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Operator: Hello, and welcome to the Gym Group Half Year Results 2025. If you're joining us on Zoom, automated subtitles are available, and you can turn this feature on or off within your Zoom app settings. But please note, this is an automated service and transcription errors sometimes occur. I'm now going to hand over to Will Orr, CEO. Will, please go ahead.
William Orr: Good morning, and welcome to the 2025 half year results presentation for the Gym Group. Thank you for making the time to join us in the room and on the dial-in. After the presentation, we'll take your questions in the room first and then on the webcast. Our CFO, Luke Tait and I will be doing the presenting today. And here's what we plan to cover. I'll start with an overview before handing to Luke to share the 2025 half year financial results. I'll then provide a progress report on our next chapter growth plan before summarizing and taking your questions. So starting with the overview. I'm pleased to report strong performance for the first half of 2025. Closing membership was up 5%, with revenue for the period up 8%, 3% on a like-for-like basis. With this performance and strong management of costs, EBITDA less normalized rent was up 24%. The market we're in remains highly attractive, and gym penetration has again reached new highs, supported by structural growth tailwinds. And within our next chapter growth plan, the program to strengthen the core continues to drive mature site performance, underpinning confidence in further progress on mature site ROIC, which we'll report on at full year results. And when it comes to new sites, we're on track to increase openings to 14 to 16 in 2025, in line with our plan to open circa 50 new sites over 3 years, funded from free cash flow. So the momentum continues. And with that, I'll hand over to Luke for the financial results.
Luke Tait: Thanks, Will. Good morning. So starting with a summary of our financial KPIs. The key revenue KPIs, which were released in July have both shown good growth year-on-year. We had average members across the first half of 953,000, up 4% versus last year, and average revenue per member month was GBP 21.16 for the first half, also up 4% on prior year. As a result, revenue was GBP 121 million, up 8% on last year. The additional revenue converted well to profit with EBITDA less normalized rent of GBP 27.4 million, up 24% on prior year. Statutory profit before tax was GBP 3.3 million, up GBP 3.1 million on prior year. Free cash flow of GBP 25.1 million was up 8% on prior year and enabled a net debt reduction of GBP 10.1 million to GBP 51.2 million, reducing the net debt-to-EBITDA leverage ratio to 1x. We will look at each of these key financial metrics in more detail in the following slides. Turning to the income statement. EBITDA grew strongly in the first half of the year, up 24% versus last year. Revenue was GBP 121 million, up by GBP 8.9 million year-on-year. Approximately 1/3 of the incremental revenue year-on-year was generated from like-for-like gyms and 2/3 from new openings since December 2022. Costs in the first half evolved in line with expectations. Site costs of GBP 57.9 million benefited from a reduction in electricity costs from lower commodity rates, resulting in site cost margin improvement of 2%. I'll come back to the other key site cost movement shortly. Central costs grew by 7%, with the growth rate expected to slow further in the second half, and therefore, the central cost margin is expected to drop to circa 11% as guided in March. Normalized rent increased by 7%, reflecting a combination of new site growth and underlying lease inflation. EBITDA was GBP 27.4 million, with EBITDA margin at 23% for the first half, an improvement of 3% versus prior year. Moving on down the P&L. The noncash charge for share-based payments of GBP 2.5 million was higher than prior year due to the delay in the commencement of the new scheme last year. Net financing costs of GBP 10.4 million remained flat year-on-year, as lower interest rates offset an increase in property lease liabilities. The charge consists of GBP 8.1 million relating to property lease interest and GBP 2.5 million relating to our borrowing facilities. Profit before tax and non-underlying items was GBP 4.9 million, up GBP 4.4 million on prior year. Non-underlying items of GBP 1.6 million principally relates to the implementation of a new member management and payment system. Finally, profit before tax for the 6 months was GBP 3.3 million, up from breakeven last year. Revenue grew by 8% in the first half. Average revenue per member per month grew by 4%. This was principally down to a combination of yield increases in their like-for-like estate, and the optimization of yield in the new site openings, including coming off introductory headline rate discounts. The average headline rate of a standard membership was GBP 25.10, up by GBP 1.16 year-on-year. Like-for-like