Good morning, ladies and gentlemen, and welcome to The Gym Group full year results presentation. By way of introduction, we're going to take you through three aspects this year. Firstly, the year in review, and take you through the post-pandemic recovery. Full year sales delivering GBP 38 million of EBITDA less normalized rent. Very excitingly, 28 new openings during the year, which is the highest number of gyms that we've ever opened in our history. Brand new brand transformation has been completed throughout the whole estate, which has been driving January and February trading, and we've also introduced a new digital platform and app. We're also really excited to announce that we're the first U.K. carbon neutral gym chain. The second part that we're gonna cover is the current year outlook.
Obviously we're facing difficult times, the macroeconomic challenges. We're gonna take you through the endeavors that our team are taking to improve the current situation. We'll also be taking you through the fact that revenue increase is broadly offset by cost increases. Finally, we're going to take you through the medium term. We're optimistic about the medium term, the continued opportunity for yield optimization. The team will be taking you through more detail of our new three price architecture, which will introduce a lower entry point along with other levels and benefits for members, which has very much been tested internationally successfully. We'll also be taking you through the significant headroom for new site growth. Focus very much on the towns and residential style of locations that we have been using for a number of years now with great success.
We will also be obviously looking at how we drive mature site revenue growth. As ever, a key part of our DNA has always been tight cost control. In terms of the 2022 highlights, we opened, as I said, we've gone up to 229 gyms, up from 202 a year ago. One of the key parts of our strategy is to drive membership volume and yield. You can see there that we've succeeded in both. 14% membership growth, membership up from 718,000 to 821,000. 4% growth in average revenue per member per month, up from GBP 17.60 to GBP 18.30. As I stated earlier, EBITDA less normalized rent at GBP 38 million, up from GBP 5.7 million a year ago.
We've also introduced a facility that is also part of our LIVE IT enhancement that has introduced 200 new Fiit classes that is now available to our membership base. The other key part of all membership based businesses is retention, and we've seen some real satisfactory improvement there, and the team will take you through the growth we've seen in customer satisfaction scores and also a 12% increase per member in the number of visits to our gyms. Those are key factors in driving retention. Finally, this is an area that we're very much leaders in the market right throughout Europe, and we've shown how we've generated GBP 3.3 million of social value per gym. As I said earlier, we're the first carbon neutral gym chain in the U.K. I'll now pass you over to Luke Tait, our CFO.
Thank you, John. Good morning. Starting with a summary of our operational and financial KPIs, I'm pleased to report that the majority have shown significant recovery in 2022 from the previous two years, which were significantly impacted by trading disruption from COVID. John has already mentioned the further significant growth of the gym estate to 229 gyms and associated growth in membership. As the charts show, revenue, EBITDA, and free cash flow all recovered last year. Net debt, following a year of major investment, has also increased. We will look at each of these key financial metrics in more detail in the following slides. Turning to the income statement, we're reporting EBITDA less normalized rent for 2022 of GBP 38 million. A significant recovery from GBP 5.7 million last year, but still behind pre-COVID levels by just under GBP 10 million.
A full year of uninterrupted trading, combined with new openings over the last two years and improvements in yield, have increased revenue by GBP 67 million versus prior year to GBP 173 million. This is also GBP 20 million ahead of pre-COVID revenue, but from an estate with 54 more gyms. Site operating costs increased in line with the full year of trading and new gym openings. Utility costs increased in the final quarter of the year, but the majority of the year was protected from wholesale price increases due to a long-term hedging strategy. Other income in 2021 of GBP 7.3 million related to government support during COVID, and has therefore not been repeated in 2022. Net financing costs of GBP 16.1 million consist of GBP 2.8 million of bank interest and fees, with the remainder relating to lease interest.
As a result, loss before tax narrowed from GBP 36.8 million last year to GBP 5.5 million in 2022. Non-underlying items of GBP 13.9 million principally relates to the impairment of workforce-dependent gyms and costs relating to the rebrand. A full breakdown is included in today's announcement. Looking now at revenue in more detail. Average revenue per member per month increased by 4% in the second half of 2022 to GBP 18.30. Due to gym closures during COVID, there's no relevant first half comparison in 2021. The increase in average revenue per member per month was driven by three main factors. Our headline rates increased as we closed the gap in price between ourselves and our main competitors.
