Good morning, ladies and gentlemen, and thank you for joining us on the conference call today for Viva Leisure's financial results for the first half of financial year ended 31 December 20 20. I'm joined today by our CFO, Mr. Kim Gallagher. Earlier today, various documents, including an investor presentation, were uploaded to the ASX, and we will be referring to these during our presentation. The agenda for today's presentation is that I will provide an overview of the performance highlights and operational achievements of the year of the half year.
I will then pass on to our CFO, Mr. Kim Gallagher, who will run through the financial results, including member snapshot. I will then provide a summary of the impact of COVID-nineteen and the great work of our team to navigate through COVID during the first half of FY twenty twenty one. And finally, I will provide an update on the outlook and what our focus will be moving forward, including our current revenue run rate. We will also have the opportunity to ask any questions at the end of the presentation.
At the back of the results presentation, starting at Page 25, is a reconciliation of the accounts against AASP 16. We will not be going through these today. However, if you have any questions, please reach out directly or feel free to ask questions at the end of the presentation. COVID-nineteen has affected the Health Club industry significantly and continues to affect the industry right up until December 2020, which was our 1st full month of operation where we had all locations within our network open and trading. This effectively meant that we only really enjoyed 1 full month from the first half of the year in full trade.
As we did when COVID first arrived and the shutdowns began, my team and I have worked diligently to return and grow the business past the pre COVID levels. The first half of FY twenty twenty one half year result is an outstanding result. During, as I'm sure you have heard before, an unprecedented period where we did not have the full ability to trade. I believe the business continues to be in an excellent position to capitalize on the foundations we have established over the past year and to continue to grow from here. Our previously advised target of achieving 400 corporate owned locations by 2025 remains our primary goal and we continue to work towards that.
Moving to slide 7 of the presentation, performance highlights. Revenue for the first half of FY twenty twenty one was $35,900,000 an increase of 56.4 percent over the previous corresponding period. Australian Fitness Management, which I will refer to throughout my presentation as AFM, is the Veeva subsidiary that manages the Plus Fitness network, and it contributed $3,600,000 of revenue after it was acquired in August 2020. EBITDA achieved was $5,600,000 ex AASB 16. This represents an 0.5% decrease from the first half of FY twenty twenty.
Considering the fact that all our locations were not permitted to reopen until December 2020 to achieve essentially the same EBITDA as the first half of the previous financial year is an excellent achievement. I will provide some further comments on the COVID impacts later in the presentation. The other key performance highlight I wish to bring to your attention is the EBITDA margin. While there was an obvious decline due to costs such as rent that needed to be paid once we were no longer eligible for JobKeeper from September 2020, the achievement of a 15.5% EBITDA margin for the half year is an increase on the full year FY 2020 margin of 14.8%. The marginal contribution and fixed cost nature of this business also means that the EBITDA margin starts to return to normal levels as revenue returns.
While not part of these results, what we did see in January 2021 was an increase of approximately 300,000 in revenue over December 2020, all of which fell directly as a contribution and increased EBITDA in January 2021. I won't steal Kim Sande anymore, so I'll let him expand on this. The other statistics on the page are self explanatory. Moving to slide 8, operational achievements. There were 95 open locations as at 31 December 2020.
Today, we have 102 open locations with a further 5 locations currently in fit out and a further
15 locations in the planning or development application stage with councils.
We operating under the Plus Fitness franchise network. These numbers do not include any acquisitions currently under review. I will now pass on to our CFO to present the financial results commencing at Page 10 of the results presentation.
Thank you, Harry, and good morning all. As Harry mentioned, I'm on Slide 10. Firstly, the half year results presented throughout are predominantly based on ex AASB 16 basis, which is also consistent with the prior year. Looking at the profit and loss, despite the impacts of COVID, we achieved revenue growth of 56.4% over the prior corresponding period. This includes the results of Australian Fitness Management, the Plus Fitness Master Franchisor, or AFM, for the first time.
The revenue growth excluding AFM, which contributed $3,600,000 of the $35,900,000 total revenue was 40.9%, which is a great top line result. However, during this period, the imposition of mandated restrictions on our clubs and members has hampered the group's overall results. The effect of these restrictions led to a significant reduction in the rate of new members joining and an increase of voluntary suspension by existing members. It also led to significantly lower than anticipated revenues over the period of July to December, particularly with the continued closure of our Victorian clubs until late November. It showed the average it slowed the average time to profitability of our rollouts considerably, putting pressure on our margins.