revenue was 3%, in line with guidance, with the average membership remaining at 100% year-on-year and the average yield increasing by 3%. Looking at site costs in more detail. We've been able to control site costs in the first half despite the ongoing inflationary environment. In the first half, like-for-like site costs were down by 1%. This was driven by a further reduction in electricity commodity prices and our energy optimization program. For example, we have now installed 120 voltage optimization units across the estate. Efficiencies in the staffing model and cleaning have partially offset the National Living Wage and NIC increases in Q2. And rates rebates have partially offset the Q2 increase in the UBR. In the second half, we expect site cost inflation to return, bringing the full year in line with our guidance of like-for-like site cost growth of 2%. This is as a result of an increase in the non-commodity element of the electricity cost from Q4 as well as 2 quarters of National Living Wage, NI (sic) [ NIC ] and UBR increases. Turning now to the cash flow. Strong cash flow generation in the year enabled us to self-fund our expansionary CapEx, buy shares for the EBT and pay down debt. The working capital inflow of GBP 8 million reflects the cash generative nature of the business model when growing, and a higher proportion of payout front memberships, although some unwind of this inflow is expected by year-end. After deducting the cash spend on maintenance CapEx of GBP 7.3 million, operating cash flow was GBP 28.1 million. The cash element of non-underlying costs was GBP 0.5 million, bank and lease interest was GBP 2.5 million. It's worth noting that due to losses incurred during COVID and accelerated capital ounces, we do not expect any cash tax until 2028. Free cash flow was GBP 25.1 million. Expansionary CapEx was GBP 12.6 million. And after refinancing and EBT share purchase costs, net debt reduced by GBP 10.1 million during the first half. We continue to invest to grow the business and ensure a well-maintained estate. Total cash CapEx in the first half of the year was GBP 19.9 million. Maintenance CapEx across both property and tech was GBP 7.3 million in the first half. Property maintenance of GBP 6.2 million was 5% of revenue. Tech and data maintenance CapEx of GBP 1.1 million was spent on hardware, including CCTV upgrades and on our data infrastructure. Expansionary CapEx was GBP 12.6 million, with the main spend being on new sites as we target 14 to 16 new sites this year. Tech and data expansionary spend relates principally to investments in the website to enable next chapter growth initiatives such as product add-ons and website conversion optimization. Spend on replacement member management and payment systems was GBP 0.7 million and is expected to increase significantly in the second half as this project ramps up. We continue to expect total CapEx to be approximately GBP 50 million for the full year. Turning now to net debt. The strong free cash flow in the first half has allowed good progress on leverage reduction. Non-property net debt was GBP 51.2 million at the end of June, down GBP 10.1 million from the year-end. The debt consisted of GBP 59 million of bank debt and GBP 1.5 million of finance leases. As a result of the reduction in debt, the net debt-to-EBITDA multiple reduced to 1x EBITDA, down from 1.3x at year-end. Given the second half weighting of CapEx and an unexpected element of working capital unwind, year-end net debt is expected to be at a similar level to last year end at circa GBP 60 million. In June, we agreed an amend and extend of our current facilities with our bank syndicate, increasing the total facilities to GBP 102 million and extending the maturity to 2028. The new sites continue to perform well. The 25 sites opened in 2022 are expected to deliver ROIC of 30% this year. The small 2023 cohort is on track to deliver an average ROIC of 25% with one site having been impacted by an unusual level of competitors' openings. And although early in their tenure, the 12 2024 sites are progressing well with strong initial membership volume. Overall, our confidence remains high on returning 30% on new openings. Finally, turning to current trading and outlook. Current trading momentum has continued through July and August. We're now entering the key student acquisition period. We've opened 5 new gyms so far this year with another 8 gyms currently on site. For the full year, like-for-like revenue is expected to grow at circa 3% and like-for-like cost growth is expected to be circa 2%. Given the current trading momentum, we now expect EBITDA at the top end of market expectations. We do not expect to pay any cash tax before 2028. We're on track to open 14 to 16 new openings in 2025, in line with our March guidance, with total CapEx of circa GBP 50 million expected for the full year. Therefore, net debt is expected to trend back to last year's level by year-end. I will now hand over to Will.