The average DO IT membership increased 11.5% to GBP 21.49 in December 2022 versus December 2021. Secondly, there was an increase in the proportion of members choosing the benefits of LIVE IT membership, up 2.5%- 29.6% of the membership base. Thirdly, the repricing of existing members. These increases were offset by several deep discount promotions, such as the three months to 50% off campaign in October, which were run to bring members back lost to behavioral changes post-COVID. Turning now to like-for-like revenue. Like-for-like revenue against pre-COVID sales recovered to 90% early in the year and remained around that level for the remainder of the year.
The 90% like-for-like was driven by membership volume recovery of 81%, an increase in yield to 110%. There was a difference in regional performance, with the North recovering more strongly at 98% than London and the South at 85% and 89% respectively. 2022 was a year of significant investment, with 28 new site openings and one-off investments in both rebranding and technology. Looking at expansionary CapEx first, new site CapEx was GBP 35 million on 28 sites, including the three Fitness First sites. The CapEx element of the rebranding was GBP two and a half million, and tech CapEx increased to GBP 8.8 million as we invested in upgrading our digital platform to allow a more sophisticated approach to yield management.
Of this GBP 46.5 million of expansionary CapEx in the year, GBP 42.6 million impacted cash flow in 2022. Maintenance CapEx also increased significantly to GBP 11.9 million or 7% of revenue, with a major refit of some acquired sites, albeit only GBP 8.7 million impacted cash flow in the year. The significant level of investment in 2022 was funded partly by free cash flow and partly by an increase in net debt. Working capital was a GBP 5.3 million outflow in the year. GBP 2.1 million of this was the final catch-up of rent payments deferred during COVID. The remaining GBP 3.2 million reflects a return to a more normal working capital position. After deducting the cash spend on maintenance CapEx for the year of GBP 8.7 million, operating cash flow was GBP 24 million.
The cash elements of non-underlying costs, which were principally the brand relaunch, were GBP 5.3 million. After deducting bank and finance lease interest of GBP 3 million, offset by just under GBP 1 million of tax refund, free cash flow was GBP 16.6 million. About a third of the expansionary CapEx and acquisition costs in the year was funded by free cash flow and two-thirds by an increase in debt. Non-property net debt was GBP 76.1 million at year-end, representing a multiple of 2x EBITDA. The net debt consisted of GBP 64.6 million of bank net debt and GBP 11.5 million of finance lease debt. Under the revised bank facilities agreed last May, the group has access to combined RCF facilities of GBP 80 million and allowable lease facilities of GBP 15 million.
With net debt at two times EBITDA, the current leverage is at the top end of our operating range, which is reflected in our planned level of investment in the current year. Turning now to return on invested capital. The ROIC of the mature sites have recovered to 20%. Whilst this is a significant recovery year-over-year, it has not returned to pre-pandemic levels. When excluding the workforce-dependent sites, the ROIC improves to 22%. The former easyGym and Lifestyle gyms have a lower ROIC due to the premium incurred to acquire the sites, but on average, a higher cash profit. The new sites opened in 2021 and 2022 are performing well.
The combined revenue for the 2021 sites opened over 18 months ago is reaching 100% of their mature revenue targets, reset to reflect the post-COVID membership and yield environment. The revised revenue targets generate an average ROIC of circa 25%, assuming this year's utility costs. Whilst it's still early to be assessing them, the 2022 sites are progressing well and in line with the 2021 sites. As a low-cost business, we continually strive for ways to drive down costs. The biggest challenge in the current year is the increase in utility costs, expected to be circa GBP 10 million, with electricity rates fixed until the end of 2023. A number of actions have been taken to identify and control high usage, including centralizing the control of air conditioning systems and the reprogramming of air handling units.
Looking forwards, there are further initiatives planned for the year to continue to limit consumption, such as the installation of voltage optimization units. Further efficiencies are also expected across cleaning, technology, and organizational effectiveness in the current year. Finally, turning to current trading. Trading in January and February was uneven. Closing members increased to 890,000 at the end of February, up 8% from the end of December, a smaller increase than in prior years. Revenue in January and February was up 19% versus prior year, with average revenue per member per month growth contributing slightly more than average member growth. There are three reasons for the smaller increase in Jan and Feb versus prior years.
