Will Orr, CEO of The Gym Group, has revealed the company’s full-year results for 2023, along with an early trading update for 2024 and a new three-part strategy for the business.

Orr joined from The Times in September 2023 and is setting a new direction for the company.

Full-year results

The Gym Group (TGG) had a strong year in 2023, with revenues up by 18 per cent year-on-year from £172.9 million to £204.0 million, thanks to growth in membership and an increase in yield.

The year closed with membership at 850,000 and this growth has continued into 2024, with the count reaching 909,000 as of March. The directors’ report for 2023 notes that these membership increases are driven by the opening of new sites and not by growth in the existing estate, which remained stable last year.

With 233 sites open, this gives an average membership per site of 3,900.

In terms of yield, average revenue per member per month was up 9 per cent in 2023 and Orr said the proportion of members on the company’s top package – ‘Ultimate” – was 31.7 per cent at the year end, while its new off-peak membership – launched in 2023 and starting at £13.99 and – is selling well, making membership more accessible and drawing in new types of members who are older and have greater time flexibility.

While the focus in 2023 was on yield, the focus for 2024 will widen to include a drive to improve retention and lifetime value. Recent data shows average visits per member were up 10 per cent in 2023, supporting this direction of travel, as regular attendance is correlated with greater adherence.

High levels of member satisfaction were also recorded throughout 2023, with 92 per cent of members surveyed rating The Gym Group either 4-out-of-5 or 5-out-of-5 for overall satisfaction.

When it comes to pricing, a Gym Group membership costs on average £2 less per month than its nearest competitor and Orr said that price increases are planned for this year as a result.

In terms of overall financial performance, Group Adjusted EBITDA Less Normalised Rent was up 1 per cent from £38.0 million to £38.5 million and the company moved the needle significantly on its bottom line with a year-on-year improvement of 57 per cent on its statutory loss after tax, taking it down from (£19.3 million) to (£8.4 million) through careful cost control. Non-property net debt dropped 13 per cent, creating an improvement of £10 million from (£76 million) to (£66.4 million).

Cashflow was also strong, up 62 per cent from £16.7 million to £27.0 million and Orr said the company intends to fund the rollout of new sites by tapping its cash reserves.

Early trading in 2024Orr told HCM that trading started well in 2024, with revenue for the first two months up by 16 per cent year-on-year and like-for-like revenue up by 12 per cent, this is reassuring, given some US operators reported a softening of the market in early 2024 and although this was attributed to bad weather and quickly stabilised, it spooked analysts.

“A strong start to 2024 and clear signs that demand for health and fitness has never been stronger, creates a solid foundation on which to build our growth strategy,” says Orr.

Three-part strategy

The company’s new strategy, and Orr’s first since he joined the business is called Next Chapter and will involve firstly strengthening the core business to increase returns from the existing estate; secondly, accelerating the rollout of quality sites and thirdly, broadening growth, which will see the company looking to establish new revenue streams, said Orr.

Strengthening core business“There's a significant opportunity to improve member retention, which will in turn drive both yield and membership volume,” he said. “The highest rate of churn occurs in the first 45 days of a membership, before a habit has formed. We will, therefore, focus on the early life of a new member, helping them to build lasting habits, whether that’s via our expert teams in the gyms or through digital channels, such as our app.”

A number of growth drivers have been identified to deliver increased returns: yield and revenue management; member acquisition and improving retention, with Orr’s experience with recurring subscription models at The Times a key reason for his appointment.

“Our analysis shows that within the catchment of our existing 233 sites, there are a further circa five million people within our target age range, who are either members of another gym or considering joining a gym,” said Orr.

The launch of Hyrox fitness programme in 27 clubs has also been successful and is popular with members, giving them goals to work towards and helping retention. TGG is aiming to get to 50 sites with the programme this year.

Accelerating rollout

Given how vital new openings are to driving membership growth, the development pipeline will be critical to success going forward.

The company opened six sites in 2023 and is planning 10-12 this year, 16-18 in 2025 and 20 in 2026 to make a total of 50 as growth ramps up.

Analysts have been excited by the company’s plans to open these 50 sites with the target of a return on investment (ROI) of 30 per cent, against the 20 per cent achieved for existing locations. Orr did not divulge how this will be achieved, although Pure Gym has been reducing its build costs on new sites over the last year, so it’s likely The Gym Group will follow suit as one part of the strategy.

Orr explained TGG will have a laser focus on finding the right site, saying: “We’ve identified the key characteristics of high-returning sites and it's clear that Greater London and urban residential locations deliver the best returns for us. This, therefore, is where we are concentrating our site opening programme for the time being. Retaining discipline in selecting the right sites – in terms of location, footprint and local market – is critical to maintaining the attractive 30 per cent target ROIC.

He doesn’t rule out international expansion at some stage, he said the current focus is very much on optimising the UK market.

Orr pointed to recent but as yet unpublished research into the low-cost health club market from PricewaterhouseCoopers (PwC), that found the potential for a further 600 to 850 locations in the UK, with two-thirds of these at the current standard size and the other third delivered in smaller formats to suit less densely populated areas.

PwC produced its first edition of its low-cost insight in March 2019, finding at that time that there was room to double the number of locations from 650 to around 1200-1400, although Orr did not share a current topline number for the 2024 PwC report to give a comparison with the 2019 numbers.

Orr said PwC’s forecast shows there’s another 10-15 years of growth potential in the UK market at the current rate and that although the company has grown by acquisition in the past, future plans are centred on organic growth.

“Over the next three years, we aim to accelerate The Gym Group site rollout,” he said. “There continues to be substantial headroom for low cost gyms in the UK and we’re fully focused on our aim of making high-value, low-cost fitness even more accessible for all.”

Enhancements and investments were also made in over 100 sites in 2023, including new equipment, refurbishments and upgrades. This work follows additional overhauls in the last year as the company rebranded, moving from being called The Gym, to The Gym Group – a move announced in August 2022.

The tie-up with Fiit for its’ Fiit Pods, announced in 2021, continues, but has not been rolled out, with the pilot Fiit Pod in The Gym Group’s Oxford Street location still available, but the locations at White Hart Lane and in Altrincham in Cheshire no longer open. The Oxford Street property is one of the company's flagships and was originally a Virgin Active, then an easyGym, before being acquired by TGG in 2018.

The partnership with Fiit for content is also in place, but where originally members were asked to pay £7.99/month to use the on- demand workouts, they are now bunded with the Ultimate membership package.

Broadening growth – new revenue streams

Broadening growth options are currently being strategically assessed, but might include further developments to the existing proposition; format innovation; investigating new channels to market; and introducing new adjacent revenue streams to complement the existing business, such as the rollout of more corporate wellness programmes.

“I look forward to reporting on our progress later in the year, but in the meantime, we have made a promising start to 2024, with like-for-like revenue in the first two months of the year up 12 per cent,” says Orr.

ESG FOOTNOTESDecarbonisation

The company is the UK’s first carbon neutral gym chain and last year the Science Based Target Initiative (‘SBTi’) approved its near- and long-term .signupPara { font-family: 'Gill Sans Nova W01 Book'; line-height: 25px; font-size: 18px; position:relative; padding-left:18px; margin-top:20px; margin-bottom:20px; } .signupPara strong { font-family: 'Gill Sans Nova W01 SemiBold'; } .signupPara a, .signupPara a:visited { color:#ec2e92; text-decoration:none;} .signupPara a:hover { color:#ec2e92; text-decoration:underline;} .signupPara .signupblob { position:absolute; top:9px; left:0; content:''; width:10px; height:10px; border-radius:50%; background-color:#ec2e92;}