William Orr: Thank you, Luke. In March 2024, I set out our next chapter growth plan and wanted to provide you with a further update on the strong progress we're making. Firstly, a reminder of investment case, sustained growth from free cash flow and why we think it's so compelling. Starting at 12:00 on the circle, health and fitness is a very large market that's benefiting from continued structural growth. And in gyms, the high-value, low-cost sector is growing fast. As with other categories, we're benefiting from consumers' appetite for no-frills great value propositions and from new more committed generations of gym goers. This winning proposition has high levels of customer satisfaction and is delivered by a strategically advantaged labor-light business model. We also have multiple drivers of growth listed on the right-hand side of the slide with detailed plans on each of them. Strong execution on those growth drivers is increasing returns in our existing estate, in turn, funding the organic rollout of quality new sites. This virtuous circle of sustained growth is being powered by data and technology, 2 areas we continue to invest in is the foundation for any successful digital subscription business. Demand for gyms continues to grow. U.K. consumers now spend GBP 6.5 billion on gym memberships with 11.3 million of us being members. That penetration continues to grow with another strong increase in 2025 to 16.6%. And as you can see, low-cost gym growth is strong. With the proposition that's high quality and affordable, we're introducing new generations of gym goers to something they really value as well as benefiting from the continued trade down from the mid-market. And in this growing market segment, we're 1 of 2 brands that account for 80%-member share. Seeing the way future generations, particularly Gen Z, are embracing gyms is one of the reasons we're so optimistic about the Gym Group's future. With around 40% of our members being in this cohort, we now publish a Gen Z fitness report based on a regular independent survey of over 2,000 respondents. The most recent results are again encouraging. Nearly 3/4 of this group now saying they're making time for fitness at least twice a week. And their fitness is their top priority when it comes to discretionary spend. For a growing number of this generation, fitness is a nonnegotiable. These are consumers who are highly engaged in fitness for its physical and mental health benefits, who have a growing appetite for strength training, best done in a well-equipped and affordable gym and who increasingly see going to the gym as part of their identity and social life. And I should add that these trends extend beyond Gen Z and into our membership base as a whole. The future is bright for fitness and gyms. To take full advantage of the market with structural growth, you need a winning proposition and ours resonates more than ever. For any subscription business, usage is a good health indicator. And the proportion of members visiting us 4 times a month or more increased again year-on-year. While the proportion of members rating us 5 out of 5 in satisfaction surveys has risen to a remarkable 62%. And when it comes to Google reviews, we lead the market with every one of our gyms scoring 4 out of 5 or better. So the Gym Group is growing in a growing part of a growing market, benefiting from structural market growth and an advantaged labor-light business model that delivers a winning proposition. The Gym Group also has a clear growth plan. As a reminder, there are 3 elements to the next chapter. Strength in the core is focused on increasing returns from our existing sites, principally by growing like-for-like revenue. It's the program that helped us deliver our 25% midterm target for mature site ROIC in full year 2024 ahead of schedule, and is generating the cash to accelerate our organically funded rollout of quality sites in the U.K. As we said in March, those first 2 COGS are very much where our executional focus is for the time being because we see so much headroom here. I will, however, also update on the third COG, broaden our growth later in the presentation. Turning in more detail to strengthen the core. We've again delivered multiple wins across 3 levers of customer revenue growth. On pricing and revenue management, we're seeing a sustained upside opportunity based on our strong value-for-money credentials and I'm confident we have the data and capability to continue growing yield. When it comes to acquiring new members, we're using data, ad technology, brand management, local targeting and e-commerce skills to create a highly efficient acquisition engine. And thirdly, on member retention. We continue to increase the average tenure of our membership by taking a systematic approach. On the next few slides, I'll give you some examples of the progress we're making in these areas. In explaining why, we see such a sustained opportunity on pricing and yield, I wanted to start with the U.K. gym market as a whole. At the Gym -- at The Gym Group gym, you get a large, clean, well-equipped, well-maintained gym with friendly expert people. You also get 24/7 access, and you're not tied into a contract. And yet, because of our advantaged business model, we're able to offer all this at prices that as well as being marginally lower than the direct competition are comprehensively lower than the rest of market. And as I'll touch on shortly, we have ways to keep enhancing the perceived value of what we offer without adding to our costs. So our market position gives us a strong long-term pricing and yield opportunity. And critically, that opportunity exists in the minds of our consumers. The graph on the left-hand side is output from a large quantitative study we refreshed again in H1 with Simon-Kucher Partners. It plots perceived value on the X-axis against perceived price on the Y-axis and shows that the high-value low-cost gym sector remains underpriced in the minds of our target consumer. In other words, they continue to perceive more value than they pay. And when you consider the value proposition I just described, that large, well equipped, well maintained 24/7 gym for about GBP 25 a month, that's not surprising. It is a phenomenal piece of value engineering. And as you can see on the right-hand side of the chart, this delivers strong value, for money scores, which remains stable despite increasing prices again over the last 12 months. With this opportunity in mind, we delivered several wins again in H1, all these have been underpinned by analytics and AB testing, derisking our decision-making as we execute. Firstly, we've increased our headline rates