Firstly, last year's benchmark, Jan and Feb, with hindsight, probably benefited from the end of COVID with an increase of 15% versus 12%, for example, in January, February 2020. Secondly, we've consciously driven yield with lower levels of promotion year on year for the long-term benefit of the business. Thirdly, the current consumer cost of living squeeze is likely to be having an impact. As a result, looking ahead at the 2023 full year outlook, it's now expected that the revenue increase from yield and new openings will broadly cover the increase in costs year on year. Finally, as communicated in the January trading update, investment in CapEx and strategic projects for the current year will be financed from free cash flow. Total new openings are now expected to be up to 12 for the year and having a strong second half waiting.
I'll now hand over to Richard for the business and strategy update.
Morning, everyone. I plan to take you through the progress we're making against our strategic priorities. First, a word about our business and the market that we operate in. Our business is in good shape, with some very strong operating metrics. Clearly, as Luke said, the market recovery has been uneven post-COVID, and this is having an ongoing impact. Just in terms of those operating metrics, we're seeing high usage per member. That's really important, I think, because it confirms the thesis that we thought that post-COVID there would be a greater interest in health and fitness. And of course, that usage is a primary factor in generating the social value that we've seen, GBP 3.3 million per site, something that is a real strength for The Gym Group.
We're also giving members a good product. In OSAT, we're at 57% raters, 5 out of 5. We have an engaged team, Gold Investors in People, strong levels of engagement. Our recovery has been uneven, and what we mean by that is that we're now just two years since we reopened. We're at 890,000 members versus 547,000 in February 2021. That's up 63%. Some of that's come from the 47 new sites. Over half of that membership recovery has come from the core estate. We accept clearly that in 2022, the membership recovery has been more difficult because of the economic circumstances that we find ourselves in.
I think it's worth just pausing to address why we remain at that 81% versus the pre-COVID volumes. That's member sites open up to 2018. We don't think there's any one single factor, but a couple of things playing out here. Firstly, the change in post-COVID routines. Clearly, at the end of last year, we called out 16 workforce-dependent sites where the recovery has been particularly slow, less than 70% like-for-like revenue. We also think that change in routines may include an element, but difficult to quantify, where people are using some digital fitness. We also have the economic impact, and because our membership base reflects all the different income demographics of the U.K., clearly a cost of living crisis will have an impact in terms of membership acquisition. Clearly, we're looking to mitigate these impacts.
We're seeing some trading down. It's not necessarily accelerating because we've always seen an element of our new member acquisition comes from different elements of the market. We did a recent survey that suggested about 50% of our new joiners is coming from the mid-market premium and local authority. As I say, not an accelerating trend at this stage. We've adapted our model, so we've included Fiit within LIVE IT, so we have more of a hybrid model. As I'll show in a moment, we're also locating in the right place with our new sites for the post-COVID environment. That's particularly in the residential areas.
We see the next real opportunity to move that 81% to really come from either economic recovery or the launch of our three price product architecture, which I'll talk a little bit more about, in a moment, which we will trial in quarter two. In terms of what I plan to go through, four strategic priorities, the rollout of 28 sites, yield optimization, the tech platform, and the brand relaunch. These are all initiatives that were very much geared to make us trade more effectively as a business. Just in terms of the market, we've been saying this for a while, pretty much since the IPO, but what you have here is two operators that are taking the majority of the market share in the low-cost market. We're up to 29.3% overall. The two operators combined over 70%.
Scale really does matter. We've opened a net 27 in the year, so we did close one site as well, and that's moved our market share up to 29.3% from 26.7%. Overall in the market, there's 781 low cost gyms, which means that even with a year of slowed expansion, there is still plenty of white space. Remember the PwC report that we spoke about, estimated between 1,200 and 1,400 overall. This is a market where the mid-market and the local authority are structurally challenged. We've seen clearly lots of publicity about local authority pools closing and the mid-market with its higher price point, particularly susceptible to higher energy costs. We've grown our market share pretty much every year in those eight years.
We started at 16% in 2016 and now at 29%. I think what that means is we are well positioned when we see a stronger economic backdrop. In terms of where we have been expanding over the past four years, it very much reflects the post-COVID market dynamics. That really means in urban residential, greater London residential areas, and the smaller catchment, which is town locations. If anything, we're just beginning to shrink our city center estate. The sort of sites that we're talking about here is sites where we opened in Norbury, London residential or in Sheldon in the southeast of Birmingham. In terms of the city center, we probably will see some more selective retrenchment. I say, one already closed actually in January of this year.