It required the group staff to staff each club with COVID marshals for a period which increased wages and it resulted with a considerable increase in cleaning costs, some of which are now ongoing. In addition, it slowed our acquisition strategy to only one acquisition in 6 month period. What this has meant for our margin and EBITDA result is that while revenues are showing good growth versus 12 months ago, the new rolled out sites, which would ordinarily come to profitability much quicker, have lagged in member take up and therefore revenues due to the uncertainty surrounding COVID. At the same time, these sites were carrying full rent and full wage costs and this has ultimately put some short term pressure on our margin. Having opened or acquired 35 sites during the full calendar year of 2020 has put additional depreciation and interest costs into the P and L, which has in turn impacted the bottom line, although we do see this as short term as we turn around into the second half of FY 'twenty one.
The good news is during the period 1 July 31 December, we completed the acquisition of AFM and it has performed in line with expectations for the period of ownership on both the revenue and EBITDA lines. We have now rolled out an additional 15 clubs since 30 June and acquired 1. After balance date, we completed the Pinnacle acquisition on 3rd February, comprising 6 health clubs in Victoria, but obviously, none of their results are reflected here. I'm on Slide 11. Looking at the revenue and to the half, it has not only grown against the prior corresponding period by 56.4%, but has also eclipsed the full year FY 2019 revenue and was not far away from last year's full year revenue result.
The EBITDA result was very close to the prior corresponding period despite the COVID issues as discussed. Also as mentioned, AFM contributed approximately $3,600,000 to total revenue and $943,000 to EBITDA. And while the EBITDA margin was less than the prior corresponding period, it was significantly higher than the second half of FY 2020, demonstrating that the business is recovering well. To put this in perspective, December was the group's first ever month above $7,000,000 in revenue at 7,200,000 dollars In January, we achieved $7,500,000 making an annualized run rate of $90,000,000 in revenue at the end of January. What was also encouraging was that nearly all of the revenue growth in January over December fell straight to the EBITDA line.
So we are now starting to see good marginal contribution post the COVID period. I'm on Slide 12. We had strong growth in member numbers of approximately 8,700 for the Viva Clubs, particularly in the Q2 of the financial year as member confidence started to return. We were pleased to see some good organic growth as well as a late pickup in numbers across our greenfield This was particularly encouraging after the extended period of club closures and lengthy voluntary suspensions of members. The acquisition of AFM added a further franchisee owned membership base of 172,364, taking total members at 31 December to over 275,000.
During the month of January 2021, the group increased total members by an additional 6,000 for both the Veeva and AFM franchise sites. Members by state continue to diversify as we consolidate our position outside of the ACT. The numbers in the top pie chart are excluding the AFM members. For Members by brand, when we do include the Plus Fitness numbers, you can see that Plus Fitness has skewed the results. But for some perspective, if the Plus result is removed, our HIT Republic brand now accounts for approximately 5% of our own club's membership base.
Moving on to Slide 13. As mentioned on the previous slide, the growth in members was driven by organic and new site openings with the organic growth of 2,878 members coming from clubs that were owned pre COVID shut down and 3,958 members coming from new sites. With the new rolled out sites, these comprised 7 HIT Republics and 2 of the clubs were Victorian and closed until late November. And despite this, the total member growth here was solid and creates a good springboard into the second half. We had one acquisition being the Fit HQ in Campbelltown, and it contributed 1876 members.
2 months later, where we are today, we've had net member growth of over $6,000 with the completion of the Pinnacle transaction and the corporatization of our 1st plus site in Morayfield, Queensland, the total member number now sits around 117,000. I'm on Slide 14. Successful $30,000,000 cap raise in December has provided a strong cash position for future rollouts and acquisitions. During the period, we completed the Plus acquisition for $18,000,000 and now post half year end, we've completed the Pinnacle acquisition for $6,200,000 We're in discussions with several more acquisitions and the rollout program is accelerating, so we have a targeted plan to deploy this capital. Debt has remained under control with a total of $25,400,000 in debt, up slightly from June, and it includes $17,800,000 in equipment lease finance and $7,600,000 in the CBA senior facility.