for new members, while remaining cheaper than the competition in competing sites. We note that our main competitors continue to take a similar approach with JD Gyms particularly aggressive in the period and further pure gym price increases noted already in H2. Secondly, we've continued to test and innovate on promotions, seeking to optimize for return on spend. This has included more targeted treatments at site level and ongoing deployment of our churn-reducing stepped kickers. Thirdly, we've continued to revenue optimize our product range, including offering premium features like Guest Pass and Multi-Site Access as add-ons to standard membership. And finally, we've developed a data model to assess site level headroom in the mature estate, enabling even more targeted pricing and volume interventions as a result. I'll return to this data model later. Turning to acquisition. We're also taking a targeted approach here. As I've described before, to maximize return, we're spending our marketing money close to our sites where the demand will naturally be. And as you can see in the graph, unprompted awareness within 3 miles of our sites is growing. When it comes to then converting prospects into sales, our program of web conversion improvements continues with 9 successful AB tests completed and adopted in H1. We're also progressing initiatives to be as relevant and attractive as possible to our core audience of Gen Z consumers. This includes growing our footprint in social media and enhancing the presentation of our brand and our sites. To expand on this a bit further, as you can see on the left-hand side of this chart, our social media reach, both at national and local level continues to grow at pace with well over 0.5 million people interacting with us in social. This is a key channel for quality fitness advice, engagement and, of course, sales, and we'll continue to prioritize this area. We're also evolving the aesthetic presentation of the Gym Group in marketing activity and in our gyms. This is one of the ways we'll continue to build our perceived value in the minds of members, supporting pricing and revenue growth. And I'll return to what evolves in gym design in more detail shortly. Our focus on retention is one of the reasons we've been able to hold like-for-like membership constant, while pricing up and where the average tenure of our members continues to grow. Churn rates are highest in the first 45 days of the members' tenure, which is why we developed our early life plan. Part of this plan is encouraging new members to visit more often in their first month, and in H1, we launched targeted nudge messages in the app to encourage visits. As well as this, we're enhancing all aspects of the new joiner experience. For example, we've renamed and better promoted the free Kickstart induction session we offer new members. Kickstart introduces the new member to the gym and helps them get the most from it. We've seen a 37% increase in participation and 10% higher retention rates among participating members. Rejoins are also an important part of our member mix, with members benefiting from our flexible proposition. We have a program of enhancements to capture as many returning members as possible and increase the 6-month rejoin rate by 6% in H1. And finally, we continue to grow our base of members on a longer-term commitment. We call these 6-, 9- and 12-month product savers and have enhanced them in several ways, growing this base by 37% in H1. So that's a few examples of the many ways we're strengthening the core of the business and improving mature site ROIC. To remind you, we grew that measure 4 percentage points in full year 24% to 25%, and look forward to reporting further progress on this metric at full year results. Now turning to the second part of the plan. In line with our strategy and capital allocation policy, we're currently deploying free cash flow to accelerate the rollout of quality sites in the U.K. PwC estimates 10 years plus of U.K. white space for low-cost gyms. So the opportunity for sustained rollout is clear. And we're taking a disciplined returns-focused approach to unlocking that opportunity. We opened 12 new sites in 2024 at the top end of guidance and are on track to open the guided 14 to 16 in 2025. Using data to isolate the characteristics of our best-performing mature sites, we're then applying that formula to the new sites we open. And as a result, I'm pleased to say that the 5 sites we've opened so far this year are performing ahead of expectations. Given the power of data-driven site selection, we continue to enhance our methodology. In H1, we devoted a new fully bespoke site selection model with more data sources and machine learning to further increase accuracy and speed of appraisal. And as referenced earlier, we're elevating design aesthetic and kit innovation in new sites. I'll provide some more detail on that now. We have great gyms with strong customer ratings and improving returns. But we've identified headroom to elevate the gym experience further, driving those high value perceptions and supporting sustained revenue growth. The evolved approach is being applied to all new sites and as I'll cover in a moment, being rolled out in our mature estate in a commercially targeted way within our existing maintenance CapEx program. The work to do this, which has included input from a world-leading retail design agency was based on 5 principles. Firstly, this is a careful evolution, so we wanted to build on the strengths we have and continue to create welcoming gyms for all our members. That said, we're evolving the look to be more on trend and premium. This includes some darker colors, more use of original building features, more use of neon and lighting design, black kit, better change rooms and better zoning. Thirdly, kit is a very important part of why customers choose the Gym Group. So we're innovating here with more advanced strength training equipment and in the introduction of some sort after kit brands like Booty Builder and [ ExCo ]. We're also being more conscious about creating spaces for members to socialize in an environment suited to posting on social media. Finally, and critically, through thoughtful cost engineering, we're doing all this without adding to fit-out costs. And here are some visuals of the new approach. I'm pleased to say the performance of the 8 sites we've opened so far with the new approach has been strong. The rate at which we fill these gyms with members is well above our historic growth curve, and at an average of 4 out of -- 4.8 out of 5. The feedback on Google reviews is excellent, too. As well as opening new sites with