Monday, January 24

Virgin Active has lost nearly a third of its active members


Virgin Active has lost 227,000 active members in South Africa since before the Covid-19 pandemic, equivalent to 31% of its base.

The 31% decrease in active members continues to outperform their clubs in Italy, where the decrease has been 35%. In the UK, active members are down 29%, while in its Asia Pacific markets (a much smaller base), the drop has been 39%.

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The number of active members across the group has dropped by 32%, from 1,134 million to 775,000.

Total membership, including frozen members, is down 28%. This is a large decline from the levels seen at the end of last year. At that stage, it had lost “only” 100,000 members worldwide.

Read:

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Brait sees pandemic delaying sale of Virgin Active
How Covid-19 Hit Virgin Active

But owner Brait says sales performance in South Africa has been “solid” since the Level 3 lockdown restrictions were lifted in April.

In August, it ended its membership “fee freeze” option that allowed members to keep their memberships but not pay their monthly dues.

This brought active members down from 512,000 in August to 501,000 in September.

It says that sales in September and October are “broadly in line with 2019 levels,” but that cancellations increased after the end of the freeze option. It says that 5% of members remain frozen, which is “in line with expectations.”

He says there has been a “steady improvement in member engagement.”

It is concerning that layoffs in the UK have been higher than expected with “some members” coming out of the freeze and later canceling their gym contracts.

Club use

Club use in the CBD, including London, Sydney and Melbourne, remains “moderate”. It has not disclosed any details about its South African clubs, but some located in office nodes are notably underutilized.

It is noteworthy that October 30 was the first date this year that all the clubs in the group (which operates in South Africa, the United Kingdom, Italy, Australia, Thailand and Singapore) were open. Brait says there is a “global trend of members returning to gyms or using a combination of physical and digital offerings.”

The concern for the group, as Moneyweb has argued for some time, is whether the gym market returns to something close to “normal” over time. Virgin Active has already lost many of its best members. The contract with Discovery, in which Vitality members’ gym memberships are subsidized, has kept the membership more stable than they could have been.

Finance

It has not disclosed the financial performance of the South African business over the past three months, but says that overall the group generated an Ebitda (earnings before interest, taxes, depreciation and amortization) of £ 6.6 million (around R140 million) with “all key territories positive Ebitda ”.

Brait says there is “significant operating leverage in the business” and the focus is on “quickly returning to 2019 membership levels, which will provide increased material value for shareholders.” In another part of his presentation of results, he points out that “getting back to 2019 levels will take time.”

Read: Brait slips almost 10% on news of R3bn rights offer

Brait values ​​Virgin Active’s total business at £ 468.5 million (about R1 billion), substantially below the March 2018 level of £ 1.3 billion. Brait’s stake (80%) is valued at £ 393 million or R7.97 billion.

Virgin Active has a net third party debt of £ 456 million and Brait’s loans have been stretched to the limit as it has funded various shareholder facilities to help Virgin Active (and, to a lesser extent, New Look ) to restructure and navigate the pandemic.

It has committed another R760 million as part of Virgin Active South Africa shareholder financing to restructure and expand that company’s existing debt lines.

This has practically forced him to carry out a capital increase of R3 billion in which he will issue a redeemable bond.

A total of R1 billion of this will be used to pay off a portion of the revolving credit facility of the investment holding company. Subtract the R760 million committed to Virgin Active SA and the available liquidity position, the rights offer will be R1.2 billion.

Brait and Ethos, who manages the portfolio, are betting heavily on Virgin Active’s recovery. There are plans to include Premier, the fast-moving consumer goods maker, as early as next year. But there is a R3 billion convertible bond that matures in December 2024.

Throw in the new R3 billion redeemable bond expiring at the same time, and there’s a lot that needs to turn out right in the next three years.


www.moneyweb.co.za

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