In addition, that senior CBA facility now has capacity of up to $25,000,000 for acquisitions, leaving approximately $17,500,000 available to draw. I'm on Slide 15. Similar comments to the balance sheet with capital raised funds now leaving us with a very strong cash balance. The significant cash outflows for the period were the investment in plant and equipment for the roll at nearly $14,000,000 and the acquisition of AFM, which was just over $18,000,000 in total. I'll now hand back to Harry.
Thanks, Kim. I will now provide a quick summary of the COVID impacts on the business over the first half of the year. I now refer to Slide 17 of the presentation. As you can see, the business was unable to open and operate all locations until December 2020. This clearly has a significant impact on the half year results.
As also previously mentioned, our eligibility for JobKeeper, which in turn provides eligibility for rent relief ended in September 2020. This meant that full rentals at all locations, including those in Victoria had to be paid, which provided a significant negative impact on the half year result. The good news is that apart from the SNAP 5 day lockdown in Victoria this month, all our locations are today open, growing and operating. Moving to slide 18, this was an important slide for us to provide. During the half year, we opened 15 locations and acquired one location in Campbelltown, New South Wales.
Those investors who have followed us know that we target a 6 week period once a club opens to breakeven. We then recoup any losses incurred in the 1st 6 weeks over the next 6 weeks. This results in new locations providing an EBITDA benefit on a 4 wall basis from around month 3 after recovering any losses incurred. During the first half, we saw this 4 wall EBITDA contribution being extended out through closer to 5 to 6 months for various locations. Of the 3 locations showing an accumulated negative contribution to EBITDA, 2 of the locations were in Victoria, being Ascot Vale and Nunawading.
These two locations had opened for less than a week before being closed down due to the Victorian government mandated closure. With the eligibility for JobKeeper ending, the rental payments to permanent staff had to continue at these locations, and this is what contributed to the loss. We expect all locations that have not yet contributed to EBITDA on a 4 wall basis to start contributing from the end of March based on current trending and growth. The combined EBITDA loss of those 2 Melbourne clubs alone contributed $262,000 for the half year. Just for interest sake, the high performing club on the right hand side of the chart is our big box club in Gungahlin ACT, which continues to perform extraordinary and is working well with our previous Gungahlin Club and our new Hip Republic Gungahlin Club in a hub and spoke configuration.
Moving to slide 19, you can see that our revenues have returned an increase past the pre COVID levels. In January 2021, revenues exceeded 7,500,000 as previously mentioned. The average revenue per month over the first half was just under 6,000,000 per month from a standing start of 4,400,000 in July. When you take into account January 2021, the average revenue for the 1st 7 months of the financial year exceeded 6,000,000 per month. Member visits exceeded 600,000 for the first time in January 2021 also.
This excludes the Plus Fitness member visits. When we include the Plus Fitness member visits, the Veeva network of owned and franchised location averages nearly 60,000 visits per day on a 30 day rolling average. This information is published on our Viva Leisure website for those that are unaware. This equates to well over 20,000,000 health club visits within the Viva network during the the what a normalized EBITDA position would have looked like without the impacts of COVID for the half. What we start with here is the actual result.
We then remove from that the benefit of JobKeeper and the rent savings and benefits We then add the one off COVID costs, which relate to cleaning, cleaning supplies, and as Kim mentioned, COVID marshals, which were required during reopening and are no longer required. And finally, we provide revenue shortfall from the Victorian Clubs predominantly, which were closed and the other clubs closed over the various periods as detailed on slide 17. To remind investors, the revenue loss from the Victorian clubs being closed equated to over $350,000 per month over the 5 months they were closed for the half. This results in what we call a normalized EBITDA of approximately $7,300,000 This is purely provided for informational purposes. Moving to slide 22, outlook.
This is a slide we have previously provided in our presentations, only updated with the latest figures. We currently have 122 owned locations. 1 of these is a Plus Fitness corporate owned location. We have agreed the terms to acquire another 2 Plus Fitness locations and we have another 7 locations in the Plus network, which we are currently negotiating to corporatize. The corporateization of the Plus Fitness locations by way of acquisition is one of the main drivers for purchasing the AFM network originally as you would remember.