this improved approach, we want to apply it to the mature estate within our existing CapEx budget. And we'll prioritize this maintenance spend based on likely return. To aid this, we recently completed a multi-variant statistical model to analyze potential membership headroom across the estate. This is allowing us to prioritize our refurbishment program, where the returns should be highest. It will also help us to target local marketing and pricing as well as those in gym enhancements. Here's an early example of the approach. The model identified membership headroom in Bristol Longwell Green. We business case the site investment within our maintenance CapEx budget and rolling refurb program. And then we reopened with a new design approach and some local relaunch marketing. I'm extremely encouraged by the early results we're seeing. And across new and existing sites, we expect around 40 of our gyms to benefit from the new design approach in the full year 2025, with a program then continuing into 2026. So that's some examples of the progress across the first 2 COGS of our growth plan. As I said earlier, we see headroom in both of these areas, headroom to further strengthen the core of the business by continuing to improve mature site ROIC and headroom to accelerate our organically funded rollout of quality sites into ample U.K. white space. And that's why these 2 areas remain the majority of our focus. We have, however, continued to analyze opportunities to broaden our sources of growth. So a brief update on this part of the plan. One area we've explored here is channels to market, new scale channels delivering incremental members. Wellhub is a B2B2C channel, providing a platform of fitness and wellness benefits to 1.5 million eligible employees across 450 U.K. companies, including the likes of Santander, Tesco and Nationwide. We recently started a 6-month pilot on the platform with a robust framework to assess incrementality when it comes to new members. If the pilot delivers in line with our estimates, and we've seen an encouraging start, we'll roll this out nationally as a new source of like-for-like membership growth. We also continue to investigate other significant adjacencies, well aligned not just a fitness, but also to our core competencies. We'll, of course, update on this in more detail at the appropriate time. So that's the progress report on the next chapter growth plan. I'd like to take the opportunity to thank the committed expert people across our gyms and support center for delivering the progress you can see. We'll very shortly take your questions. But before that, I'll briefly summarize today's presentation. The Gym Group operates in a large market with structural growth. We have an advantaged labor-light business model that delivers high value at low cost and limits exposure to national living wage and national insurance increases. With a clear growth plan and significant white space, H1 saw 24% growth in EBITDA less normalized rent, underpinning confidence in full year progress on mature site, ROIC. Profit growth is converting into strong cash flow, and that's allowing us to accelerate our organically funded expansion. As a result of this strong progress and our current trading performance, we're now expecting 2025 EBITDA less normalized rent to be at the top end of analysts' forecast range. Thank you, and we'll now take your questions.
Operator: [Operator Instructions]
Sahill Shan: Sahill Shan from Singer. Three questions from me. Just on the ending of your presentation, Will, in terms of broadening our growth part of the presentation. Should we assume that as part of our strategy, moving overseas could be an option over the medium term? Second question is given the strength of the free cash flow and self-funding and where leverage is now, how should we be thinking about capital returns going forward? And the final question, I suppose, this is for you, Luke, any update in terms of what's happening to site costs relative to previous guidance?
William Orr: Thank you. I'll take the first one. So in terms of broaden our growth, I mean, as I said, we see a lot of U.K. headroom, both in terms of sort of mature site performance and white space. So that's very much where our focus is for the time being. To the international piece, we wouldn't rule out anything. And periodically, we sort of assess the landscape. But for the time being, we're very much focused on the U.K. So that's that one. And perhaps, Luke, do you want to talk buyback and cost.
Luke Tait: Sue. So, as you know, it was 18 months ago, we set out our capital allocation policy, which I think still essentially remains the same. First priority is making sure that net debt leverage remained below 2x. It is now down to 1x as we just reported, but will increase again a bit towards year-end. So obviously, well within scope there. The second was to prioritize organic growth as long as we had high-level confidence on achieving 30% ROIC. I think we're still there. And then the third was if we felt we had excess free cash flow, we would consider returns to shareholders. And we're very much still looking at that actively. The returns are pretty good, and in theory, at least risk fee. That said, there is still quite a big gap between those returns and the returns we think we can get from deploying the CapEx on organic growth. So for the time being, we're still concentrating on that organic growth, but it is something that is under active consideration by the Board. And we may well make changes in the future. The third question was around site costs. So we had a very strong first half in terms of site costs -- like-for-like site costs actually down year-on-year, driven by that commodity -- continuing reduction in the commodity rate, which actually we continue to see going into the future. We had only 1/4 of the sort of changes imposed on us around Living Wage, NI and rates. We will have 2 quarters of that in the second half, so that adds to the inflation burden, and we will also see non-commodity rates increase in the final quarter, as I said. So if we're down one in the first half and then up 2 for the full year. You can see that second half will -- we will have a much sort of more significant increase. From point of view of what that means going into next year, that non-commodity increase will last for a year, and its 2-year contract will then be flat thereafter. So it's kind of one hump to get over if you see what I mean. And then on the National Living Wage for next year, I'd be interested in your view, so -- but we'll find out in November. And I think we'll guide when we know more, which is probably early January.
