars. Membership growth. From any of our charts you can see that we grow membership between 10% and 20% per annum on average. We see further upside in this during FY '25. Synergies, with the recently completed West Australian acquisitions, we have not yet achieved any synergies. We see further upside in this. We have set an increased focus on cost management and deduplication where possible in FY '25. As we've grown from, as I say, humble beginnings, we now have a team of 2,000 members spread all across Australia with multiple brands, multiple strategies and multiple industries. We plan to focus on deduplication where possible and this is starting with the Hiit Republic brand. We believe this will provide further upside. Our success for FY '23 and FY '24 strategic refurbishment programs will continue. However, we expect it to be smaller in FY '25, both in terms of cash cost and number of locations. This goes hand in hand with the previous point of deduplication and cost management. As you will recall, as part of our strategic refurbishment program, we often remove group fitness studios, [ spaces ] and make more gym floor space to attract more members. A classic example of this success will be discussed shortly. Our Plus Fitness division upgrades and rollouts continue with approximately half the network now operating under the new design. Together with a pipeline of new locations sold in FY '24, we see further upside in this part of the business. Viva Pay and technology fees are transactional, so as the membership grows, so do the fees. We expect to see upside in this division of the business during the year also. Our expanding Digital Signage and Vending Machines division is continuing to show improved and impressive returns. This will now be supplemented by a new online supplements business known as Supp Society, which is launching next week. Further details later in the presentation. However, we do see further upside in this to the result. And finally, we have plans now that the Hub is operational to rollout the next new feature sets that will also generate additional returns from fees, memberships, franchisees and corporate networks we believe. Overall, we see numerous opportunities for significant growth in FY '25 building on the Q4 '24 run rate and we're excited about what the future holds. Now, we get to the exciting part of the presentation discussing business strategy and outlook for FY '25 and beyond. Moving to Slide 24. As part of the FY '24 results release, we announced a Strategic Refurbishment program comprising 27 locations at a cash cost at the time, as we did not have banking facilities to fund it of $7.5 million. We expected a return on invested capital of 80% after 12 months or annually moving forward. To remind investors, this strategic refurbishment program was not simply bringing clubs up to a desired level. This was a strategic review of the portfolio which included closing clubs, merging clubs, removing sections of clubs and repurposing them with the sole purpose of servicing more members. The target was 5,200 members and notwithstanding the last few sites only completed in May '24, we are now at 4,887 additional members from the 27 refurbished clubs with an annualized EBITDA run rate of $5.5 million so far. This is extremely encouraging and supported our decision. Moving to Slide 25. We have here provided 4 locations as an example of the program. Whilst we have de-identified the sites for confidentiality, the metrics are the important part to focus on. Also, for the sake of clarity, we simply haven't picked the best sites. These 4 sites amounted to nearly 30% of the cash cost of the entire project and have generated about 50% of the membership growth. Noting that some of these sites were simply closed -- some of the sites were simply closures. This is significant. Moving to Slide 26. Here, we have provided before and after photos of one of the locations, Club Lime, Noosaville. This strategic refurbishment involved removing group fitness and generally opening up the gym. The result was remarkable with an additional 900 members added to this location within 3 months of the refurbishment completing. Looking at the photos, you can understand how more attractive this club is. Noosaville was a club that Viva had acquired. Moving to Slide 28. Earlier this week, we announced our new banking facilities with the CBA. From the outset, I want to say a huge thank you to the CBA and the team we previously dealt with in Canberra and now the major client group team we deal with in Sydney. The CBA has a deep understanding of our business. They have access to our billing data, manage our banking relationship and see the full picture, being offered increased facilities on a scale they have provided is a clear demonstration of their strong support for our business. In summary, we are merging all our facilities into a new facility. Previously, where we had equipment financial limits -- equipment finance limits, acquisition limits and facilities, we now have one large facility. Accumulated these facilities are growing from $118 million combined to $165 million combined. More importantly, the Facility A, which is a $130 million revolving interest-only cash advance facility, has a broad usage purpose in line with our requirements. That facility can be used for funding permitted acquisitions, greenfield fit outs and capital expenditure such as equipment. The facility replaces the existing facilities but provides further upside of approximately $7 million based on the June 2024 balances. I should mention here also that we have a $50 million accordion facility that the Facility A can increase by. In addition, our banking facility has increased from $26 million to $35 million, meaning we do not need to use cash to support bank guarantees on new property leases. The most important aspect of the facility is the removal of the principal repayments. That repayment mechanism has been replaced, as Kym mentioned, by a cash sweep mechanism when leverage exceeds a certain target. If the leverage does not reach that target, no cash sweep takes place. In summary, we expect this approach to provide the company significant free cash flow per annum. However, this will change depending on using cash for acquisitions from time to time