We currently have 15 locations secured, 5 of which are currently in build. We expect most of these locations to open this financial year. In addition, we have further 15 locations currently under negotiation for lease or agreed terms, however, lease is not yet executed. Some of these locations may open in FY 2021, however, we expect most to open in early FY 2022. Finally, we have 14 locations we are currently considering acquiring.
Of these 14 locations, 5 have agreed terms and we are just finalizing the sale of business agreements with the sellers. As indicated on the next slide, these five acquisitions will total approximately $3,000,000 and provide an additional 5,000 members approximately. Moving to slide 23, our final slide. As Kim mentioned, currently we have 117,000 members of which approximately 4,000 remain on suspension, which is back to pre COVID normal levels. With the 5 acquisitions expected to be completed in the next 60 days, we expect to have 122,000 members excluding the Plus Fitness members shortly.
Moving to revenue, January 2021 resulted in the business achieving $7,500,000 of revenue. We have provided that as a run rate for the next 12 months. This indicates circa 90,000,000 in annualized revenue purely based on the revenue achieved in January. Any additional acquisitions or greenfield locations should contribute to that. To be clear, this is not the FY 2021 expected revenue, but rather the calendar year 2021 annualized run rate revenue.
We would now like to open up for any questions.
Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Jason Kurchinski from Ordinet. Your line is open.
Good morning, Harry and Kim. Thank you for running us through the results. My first question is just
that you called out higher costs relating to COVID-nineteen. What portion do you anticipate will remain going forward?
Is it largely cleaning costs?
Yes. Hi, Jason. It's Kim here. Yes. Look, what we're seeing here is we've taken an average of cost in the pre COVID environment, particularly in relation to cleaning.
Obviously, we don't have the requirement to have COVID marshals anymore. But when we take the pre COVID cleaning costs and normalize those and compare them to what we're currently running with, we're looking at about 50 to 80 a month in additional cleaning supplies and contract cleaning.
Okay. And that's across the whole network?
Yes, that's across the entire network.
Okay. Thank you. And I also just wanted to know if you could go through your suspended member base at the moment. Are these largely Victorians or are they students returning to Canberra? Are you able to just provide some more color over this?
Yes, it's across the whole network. So you'll always find a percentage generally 3% of your membership that is on suspension. So they might be taking a suspension for health reasons, they might be due to work, because our approach is a no contract 28 day cancellation period. If they're not planning to return, they don't go on suspension, they just cancel. So the members on suspension return at different times.
Generally, unless it's a medical suspension for a reason, the maximum suspension period is 8 weeks. It used to be 12 weeks and we reduced that to 8 weeks about a month ago. So you'll find that approximately 1500 of those return this month, 1500 will return next month, but then another 1500 will appear in the following month. So you'll always find somewhere around that 3000 to 5000 members are on suspension. You're right that some of them at like our Australian National University site have not yet returned to campus.
So they remain on suspension. But it's just part of general business, I guess, where members go on suspension for different reasons.
Okay. And final one for me. How have you found the market for acquisition? You seen more opportunities since rental waivers and JobKeeper have rolled off?
Yes, we have seen more opportunities, but it's a planning stage for us. So we've got 14 that we're in discussions with at the moment. Plus fitness acquisitions are really, really easy to integrate because there's no back office to do. Essentially, we just contact the 3rd party debit provider and change the debits to be received by us. Staffing, signage, branding, equipment, it doesn't change.
So they're really easy to integrate and convert to our network. Other locations that we acquire obviously need rebranding, our systems to be put in, which we can generally put in same day of acquisition settlement. But we still need to send a team up there to do that. So it's about pacing ourselves with the acquisitions. We're still targeting 7 locations a quarter moving forward and the 10 locations of greenfields a quarter.
That's still our target and that's what we're aiming for. But we are seeing more approaches. We're actually advertising on industry magazines now. If you wish to sell your club, please reach out to us. So that's generated more interest as well.
What you find though is that clubs that were doing well pre COVID,
sorry,
still doing well now. Clubs that weren't doing well pre COVID have probably put the Force House sign up, then not necessarily the clubs we're looking at unless we think we can get an improvement on them.
Okay, thanks for that.
Jason?
Your next question comes from Nick Bessel from Petra Capital.