Sahill Shan: Sorry, my third question, I was thinking more about CapEx per new site much have been reduced...?
Luke Tait: Oh, sorry. So get CapEx on new sites, essentially running in line, I think, to sort of more general levels of inflation. So we do see some increase from wage costs coming through. That said, everything is tendered to minimum of 3 contractors. And as a result, we're not seeing massive increases year-on-year. The biggest variation really is down to site level sort of dimensions such as, is it Central London or London? Or is it outside of London? Is it a complex site to develop? Or is it a nice clean sort of industrial-type box. But no, nothing more than sort of headline inflation rates.
Ross Broadfoot: Ross Broadfoot for RBC. You referred a few times to average tenure continuing to grow. I was wondering if you could give any color on sort of where it's been and where it is, just to give that a bit more sort of scope. Number two, you talked about strong volumes at the enhanced new sites. And just question, to what extent discounting has played a role in the strong volumes or whether those sort of normal volume growth, if you see what I mean? And then thirdly, off-peak now 13% of the mix. I think previously, you've said mid-teens is where you sort of see it maturing? Any update on that at all?
William Orr: So yes, on tenure, I mean, the average tenure of our membership is sort of around 18 months with a very significant sort of dispersion around that, the average of 18 months and it's been sort of ticking up nicely over the last couple of years. So that's that one. And yes, we continue to work on that. I think volume at new sites, yes, well ahead of historical averages. I would say, we've been moderately more aggressive on kind of opening offers because strategically, we think it's good to fill new sites fast and then yield up thereafter, but it's not been a sort of huge change to our sort of historical approach. So yes, there's a little bit of promotion in there. But I would still say that I think what we're seeing from the kind of the new aesthetic and so on, I think is encouraging, very encouraging in its own right. So that's that one. Off peak, do you want to take.
Luke Tait: It's not off peak, Ross. So yes, I think that guidance of sort of mid-teens still is sort of our best direction. And I think in around off-peak has performed pretty much as expected from the trials, has some multifunctions. It has added some volume, which has helped offset some of our price increases. It's also enabled us to price more aggressively in the other essentially 85% of members, 87% of members, and it also gives us that sort of excellent marketing low headline rate, which we use. I think we'll continue to optimize it. So we do literally set that differential in pricing at a gym level. And therefore, we can sort of control that volume depending on what we think will maximize revenue.
Harold Jack: It's Douglas Jack, Peel Hunt. Three questions, if that's okay. First one is, are you seeing much difference in terms of regional performance across the U.K., i.e., London versus outside in particular. And are you seeing any changes in terms of competitor behavior in terms of expansion? And in terms of the refurb program, how many are you doing at the moment per annum? And what does that mean in terms of that pipeline applying your latest format to the mature estate.
William Orr: Yes. I mean, maybe I'll start with the last one and then sort of work up from there. Yes. I mean, I think I said that between the new sites that we're opening this year and the sort of significant refurbs, we'd estimate about 40 of our sites by the end of this year. We'll sort of -- would have had a sort of -- will either be the new look because it's a new site or have had a sort of significant refurb. There's actually over 100 sites in the refurb program gets some form of treatment, let's say, upgrade. So -- yes, sort of I think happy with the pace of that, and then it will continue into 2026. And I think I'm sort of excited by this now more granular ability to try and assess how we should prioritize that maintenance program. But I think we will -- as we move into next year, we'll have a sort of a significant proportion of the estate with that kind of new and more premium look and feel, if that answers that question. I think on competitor behavior. I think as we've said before, we continue to think the market is rational, I think rational on pricing, rationale on sort of site selection and sort of looking at trade areas and those sorts of things, I think we noted JD being particularly aggressive on pricing in H1. And as I say, PureGym doing some pricing already in H2. So that direction of travel looks to be very sort of consistent. And then in terms of rollout speed, PureGym are going faster than us, but opening quite a lot of small sites, and we're principally sticking to our sort of tried and trusted formula of larger sites. But I think the market continues to be to be rational. There's a lot of white space. I think there's a lot of room for everybody to be on this among us and PureGym. And then on regional performance, I don't think there's any particular change, and we have strong performing sites right across the U.K. I mean, London -- Greater London has always been a good area for us, but we haven't seen any real change in that.