over debt and other factors. The facility is also available for use in New Zealand, which was a requirement requested by Viva as we see the market as a natural progression for Viva in the future. The CBA has advised that the facilities will be syndicated at a future date, which is again encouraging to have further lenders on board. In terms of margin, we are also receiving a 74 basis point reduction on the $130 million facility with a slight increase of 44 basis points for the bank guarantee facility. Management sees the new facility as a game changer for the business, providing new facilities with significant headroom, better pricing and additional permitted uses will allow us to continue to execute our strategic vision. We thank the CBA for the support of the business. Moving to Slide 30, business strategy and outlook. I want to start this section by highlighting the achievements of the business to date before talking about what's planned. Viva is building a national platform now in 6 states and territories with 185 corporate locations. Locations are what drive revenue, drive the payments business and transactions business, create synergies if there are as part of any acquisition. Our corporate club network has grown from 40 locations in FY '19 to 185 today, and we expect it to continue to grow and be the foundation of the business that allows us -- allows all the other divisions such as our technology and payments to benefit and grow. As the saying goes, one hand washes the other and both wash the face. The core business will grow and the others will follow and potentially at an even faster pace. Moving to Slide 31. This is a slide we have presented previously, however, now with updated data. I am pleased to say that Viva now has the second largest network of locations in Australia with 353 corporate and network locations. When last reported, Viva was ranked #3. This table represents approximately 50% of the fitness businesses in Australia, approximately 2,500 locations listed here. So is a great sample size. You can see from the table the difference between franchised and nonfranchised groups and the large disparity in locations between brands. The network that Viva has built is one we believe cannot be duplicated again. Our balanced approach to strategic acquisitions in greenfield locations, normally averaging 50% each per year allows us to grow at a phenomenal rate. In addition, our control of the 3 risks in acquisitions being membership data, access control and billing data migration remove the integration risk. As highlighted in one of our previous ASX announcements, Viva now has completed 105 location acquisitions comprising approximately 90 separate acquisitions. This is significant achievement and shows the success of our integration and support systems. We believe this figure is unmatched in most industries in the world. To complete that amount of acquisition successfully, the majority in the past 5 years is something I'm very proud of. Moving to Slide 32. This is an interesting table and I won't spend much time on it, but I wanted to highlight the position of Viva in the global fitness market. This data is from IHRSA. This is the most recognized U.S.-based fitness industry body. The table on the left shows the number of members and the table -- and the data is from 2023 Global Report. Viva did not rank in this table, but under its current membership and taking into account other operators may also have increased their membership since the report was published, we would now rank with our 395,000 members. This is globally across brands, both franchised and non-franchised. When it comes to locations, the table on the right, Viva did rank 20th largest network of clubs in the world. Viva is no longer a Canberra-based gym group. We are the largest, most active and most significant player in the market in Australia and globally are now recognized. Moving to Slide 33. This is a slide that we put together to show the robustness of the industry. This slide graphs average revenue per member, utilization, inflation rates and interest rates. As you can see, notwithstanding the inflation and interest rate changes over the period, the average revenue per member and utilization has continued to increase. In fact, average revenue per member is up 19.4% from March '22 to June 2024, again, showing the robustness of the industry. Moving to Slide 34. We've provided this slide and I will go through it really quickly to show what bucket our members come to us from. For example, are they acquired? Are they maturing from existing sites? Or are they new greenfield sites? As you can see, approximately 50% of our members are organic and 50% are acquired. We believe we are experts in both these approaches and will continue to do this moving forward. Looking at the annual growth profile on the right-hand side, this shows the year-on-year-on-year growth in memberships. FY '24 actually grew 18.3% in membership. However, with the reduction of the Fitness Passport members of 15,000, the net growth was 10% for the year. The 18.3% growth, however, is very encouraging, especially in a year where we did not open many locations and instead focused on our strategic refurbishment program. Moving to Slide 35. Our Plus Fitness investment in August '20 has been an outstanding one, growing our network, providing us with an opportunity to strategically acquire franchisees who wish to exit the network via our first right of refusal. Filtering our extensive buying power down to the network so they can also benefit, and using our expertise in club design and fit out to better improve the spaces for Plus Fitness members has worked out well. Introducing the Hub and Viva Pay saving franchisees money while creating a return on investment for Viva has been an excellent achievement. As mentioned, the synergies achieved from this business now surpass the original EBITDA that Viva acquired on an annual basis. In terms of performance for FY '24, Plus Fitness sold 21 new territories, up from the previous record of 18 which was pre-COVID. There was a combination of new franchisees to the network, existing franchisees becoming multi-franchisees and existing multisite franchisees opening more locations, which shows the strength of the network. With over 50% of