We're also looking at the benefit that those city center sites give us to our overall LIVE IT proposition because clearly it enables members to use more than one gym. I think the key point here is that our pipeline will be very much focused on these residential areas. We've just given you a quick snapshot here of the type of sites clearly that we've opened. One of the key points is that we have real flexibility in terms of the format. We can open anything from 7,000-21,000 sq ft. Selly Oak is a great example of a site that is quite typical for us, where we took 10,000 sq ft, built a 5,000 sq ft mezzanine overall to give us a really strong 15,000 sq ft site.
Glenrothes is actually an example of one of our town locations where we've built 9,000 sq ft and we're the only low cost operator in the town. We do have this ability to scale across different formats, but I think our immediate focus will be more likely this year in the 10,000-15,000 sq ft range. On now to yield, this is an area where we've made considerable progress, and we're really adopting a three-step plan. The first step was to close the gaps of competition in the competing locations. And you can see in the bottom right-hand chart that we've increased price more aggressively than the rest of the market other than energy, up over GBP 2 overall. I think we had more flexibility because we had a lower starting point.
I think key to this is all our analysis suggest that those price increases have been revenue enhancing. Clearly, LIVE IT at 29.6% also helps with that yield. Step 2 was a new product that we launched in December, which is a pay upfront product, which this is based on LIVE IT, where we charge a slightly lower price for paying upfront as opposed to paying monthly. The critical third step is the three-price product architecture that which we will trial in quarter two. This required quite a lot more tech development, which is close to completion. As I say, we will trial that in quarter two later this year.
This really is a fundamental change to our commercial construct because what it aims to do is widen our addressable market, both in terms of the entry price and also by being able to have more products and charge a higher premium price. We spoke about two transformational initiatives. The first of those was the tech infrastructure, which we launched just over a year ago. This is really a step change in our technology with the aim of driving web traffic and conversion. And what we actually launched was a stable, secure mobile-centric technology. And I think the evidence of the success of that is the fact that our reliability 99.99%, in January and February, which is clearly all important. We're still looking as to where the final 0.01% went to.
Really important actually, we've got data capability as well. Whenever we do any promotions now we'll hold back some sites in a control group so that we can really assess the effectiveness of that, and our data team helps us do that. Then the tech has enabled us to launch new products. We've done a corporate offer, a 12-month upfront, pay upfront offer for LIVE IT. We've also introduced, as we've said, Fiit into the LIVE IT proposition overall and kept on developing our app. Just a word on the app. We've now got 700,000 active app users and some very high-quality ratings. This feels like a very market-leading product. Our next challenge, and aim is to make sure that those app users can become stickier members for us.
The speed of the site, and it is very quick, really helps with our SEO rankings, but our real test on the technology is on conversion. We monitor this pretty closely. What we're actually seeing at similar first-month revenues, about a 1%- 1.5% uplift in conversion, which is absolutely achieving the aims that we set out. The second transformational initiative was the brand relaunch. Here again, we've spoken about this before, but the rationale is very clear. We want to reduce the reliance on performance marketing. We want to drive higher SEO with more members coming to us direct and then also improve our marketing effectiveness. We launched this in the year, firstly with the visual identity and the signage and recutting the web and the app.
In September, October, our first new creative campaign, which was The Gym Face. Here we've seen a really good increase in attribution. One of the problems we had with our generic brand was a lot of people would actually look at our marketing and think it was somebody else. Here we've seen a 14% percentage points increase in correct attribution. We're monitoring three KPIs carefully around this initiative: brand awareness, organic search, and performance marketing effectiveness. Very early days, clearly on brand awareness, we're seeing some encouraging signs with unprompted at 10% and prompted at 21%. In terms of the organic search, you can see the chart on the bottom right. We've had a complete flip in a year.
