AIM-listed gym operator's growth underpinned by 20% increase in memberships

Companies: Gym Group Plc

The Gym Group (AIM: GYM) announced an impressive set of Interim Results this morning with a strong swing to profit from a loss, a significant reduction in net debt following good cash flow generation, and the announcement of a maiden dividend. The growth was underpinned by a c.20% increase in members.

H1 2016 Revenues increased 25% to £36m and EBITDA increased 35% to £11.5m, as total members rose 20% to 424,000 YoY. Operating cash flow improved 14% to £13.5m, a lower growth number as operating cash flow conversion fell from 140% of EBITDA down to a still very respectable 117%.

EPS swung to a 2.8p profit compared to a 3.3p loss in H1 2015 and GYM Management now feel confident enough to announce its maiden dividend of 0.25p, an initial payout ratio of 9%. Net debt fell from £7.1m at year end 2015 to £2.5m.

The main driver to the results today is a healthy 20% increase in memberships to 424,000 (from 355,000) and a 27% increase in the number of gyms to 80 (from 63). Average revenue per member is relatively static at £14/month which given the low-price disruptor model is to be expected.

"Our revenue growth is driven by the 2015 and 2016 site openings together with ongoing maturation of sites opened in 2014. At June 2016, we had 25 sites that had been open since December 2014, reflecting the relative immaturity and potential of our gym estate."

Shares are down 3.4% in early trading today after rallying 13% yesterday following the announcement that GYM might be picking up some of the 70 Fitness First gyms as it gets broken up.

The Board have initiated a dividend with a starting interim of 0.25p which translates into a 9% payout ratio on the 2.8p EPS for the period. GYM is approaching a flat net debt position now and this dividend commitment is a reasonable starting point and a sign of confidence for future cash generation. 

John Treharne, CEO commented:

"Excellent progress has been achieved so far in 2016 as demonstrated by the growth in membership. Our rollout is on track with six sites opened in H1. We remain on target for 15-20 for the year and have a strong pipeline for 2017. Our existing sites are performing well which has contributed to the Group's strong growth in profitability.

We are confident that our low cost, disruptive positioning in the market place, our well-developed roll out plans and our strong financial position bode well for further rapid and measured profitable development and progress, whatever the economic environment."

The information contained within this post is based on personal experience and opinion and should not be considered as a recommendation to trade nor financial advice.