locations now under the new design, we are seeing improved returns for our franchisees, which is encouraging. We expect 5 to 7 more locations to open in the first half of FY '25 in Australia from the 30 locations currently secured and in different stages of opening. The Plus Fitness brand has cemented itself as a true quality product in the fitness space at an appropriate and attractive price point. Well done to our franchisees and our franchise operations team at Plus. Moving to Slide 36. This slide is one we have presented previously, so I won't go into the details other than to say we have 5 pillars in our strategy. They are: capitalizing on our tech; delivering exceptional service and products; our team; diversifying our income streams; and our portfolio of brands. I'll talk about each of these now and what we are doing as part of that for FY '25. Moving to Slide 37. Capitalizing on our technology is all about the Hub and Viva Pay. The Hub is called the Hub because it forms the core of the system we are building around. We will continue in FY '25 delivering new features, new products based off the Hub and improve returns as the membership and usage grows. Moving to Slide 38. We have some new modules we are working on that initially will replace third-party products used by Viva and our franchisees to manage their businesses. The idea being by providing a more integrated, better solution, there will be cost savings for franchisees and additional technology fee upside for Viva. In the second half of FY '25, we plan to launch Viva Pass, a unique membership option that will allow access across all brands in their portfolio, including franchise brands, while ensuring an appropriate revenue-sharing agreement exists. This technology is already built in our apps, our door access and our membership systems. The upside on this opportunity is significant, but for now we will focus on its launch. Our second pillar is delivering exceptional service. In FY '25, we have some new products coming built around family memberships, affiliate memberships and even corporate memberships. While these may sound simple and other brands may have a program, there is no integrated solution that self manages itself, debits individually or centrally, and can be set up by a franchisee or the business directly. We are excited about what we can have on the road map for this and see further upside. With the launch of Viva Pass, we also see an option for Viva Pass Corporate, essentially permitting access to 350 locations for any corporate partner who wishes to join the program. And finally, next week, we launch Supp Society, our online supplements business. The supplements business is a high margin with the majority of costs used to market the members -- used to market to members. We have the members, they are our members, all 400,000 of them. Supp Society will market directly at low-cost to no-cost marketing. We have agreed a drop-ship arrangement with one of the largest wholesalers in Australia so we do not have to set up a warehouse and there is no stock risk to us. Our store will launch initially with approximately 500 products and we are excited about the possibilities this will bring. We will, of course, capitalize on our digital signage network to promote. Moving to Slide 40. When we listed in 2019, we have always explained that Viva operating in 4 segments of the market being boutiques, express, standard and big box. What we are seeing in the market is a new segment called HVLP, high value, low price. This is essentially the Planet Fitness model from the U.S. entering the market in Australia. So today, we are announcing the launch of another segment we are entering the HVLP space, and as also mentioned earlier, the online supplements business. This is truly a diverse business with multiple income streams. Moving to Slide 41. HVLP is still in its infancy in Australia. There are only limited opportunities as the clubs are predominantly big box, low-cost, low service, low touch point. Viva has secured its first location in Western Australia and works have commenced on the fit out. We expect to open in early 2025 calendar year. Our HVLP offering will operate under a different brand known as Zoo Fitness. The likely price point will be between $8 and $9 per week. We will utilize existing Hub, Viva Pay and bespoke access control systems and most importantly, we'll target members 25 years of age and under based on our research. Noting that our current Club Lime membership base averages 31 years of age, we are introducing and making more affordable to a new category of member. Viva believes it has some strengths in this market as listed on the right-hand side and sees the opportunity for approximately 40 to 50 sites in Australia. We are also reviewing our portfolio to see if any Club Lime locations will be better suited to the Zoo model moving forward. Moving to Slide 42. An example of the external branding for Zoo Fitness clubs. You can see the price point at the top and how it differentiates itself from other brands. Do we think it will cannibalize Club Lime? Not really, as they will offer different markets in different locations and if people want to save money, they will likely have to travel to one, as this model does not suit a small footprint. It's the difference between a yield play and a volume play. Moving to Slide 43. Again, an example of the signage and advertising we have designed. Slides 44 and 45 contain a bit more images. This now concludes the presentation part, and we can enter the Q&A shortly. I want to thank everyone for their time today to listen to what we had to say, for your support in our business and for the belief in what we are building. The results speak for themselves and we expect them to continue to grow and improve. At Viva Leisure, we are committed to the lifestyle industry, delivering authentic health care through a distinctive and diversified recurring revenue model. Our mission is to empower individuals with the resources to achieve and sustain good health because we believe everyone aspires to be healthy. What distinguishes us is our agility -- our ability to adapt swiftly, and our comprehensive control over the entire ecosystem and experience. This is who we are. I would now like to open up for any questions.