We've now got over two-thirds come direct and search for The Gym Group as opposed to our generic brand, The Gym. That's enabling us to get more traffic coming to that particular search term. Where we look at particular pieces of performance marketing associated with our new unique brand term, we're seeing about a third more effective in terms of the return on that performance marketing spend. Again, some encouraging signs. We'll build on that progress as we go into 2023 and continue to look very carefully at what is the right sort of balance between brand marketing and performance marketing. Let me just then finish with an initiative that is always on, and that's sustainability. As John says, this is an area where we're really leading the market, and we've made further progress in the year.
First, U.K. carbon neutral gym chain. a point I know a lot of investors really care about is that we've submitted SBTI verification. That's our pathway to net zero. We expect to get that verified, later this year. Our commitment is to completely decarbonize our business by 2035, even though net zero will take us to 2045. In terms of the social value piece, 3.3 million social value per site. That's really on the back of the usage numbers that we've seen. in particular, what really matters is how many members visit more than four times per month, and we've introduced that as a KPI in our business.
In terms of people, Investors in People Gold, really good work on gender balance. I think the point really on sustainability is it's not just necessary for our business, but it also will help drive business performance. More usage should lead to less churn. Lower consumption of energy clearly will help on the cost base, an engaged, diverse workforce will perform better. Finally, the strategic initiatives for 2023. Really a continuation of the work that we've been doing in 2022. The three-price product architecture, as I mentioned, will really give us more flexibility in our commercial construct to trade more effectively. We'll seek to optimize the mature estate. We wanna drive up that 20% ROIC that Luke spoke about.
That would include some sites where we may exit if we can do it in a cost-effective way, and where we don't think that those sites necessarily benefit the wider network effect. Then our rollout will be in the residential areas, but we've got this commitment, as Luke spoken about, to self-funding. Cost control, you know, John's spoken about this. This is always on. I think we made some exceptional efforts actually in 2022, but we go again in 2023. I think the way that we like to think about this is that we've made some substantial investments in 2022, and in 2023 we'll seek to maximize the benefits from them. Just to recap, first full year of trading, post-COVID, significant progress on new sites, tech and brand.
The yield optimization is an area where we're already benefiting, and we've seen that again in January and February. We think there's some more to come on that. It's a difficult economy, which means that we need to really focus our growth in 2023, and we plan to self-fund our expansion. We expect the revenue increases, as we've said, from yield and new sites in 2023 to be offset by the cost increases in our business. I do think we continue to make strides forward as an operator of scale in the low-cost gym market. This is a very different business to the one that floated back in 2015. Clearly I'm moving on after eight years with the business, but I do have absolute confidence that the business will thrive over the coming years.
Thank you for listening. We'll now take some questions.
Thank you very much. Good morning, it's Anna Barnfather from Liberum. I've got three questions, please. Firstly, just at the end there, you alluded to maybe closing some sites. Can you tell us a bit about how you'd approach that and what sort of criteria you're looking at and just some quantum of what that might be? Do you want me to do it in order or should I give you all three?
All three is fine, I think.
Okay. Second one is just on your returns calculation. It looks like this is a 4%, 4% hit maybe just from the lower membership numbers, if I deduct out where you were and what the energy costs are. Is that right? Is that the basis in which you're appraising new sites? Is that the hurdle rate? Related to that, what is your internal cost to capital calculation that you use? Just Sorry, no one else was wanting to ask a question. The last question is just on churn. It's referenced in the presentation, we don't actually have any stats on the presentation. Can you give us any details, maybe gross membership sign-ups, percentage of year-end members who were a member at the beginning of the year?
I know they may leave and change, just any data or stats to help us understand that churn figure, please.
Okay. Shall I do the closing sites and then Luke, you do the returns and perhaps I'll have a go on the churn question. I think in terms of closing sites, I said we wanna do it in a cost-effective way, and that typically kind of means that it's sites where there may be a break coming up or they're coming up to the end of their lease. One of the good pieces about this is that the 16 workforce dependent sites, predominantly, as you can imagine, are city centers. These are actually the sites that John opened in the very early days of the business. They typically have the oldest leases, so they're kinda more likely to be coming up towards an end or to have a break in them.
We'll be very tactical about that because clearly if you close a site, you need to have a look at whether the fixed costs that you incur closed make sense versus just continuing to trade it. There's also the LIVE IT benefit that we spoke about. People will be buying LIVE IT expecting to be able to go to their home gym as well as go to the city center gym. I say there has been kind of one that we've closed where we've just exercised the break in January. That was in one of the 16, and there may be some, but we're certainly not putting a number on it. Do you wanna do the returns one?