Just a quick question. I thought Slide 18 was interesting given it showed the difficulty of opening new clubs during a COVID impacted period. But if you were to kind of recast that chart for, say, January, February, how many clubs close to breakeven or look like breakeven in the next couple of months in line with your traditional ramp up profile, I guess, with the plans to open a few more clubs this half than previously announced. What's giving you confidence around the return to a more normal ramp up of breakeven?
Yes. Those figures on 'eighteen are the accumulated losses. All of those have recovered other than 2. Nunawading and East Brisbane, the 2 of the 3. Ascot Vale is doing okay, which was one of the large ones.
And the other ones were all marginal, you're talking under 20,000 accumulated EBITDA on a 4 wall basis, which they've all recovered. So it's only 2 left. And that's why I said in my presentation that we'd expect them all to be positive and contributing from the end of March.
Great. And I think it's pleasing to see that you are able to grow memberships organically half. What's continued
Yes. I think it's an understanding by people of the benefits of health post COVID. So, the COVID lockdown, especially for our members in Victoria, really shone a light and understanding to them that they need to be active. So we're seeing good growth in Victoria, but good growth nationally for us as well. And that's the organic increase.
So people are starting to even better understand the correlation between health and health clubs and gyms and that's what's contributing to us. So while we're opening more locations, we are getting good organic growth, as you said, on existing clubs. This is really evident on Slide 19, which showed when the gyms reopened in July, unique member visits absolutely peaked, up to we're talking current levels. So people were busting to get back into the gyms. And that's why you see a peak in the orange line on the right hand side chart, And then it sort of returned to normal levels.
And now we're back at that 70,000 to 80,000 unique member visits a month and 650,000 visits in our network a month. So, yes, people don't like being locked down and I think the benefits of actually exercising are starting to ring true to a lot of people.
Okay, great. That was all for me. Thank you.
Thanks.
Your next question comes from James Casey from Ord
Munich.
I wanted to refer to Slide 11 of the pack, just the EBITDA margin that you've shown there for the last 4.5 years. Is there any reason, given what we've experienced in the last 12 months that your margins wouldn't get back to that 24% to 25% level, say in FY 'twenty two?
No, no. That's why we sort of said in the notes that when we take into account January, January's revenue was $300,000 above December's and all of that, I mean 100 percent of that added to EBITDA. So the pure marginal contribution and nature of this business with fixed costs means that it's just revenue. So once that revenue returns, which it has returned, it all falls and the margin then obviously increases with that.
Okay.
In addition to that, Stan, it's Kim here. Look, we've had some margin pressure over the last pretty much since March last year with COVID shutdowns. Opening 15 clubs across the, I guess, the second half of twenty twenty calendar year, paying full rent and full wages has just put a bit of pressure on the cost base as well. And as we've pointed out on a couple of slides, they're taking a little bit longer to come to profitability and that's what's probably depressed that margin a But the full wall clubs tend to range somewhere between 40% 50% EBITDA margin on their own once they're fully up and running and maturing. So they're nowhere near that stage at this point.
And accordingly, we would see them contributing a lot more as we move forward into the second half. And therefore, we should see the margin start to increase. Obviously, again, this is going to be hampered somewhat depending on how many we rolled out additionally to that, because there's always a short term depression in the margin when you open up new clubs. But certainly in the long term, we would see going from mid to high 20s, and we're talking over the next couple of years.
Okay. And just as well, just with regards to things that have changed over the last 12 months, corporate's running excess cash in many cases rather than debt at the moment given uncertainty. Just with regards to your $400,000,000 target, is that would that be better described as an aspirational target now for FY 'twenty five? Or is this a hard sort of
sticking to. It's achievable based on 10 Greenfield locations a quarter and 7 acquisitions. And that's what we've been doing over the last couple of quarters and halves. So that is our target. But obviously, we're keeping one eye on whether there's going to be further restrictions.
We don't know. We're obviously hoping not. But if there's no further restrictions, we will see revenue continue to increase and we'll continue to roll out clubs like we have We've all mapped it out actually mapped it out to get to that. It's not just a pie in the sky number. That's the number that we've actually mapped it out per quarter moving forward to 2025.
Yes.
Okay, many thanks.
Thanks. There are no further questions at this time. Please continue presenters.
Okay. So that will end our presentation here. We've got 1 on 1 meetings with anyone who wants 1. Reach out if you'd like a 1 on 1 meeting and thank you for listening in today and thank you for your continued support of the business. Thanks again.