[Operator Instructions] Your first question today comes from Max Moser-Finch at Barrenjoey.

Great result. Lots of exciting stuff with Zoo Fitness. Sorry to ask a boring question to start off. But can I just have some color on FY '25 CapEx, specifically tech CapEx with Viva Pay completed and also site upgrade CapEx given the step-down and refurbishments?

Max, it's Kym here. Yes, so moving forward, we still anticipate that the tech spend will be in line with about 3% of revenue. That's consistent with what we've done for the last couple of years. Harry will be able to talk through the hundreds of products that he continues to want to develop through the tech space. But the aim is still to do about 3% of revenue in tech spend. As far as the refurb sites are concerned, as we mentioned, we spent $7.3 million this year, and that was across 27 sites. Part of that was debt funded, so the cash outflows wasn't that significant. But moving forward for FY '25, as Harry mentioned, we -- look, we've identified a few more, but there's literally only a handful of like, 5 or 6 different sites, which we think we can benefit from. That includes potentially merging some of the Hiit Republic sites as we did this year. So they're not significant upgrades. There are a couple of significant ones, but it's not going to be anything like the spend in FY '24.

That provides a lot of color. Can I also ask about sort of the Viva Pass and the pricing point on that, and also, the timing within 2H '25?

Yes, so the pricing model, there's a couple of different pricing models. We're looking at that. We don't really want to talk about that too much at the moment and let that out into the market. But it'll either be a recurring revenue model or a token-type model. So you secure tokens, because the clubs that join that network will all be different price points. So we're trying to build a flexible model so that you go to a premium club, it might be 5 tokens versus a basic club, which might be 2 tokens type approach. So that's what the Viva Pass model is looking for. As mentioned in my presentation, we have all the tech, it's all built. It's basically just putting it together in another fashion. So we have the access control, we have the apps, we have the Hub, which controls the memberships, we have the billing part of it. So we're just putting all that together. I would expect it would be an early start. So Q3 for FY '25 launch. Initially, we'll launch with just corporate clubs, so not bringing any franchisees on board, and then extend it from there.

[Operator Instructions] Your next question comes from Nick McGarrigle at Barrenjoey.

Barrenjoey is just dominating question time. I just wanted to ask about the fourth quarter EBITDA of $9.8 million. Obviously, that annualizes to close to $40 million. Can you talk about anything initiatives, maybe some of the acquisitions that kicked off during the quarter, and you didn't get all post the quarter that you kind of we should add to that annualized rate when we think about what the business is just naturally running at in terms of kind of spot rates? So the acquisitions recently and Viva Pay, if that was a full quarter's benefit in the fourth quarter, just wanted some color on that.

Nick, it's Kym here. So in relation to Viva Pay, as we mentioned in -- I think it's one of the bridge slides for revenue, it contributed about $700,000 for the quarter and what we'd expect for the full financial year. But it only launched in May, so it's effectively for the quarter. What we're anticipating from that is about $4 million for the year. So $350,000 a month. So it's about 2/3 of that was accounted for in that quarter. So, I guess, you could extrapolate that onto a full year basis on the fact it being 66%. As far as acquisitions are concerned, we had a couple of acquisitions already mapped out into the forecast that when we put the guidance out, but one of those was delayed into July, so it wasn't fully included in the June result. As far as the WA acquisitions, which we recently completed, none of those were contemplated in that June results. So they're all just straight add-ons for FY '25.