Jack Cummings: Jack Cummings at Berenberg. My first question is just on-site openings. And it's a bit H2 weighted this year and obviously, it's accelerating next year. Could you just give us a little bit more kind of color in terms of your confidence behind those targets and also what phasing we should expect in 2026? You mentioned the new add-ons like guest passes, multisite access, et cetera. What sort of penetration are you getting for this? And has this been rolled out across the entire estate and all of your members? And then the final one is just going back to the prioritizing of that mature estate investment. Is there potentially a discussion internally actually accelerating the amount of maintenance CapEx, given this headroom and the returns that you could get from it?
William Orr: [indiscernible] one answer and I'll try the first and third. So phasing of new openings, I think we are confident about our guided 14 to 16 for this year. We've opened 5. We're on site at another 9. So we -- I think we're on track there. It is going to be back weighted for sure this year. And then in terms of 2026, I think we actually -- the pipeline for 2026 is looking strong already. I think we're sort of further ahead at this point than we have been historically, not sure of the exact phasing of all of that in next year. But I think net back weighted this year, but confident on guidance and looking really promising actually for next year as we step up. So that's that one. I think on the mature estate investment, I think as I said, various times in that presentation sort of trying to do it within the existing sort of envelope at the moment. But to your question, we assess the performance of every newly refurb site. It takes a bit of time to assess that performance because it needs to go through sort of a bit of a trading cycle. But if we see really strong returns and really strong improvements then we would potentially accelerate that. But I think we'd sort of guide if that's something we thought we were going to do.
Luke Tait: Yes, Jack, on the add-ons, it's very early in the launch process. So I think it's probably premature to give stats on that.
William Orr: I think we're on site at 8, not 9. I saw Catherine looking at me in a horrified way. But yes, I think we're on track for our 14 to 16.
Timothy Barrett: Tim Barrett from Deutsche Numis. The first question was about yield. Obviously, the 3% price increase you put through certainly wasn't greedy versus the competition. Do you feel you might go faster in 2026? Is there scope for more catch-up? And then Slide 32 is really interesting about local market headroom. Can you give us an idea of what the scale was on that chart? And does it include the workforce-centric gyms. I'm just thinking whether you might be able to recoup some of the previous lost members there.
Luke Tait: Yes, sure. Thanks, Tim. So yes, on yield, as you said, I think sort of 3% which was proportionate to the inflationary pressures we were seeing, I think. So I don't -- I think there is definitely sort of continued, as we also set out in those slides, continued midterm opportunity to take yield. And whilst our input inflation isn't a driver, it's definitely an important consideration. And we do know that particularly around that noncommodity utility rate, we will be seeing some more inflation next year. So we will definitely wait and see what happens through the budget on other cost lines. But I think depending on the inflationary pressure, I think we will sort of flex our pricing plan to match that.
William Orr: And then on that headroom piece, I think that the headroom in certain sites, as you see on the left is significant. That's not to say it can be automatically unlocked and it's a statistical model, and we're now applying it to sites like the one I showed and sort of assessing the performance. So we've got to sort of test the model. But yes, I mean, there's definitely a number of sites on there that look like they had good headroom. And then I think the second part in terms of workforce, yes, the model would suggest that there's some opportunity there, but I don't think it would be our first priority, to be honest. But it's something that we'll sort of continue to keep under review. And I think you are sort of seeing incremental return to office working and so on. So I hope that answers the question. So I think some good headroom in that model. We need to prove that out. But I think were -- those sort of that small handful of workforce is unlikely to be the top priority for the deployment of that effort.
Unknown Analyst: Jane from Ocean Wall. Can you help us a bit with the algebra on the ex workforce ROIC calculations, because in the 2025 presentation, you showed the 184 mature sites delivering this huge uplift in ROIC. But with the same EBITDA margin as the ex workforce 159 sites in the 2023 presentation. So it just seems strange that the EBITDA margin, admittedly one includes rent-free, one doesn't, I think. But why isn't the margin showing a bigger improvement? And is -- does that mean that we should be worrying about the workforce gyms? Or put it another way, is there still a 200 basis point drag from the workforce gyms, then -- and the portfolio is 25 mature gyms bigger, should we be -- is there a deterioration in the workforce gyms? I suppose is a long-winded way of saying that.
Luke Tait: So I'm not sure I totally followed all of your numbers in the first part of the question. But to the second part of the question, I don't -- we're not seeing any particular deterioration in the workforce dependent gyms. And I would anticipate a similar level of drag by year-end. So I don't think that will have changed at year-end.
Unknown Analyst: So even though the portfolio is bigger the drag is the same, so it should be getting smaller, shouldn't that?