Sure. I think on ROIC, I think, Anna, it was broadly right, as you say. There is a definite difference in revenue driven by lower members but higher yield, and actually the high yield does balance off a fair bit of the different member environment. Utility costs account for about 2-2.5% of that reduction. I think there's a question about your long-term view on where you think utility costs may go, which actually, you know, influences what you think that cohort's ROIC will be. That we gave you probably the most conservative position, which is factoring in the year with the GBP 10 million increment and cost, if you see what I mean.
I think the other thing to say is, as we've reduced the number of new openings that we will do in 23, it's enabled us to be rather more picky on the sites that we choose to commit to. Actually, although I think the 21 and 22 sites will be at 25% ROIC, I think actually the 23 sites should be reasonably consistent to the old 30% ROIC. There's then a further third dimension, which is just seeing where this all balances out, you know, longer term as we come out of this sort of this uncertain macroeconomic environment.
Just in terms of your churn question, Anna. I mean, we don't give the stats. We've always said churn is pretty high in our business. I mean, I think we're pretty granular actually in terms of the disclosure. I think there's a couple of things going on in churn post-COVID, which is worth kind of calling out. Firstly, what we know is that you get heightened churn if the tenure of your members in the base is quite low. Obviously, as we came out of COVID, we brought a whole load of new members back, and so naturally, the tenure in our base was quite low, and we saw some heightened churn, and if anything that we expected that.
What we also know is, this goes to kind of the pointers to why we've been more disciplined in terms of our promotions in January/February, is that you can also see heightened churn actually if you're quite promotional, because obviously you kind of attract that particular type of member overall. One thing that we did in September and October, as we've spoken about previously, was effectively a three-month kick. It almost kind of kick-start kind of our membership at that point in the year, and that obviously comes with some heightened churn. We haven't. We've been more disciplined clearly in terms of what we've done in January and February. I think the good news on churn is that from our analysis, it's very kind of similar to where it was last year.
We're not seeing any immediate real impact of the cost of living crisis. We will just have high churn because we're a no-contract model.
The fact our customer satisfaction scores are so good, along with the fact our members are using the gym more regularly every week should be a good retention driver.
It's the marginal. It's the marginal gym member who's not returned. That usage stat. The usage is such 'cause you've got really committed gym-goers who are using your gyms really frequently, and it's the less committed people who just haven't come back.
I think that's a fair summary. What we saw through... We held on to a lot of members, but clearly we lost a lot of members as well. As I say, you know, that number went down to 547,000 members, and I think it's fair to say the ones that stayed in our base then were the more committed ones. The ones that immediately came back were the more committed ones, and it was probably the slightly less committed were the ones that left us through COVID and been more difficult to get back than we anticipated.
Hi. I'm Darragh O'Sullivan, Jefferies. Thank you for taking my questions. Can you talk about the outlook for 2023 a little bit? If I understand correctly from the statement, EBITDA is expected to be flat year-on-year. Secondly, can you also give a little bit more detail around the increased costs in 2023 mentioned in the statement, and how these compare to 2022?
Okay, Luke.
Your, I think your interpretation of the announcement was absolutely right. We anticipate the sales growth that we will get both from new openings and yield, stronger yield management will effectively offset the increases in costs, and the most significant of those is the utilities. I think we talked to that in the presentation. We are now 100% hedged on the utilities. If we mark that to market, it looks like that would be an immediate saving in the region of sort of GBP 2.5 million-GBP 3 million, which we hope to see come back in due course. I think that's by far the biggest cost that we're facing into.
We will be working on everything from sort of cleaning programs through to organizational effectiveness structures, et cetera, to optimize costs at every line where we can.
Thank you.
Shall we go to questions from online?
The first question is from Tim Barrett, Numis. Firstly, please could you cover the North-South differential in more detail? Is it a simple function of where your workplace-dependent gyms are located, or is there a difference in new supply competition? Secondly, how has your ability to manage yield changed? Do you have a better idea on elasticity now, and has this helped to cover our ARPM?