And can you -- I mean, if you add all those things up, is it kind of in the order of $4 million to $5 million of additional benefit with the acquisitions and the Viva Pay run rate?

Yes, sure, I guess. But you also need to take into consideration July 1. We've got all of our employees across awards that get wage increases. We've got, obviously, costs in positions coming through with inflation pretty much starting on July 1. So, while the margin for Q4 is significant and certainly the run rate in EBITDA, we always experience kind of that seasonal dip across July and August until we kick in into December. But yes, as far as getting a pro forma result, those ones can be added straight on.

Okay, cool. And then in terms of price rises across the network, where are you sitting at the moment? Or what's the intentions? Usually there's something to help offset that kind of natural wage pressure. Is that still on the cards for this financial year earlier?

Yes. So the national wage case came down, and I think we implemented I think it was 3.75% or 4 -- sorry, 4% across the entire base, plus there's an extra 0.5% in Supp, which is now available to all employees. So that all occurred from 1 July, and that's across 1,200 out of the 1,700 or 1,800 employees that we've got. So, it's fairly significant in number of employees, but in dollar terms, it's not as significant as a whole member base because those non-award employees didn't get impacted by the same increases. As far as general price increases, we still see those running on our leases, in particular, which is a $43 million expense for the year in rent payments. We still see that sitting at around 4%. As far as mitigating that through fee increases, but as we've mentioned previously, we typically look at groups of members that we could apply fee increases to, and those, in particular, are ones that are well below retail rates that we've got advertised for each of the clubs. Or alternatively, we've just done a refurb of those particular sites. So it's therefore worth more to the member and therefore we impose a fee increase. But we haven't identified any at this point, apart from kind of penciled into a spreadsheet as to where we might look at going next. But we just want to see how members continue to increase into Christmas before imposing any further fee increases to cover that off. So with the member growth that we're experiencing, we had very good success across July and August as you've seen. Part of that -- most of that was acquisitions, but we also had good organic growth. So at the moment, we think the improvements in utilization will cover off the costs, increases through inflation without having to increase fees.

Okay, great. That's helpful to understand. And then you, obviously, raised a decent chunk of money. You've done some initial acquisitions and you've upsized the debt facility. Can you just talk about the acquisition pipeline and kind of what some of those opportunities might look like in terms of potential in size and format?

Yeah, that's right, Nick, it's Harry. That's why we provided the competitive landscape slide. So you can see the opportunities are becoming less and less as we've made 95 or so acquisitions over the last 5 years. So there are some other players out in the market. They're not necessarily putting their hand up that they are an acquisition, but they know we are a willing buyer. In terms of Plus Fitness locations, these come to us all the time. We generally got 1 or 2 going on each month. So we'll continue to do those. We get first right of refusal if they meet our requirements. So, we'll likely secure somewhere between 8 and 15 of those probably during the year. Additional to grow on the 27 portfolio that we have already. But we wanted to complete the WA acquisitions. And now we're looking for more acquisitions in WA, but also in other states. But most likely they're going to be single clubs or very small chains, 2 or 3 clubs.

Okay. And then in terms of the Zoo concept, there's obviously a lot of big box operators out there already. Is the strategy on the getting to 50 of those? Can you give us, I guess, a sense of time frame to get to 50? And what -- how many -- is that more of a greenfield-led strategy? Or do you think you can acquire some of those sites?

Yes, look, I think it's a greenfield strategy. It's like when we launched Hiit Republic, we couldn't acquire sites and convert them to Hiit Republic. These are very custom in the way their design is, different through a Club Lime layout. They're large format. They sometimes have separate rooms for premium access. They're very busy clubs. They're filled by younger people, and they've got to have appropriate rent for that size. You can't pay large rental on these. So they're generally a bit further out. The WA market makes a lot of sense. There's a lot of bulky goods sites over there, big sites, and that's where we're opening the first one. But we may see an acquisition and look to convert. We're actually analyzing now some of the acquisitions we did in WA recently, the 3 sites. Some of those sites may be suitable for a Zoo, but we would just want to get the first concept one opened and performing well, and then we'll provide more guidance on that.

In the instances where you convert a Club Lime to a Zoo, is that with a view that you can grow the membership base material and it kind of offsets the yield reduction? Or is the view that you don't change the yield on those retrofitted sites?