Luke Tait: The portfolio will have increased by 4%, whatever it is. So -- yes, it will have got a bit smaller, but it won't be -- I don't think it will be material there.
Unknown Analyst: And can I just follow-up on rents? Are they inflation linked by and large, and the [indiscernible]...?
Luke Tait: They are, by and large, inflation linked with colors and caps. Anna?
Anna Barnfather: Anna Barnfather from Panmure Liberum. A lot of questions have been asked already. Can I just drill a bit deeper on marketing costs? Obviously, you changed your approach to be more local. Can you give us a sense of where that is as a percentage of revenues and how that will trend? And then a bit of a technical one, Luke, on business rates. You talked about sort of inflationary impact of the rise in the second half. Business rates may well be reviewed in the budget, who knows. Can you just give me a sense of what business rates are as a percentage of revenue as well?
Luke Tait: Yes, sure. So marketing costs, I think we've historically said marketing costs are around about 5% of revenue, and we are not materially outside of that. I mean I think what we would say is as we continue to sort of optimize the way we spend the marketing money on media and get a better and better understanding of CPAs and particularly incremental CPAs, I think we will -- we are trying to move into a world where we see marketing costs more -- almost more as a variable cost as in if we think by deploying more in a given moment that we can drive new members that write incremental CPA, then we would do that. But I mean, essentially, I think for modeling purposes, probably 5% of revenue is the right assumption. On business rates, I don't think we've ever sort of given that as a margin. I mean it's a significant cost, but not the biggest cost. We have seen UBR rates, I think, increased to 6% this year. So it was sort of similar -- 6% to 7%, similar to living wage. What we've heard about rates going into next year is that there'll be quite a meaningful reset where I think the ratable values are expected to be increased quite significantly, but offset by reductions in UBRs, particularly in properties, which have rental -- annual rental charges of less than GBP 0.5 million, which broadly speaking, is us. So I don't know what will happen in November, but there is a possibility of some good news.
Anna Barnfather: Just on the marketing then. Sorry, just a follow-up on the marketing cost. So maybe I asked as a percentage of revenues. Do you look at it internally acquisition member cost of acquisition per member?
Luke Tait: Yes, absolutely. I mean, there are...
Anna Barnfather: And is that trending down?
Luke Tait: It varies by month within the year. And generally speaking, there is inflationary pressure on media costs, but we have been able to offset the majority of those through continued efficiencies in how we deploy it. But media, there has been inflation in media historically, if that makes sense.
William Orr: But with that, the percentage staying largely constant, we'd expect marketing spend to increase, but only in line with revenue growth.
Luke Tait: And on CPA specifically, if we if we decided to push a bit harder, you might actually see your CPA go up, but we'd only do that if the LTV of the acquired members justified that incremental CPA.
Harold Jack: Douglas Jack at Peel Hunt. Just a couple more rather boring accounting questions. IFRS 16 is still a headwind in these results. When do you think it will become a tailwind to you? And the second question is, historically, fixed asset depreciation precise being much higher than what you've had to spend on maintenance CapEx. You've been very conservative on that. Can we expect depreciation per site to perhaps come down in the future?
Luke Tait: Thanks, Doug. Yes. So on IFRS, I expect the drag to be about GBP 2 million this year, and I think most of that should be gone within the next 2 years. And then in theory, we're actually in a place where we will see a benefit. And then on fixed asset depreciation, yes, you're right. I mean a big chunk of the leasehold improvements will never be replicated through maintenance CapEx, and therefore, we should continue to see maintenance CapEx below fixed asset depreciation. And as the estate matures, which is obviously also a driver that IFRS point, we should see sites starting, as you say, to come off that original maintenance depreciation cycle, and therefore, it should be a benefit.
Operator: [Operator Instructions]
Ross Broadfoot: Ross again. Just a quick one on the pilot, the B2B2C. When do you think we'll hear more about how that sort of pilot is going? And is that something you would expect to see nationwide? And sort of part 2, could there actually be a benefit then for the workforce dependent gyms?
William Orr: So 2 parts to that. I mean the pilot is a sort of roughly 6-month pilot. So I'd expect we'd update on that in March potentially. And then the second part of the question is this isn't specifically a workforce site play. Already, we're seeing participation sort of right across the estate because it's more about where we have gyms that fit with that particular employer. So it's a sort of like-for-like volume play right across the estate, but very early days, but I should think by March, I'd expect we could give an update on that.
Operator: Thank you for all your questions. I will now hand back to Will for any closing comments.
William Orr: Well, thank you for coming. Tube strikes, notwithstanding. Thank you, and I think that's it. Thanks.