No, you'd have to change the yield. So it'll be changing from a yield to a volume play in that market if we look to convert. So we would just be looking at individual sites. We haven't identified any at the moment that would convert, but that is something that we constantly monitor and decide from there.

Your next question comes from Dan Stein at OC Funds.

Can I just ask about that fourth quarter run rate? So the $39 million, we should also add roughly $3 million for Viva Pay, plus also $3 million for the WA acquisitions. Is that fair?

Yes. So on -- I mean, the WA acquisitions, yes. But as I said, they only completed in July and first week of August. So it's not a full 12 months run rate in FY '25. As far as Viva Pay, in that bridge, Dan, we had $700,000 was already contributed for Viva Pay in the back quarter, and we're expecting about a $1 million for the quarter. So it's only $300,000 shy of the full quarterly run rate. So don't necessarily add $3 million or $4 million moving forward on that basis. It's more of pro rata of 7 on 10.

Yes. Okay. And can you also give us a steer just on maintenance CapEx? And furthermore, the kind of greenfield sort of sites that you're looking at and potentially and CapEx for those as well, please?

Yes, I'll go on the maintenance CapEx, Dan, and then I'll let Harry do the greenfield sites. So as far as maintenance CapEx, as you know, and we published for the last few halves that we're aiming for about 3% of total revenue to go into maintenance CapEx. And that seems to be the fair measure, although we did under -- sorry, outperform that in FY '24, coming in slightly under that. And that's on the basis that we're continually expanding. And that seems to be working out as to roughly what we're required to maintain our clubs across the network. So, I would expect that we're talking about the same sort of numbers moving forward. As far as greenfield site rollouts, I'll hand to Harry.

Dan, yes, greenfield site rollout. So we've secured somewhere around 17 new sites at the moment, including that one that we mentioned before for Zoo Fitness. They're all at different stages. Some of them are not yet constructed and some of them are in DA and some of them are in design. I expect probably 4 or 5 of those to open this year. Some of them are replacement sites. Those sites we're moving at the end of the lease to a new premises. So a larger premise, for example. So there won't necessarily be additional club numbers, but they're new sites. In terms of the dollars, is that the question you're asking?

Yes, please. I know time is probably a bit uncertain given imagine [ capital ] is very difficult to get DAs across the line, but should we broadly expect to be similar to '24?

Sorry, I missed that, what was that?

I'm just trying to get a steer. I understand it's a bit uncertain, but do you think it would be materially different to FY '24?

No, I don't think so. I don't think so it would be materially different to FY '24 in regards to that.

Except, sorry Dan, just on that. Obviously, we did a lot towards the refurb program in FY '24 and slowed down the greenfield sites. And as Harry mentioned, there's a lot more in the pipeline than we probably had 12 months ago. So from that perspective, it's probably more a diversion away from the refurb program into greenfield sites. So on average, we would look at probably across this year doing at least 1 a month. They may come in bunches and not necessarily straight line like that, but we would expect to do probably somewhere around 12 to 14 sites across the 12-month period.

Yes. Okay. I understand. And then kind of putting all together in terms of the maintenance CapEx, growth CapEx, tech spend like you guys should be looking at, I would have thought a reasonable uplift in free cash flow this year as you get Viva Pay, WA acquisitions and these perhaps a little bit less investment in CapEx like is that fair?

Yes, fair to say. And in particular with the new facilities and the way that the repayment structure works within those new facilities by removing, I guess, the guaranteed quarterly principal repayments on the senior debt that's now removed and replaced by a cash sweep facility. So we would also expect to get more generous free cash flow out of those facilities.

And then, given that, like how do you guys think about capital allocation? And it sounds like there's potentially still some acquisitions around. But broadly speaking, in terms of this additional free cash flow that should be coming through the business. How's the Board kind of framing the uses for this cash?

Yes, that's the one that we have all the time. We haven't obviously put a number on it other than call it significant because it is a variable in terms of we might do an acquisition for $2 million, which is our sweet spot, and we might use cash if we've got a bank rather than use debt for that and keep debt for larger acquisitions, for example. So we just want to see how the year progresses rather than us putting a number on it other than to say, we spent nearly $15 million on principal repayments last year. We don't expect it to be anywhere near that this year. So there will be additional cash. The Board is, obviously, starting to think about dividends. We did release that dividend DRP plan recently put on the radar. It was a little bit premature to issue a dividend this year. But all those things are going through our head because we're at a scale now that we are essentially self-funding other than large acquisitions, and the new facilities will provide us with appropriate additional free cash.

[Operator Instructions] Your next question comes from James Bisinella at Unified Capital Partners.

Congrats on the result. Just one from me. Just on the 3,000 member ads at own locations in the first quarter '25, that excludes the WA acquisitions. I guess, how much of this was organic versus acquired, is the first part of my question. And then also just getting a read on the broader overall environment, what are you seeing in terms of churn on member ads as well?

James, that's 2 questions, but that's fine. There was one -- I think Kym mentioned there was one delayed acquisition. It was just over 1,000 members for that acquisition, so the rest were organic. There was an acquisition in Victoria of an independent. In terms of churn, we're not seeing any real change in churn. What we've said previously still stands in that it's more marketing dollars to secure. So cost of acquisition is higher than it was, say, 2 years ago. The cost of Google Ads and Facebook Ads, there's more people competing, so the price per ad goes up. And so, that's what we're seeing there. We think some of our tech initiatives, especially our family memberships and the way we're designing those, are going to assist with churn. Sounds very weird. But if you think about it, if I've got a membership and I've got 2 of my children or my partner on that membership, and I don't use it, I'm not going to cancel that family membership because my kids are using it. So we think that will assist and, obviously, they'll come on board at a slightly discounted rate, but you're achieving a higher yield across those members. So, we're pretty excited about that. And how we operate is a very streamlined operation and we've got some other tech initiatives that we will launch probably in the next fortnight that make that even simpler for existing members to convert their membership and add members on. So, yes, that's where we see churn.

Great. That makes sense. I did say I'd ask 1 and I asked 2. I might just ask one more. Just on Supp Society as well. Can you just give us some more detail around, I guess, potential margin firstly, and I guess any expectations? It's obviously early days and pre-launch, but I guess what can we expect out of that? And how material could it be?

Yes, it's an interesting business because we spent a lot of time looking at it. We also looked at potential, any acquisitions to start that off. But we decided to go ourselves, but not in by setting up warehouses and having millions of dollars worth of stock. We got a relationship with a large wholesaler. Average product margin sits somewhere between 40% and 45%. That's the average on that product, on that whole product line that we've put in there. The largest expense these businesses have, as I mentioned, is marketing. I mean, you look at them, they've got a market on social media, they've got digital advertising. They've got to reach the member, or they've got to have physical stores like some of them do. We have all that. So we have 400,000 members we can market to for near nothing. So when we remove that expense out of it, we think it's significant. So it will take some time for people to change their buying habits. But the products, they're brand name products. So people will see our price point, get the discount applies, and then we've got other initiatives in the future, things like loyalty rewards for being members where you might get credits, you'll be able to use those against the supplement store and things like your direct debit membership will give you other benefits along with that store. And then we can also do cross-promotions. You buy this promotion, you get a 7-day flex pass for access to Club Lime or one of the Plus Fitness' or something. So we've got that flexibility. So we're pretty excited about that.

We do have another question from James Wang at Citi.

Harry and Tim, just follow up on James' question on Supp Society. Is that something that competitors have done? Or is that something completely new and you guys are the first ones to do this?

Look, there are competitors out there that sell supplements in their health clubs. And we have some health clubs that we've acquired over time that we do actually sell supplements in. We're not looking at this stage to put supplements and hold significant amounts of stock in clubs and do things like that and reconfigure clubs to be retail hubs. We're looking just to do it online and promote with the technology that we've got, i.e, the member app that people access every single time to get access to the club and pop up an offer in there and see things like that. So, I don't think it's unique in that we're the only gym business that's got supplements. We do know a lot of the brands that are focused on what we would call, say, bodybuilding and stuff. They sell significant amount of supplements. There's clubs that we've seen data on that are doing $50,000 a month in in-store supplements at a 40% to 50% margin. That's not too bad. So, again, we're not providing any numbers. We're launching this. It's low-cost. It's ready to go. And we think it's low risk with significant upside.

Thank you. That concludes our question-and-answer session. I'd like to hand back now for some closing remarks.

Thanks, everyone, for being on the call and listening to our presentation today. Again, Kym and I are available whenever required if anyone wants a one-on-one, and then we've got some group calls organized with some of our friendly brokers throughout the next few days as well. But please reach out if you have any other questions, and thanks for your time today.

Thank you. That concludes our conference for today. Thank you for participating. You may now disconnect.