Okay. Let me take the North-South one and then, perhaps, Luke, you take the yield one. I think the North-South divide is down to almost kind of more structural reasons, as opposed to competition. In as much as, you know, our working thesis is that in the north, people tend to be more likely to go to a physical location with their work, and so therefore tend to be a little bit more mobile. Whereas obviously in the south, there's probably a greater predominance of working from home, and I think it's that working from home trend that really probably explains the difference between the north and the south. I think that's why we saw the north come back very quickly.
The south has certainly been slower and obviously London is most impacted by that. Having said that, and we should stress this, we've got some fabulous sites in London. It's still a very strong area for us where we have a very good market presence. As we've always said, finding London sites is more difficult than anywhere else outside of London. Actually, whilst it's been slower to come back, we're very happy with the profitability that we're seeing and obviously we'll seek to increase that further to drive those returns up.
On the second question about ability to manage yield, I think, you know, we've had two quite disrupted years. Now we are returning to definitely a period of sort of yield optimization, including, you know, continuous test and learn programs each time we do take price. There's quite different dynamics on a headline rate increase, where we do see a reaction on member acquisition associated with headline rate and therefore monitoring the overall impact to revenue is obviously key. We also have a fairly detailed analysis around repricing the base, which makes sure that we are only repricing where we believe that price will stick. Actually, we so far have been very successful in repricing without seeing any incremental churn.
The final bit is finding the right balance of promotion. As we discussed earlier, you know, in the autumn, you know, we were doing everything we could to stimulate the return of members who'd changed their habits. I think now we've moved into a phase of balancing that level of promotion in order to optimize long-term revenue and also to avoid, you know, becoming effectively a discounter.
Okay. Thank you. Next question. Douglas Jack, Peel Hunt. New sites appear to be on track to achieve higher returns than the current returns of the existing estate. What would you attribute this to? Are there any aspects that could be backfilled into the existing estate?
Sorry, Andrea, would you say that again?
The new sites appear-
Overlap with Anna's question, but could you say that again?
New sites appear to be on track to achieve higher returns than the current returns of the existing estate. What do you attribute this to?
Perhaps, Luke, you talk about the returns element. Let me just say one thing on new sites. Clearly, as I said in my presentation, for the last four or five years actually, we've been locating the sites in the right place for the post-COVID marketplace, which is predominantly those residential areas that I spoke about, as well as the town locations. Therefore, they're not subject to, you know, necessarily, the workforce dependency that we've seen and called out on 16 other sites. In terms of what that means for our returns, for those sites, perhaps Luke you wanna cover.
I think I covered sort of part of it through the response to Anna's question. I think the reason we're getting slightly better or we anticipate getting slightly better returns on the 23 sites is just finding better trade areas or only accepting the strongest trade area opportunities that come through.
Thank you. Hamish Adam, Patchwork Investment. Your 2022 free cash flow before acquisition and expansion CapEx is circa GBP 17 million. Your outlook says that revenue increase will be consumed by inflation of cost. Does this leave your next FCF pre-expansion similar to this year?
Yes, I think broadly it does.
A follow-up question. How about after expansion?
As set out in the outlook slide, the expansionary CapEx spend will be tailored to the free cash flow generation in the year. To the extent that the free cash flow is stronger, we would hope to open more gyms. To the extent that we feel we need to take a slightly more cautious view, we will open fewer.
Okay. Another question from Hamish. What's the plan for the repayment of the RCF that's due in 2024? 2024, yeah.
We are in constant communication with the banks, and we have agreed that the more trading information that we can get from this year, the easier it makes to have a proper conversation with the banks. We anticipate talking to them sort of about a year out from the banks or the RCF expiration, so around sort of autumn this year.
Okay. Again, from Hamish. What energy costs for 2023 have ended up lower in hindsight if you had not hedged?
I think that's the point about, if we hadn't taken the hedge today and we just bought in the market, what would be the impact and that's about GBP 3 million.
About GBP 3 million. Sorry, I think we that came through on another question. I think it's worth saying that if we hadn't had the long-term hedges in place in 2022, the final quarter impact we saw, I think we would have certainly seen in two other quarters. I think we probably kept to that long-term hedging plan. We probably kept GBP 6 million of utility costs out of the 2022 P&L, which is what we're seeing rolling into the 2023 P&L.
I think it's perhaps worth just adding to that. The level at which we were able to hedge in October 2019 and then went through to September 2022 is at a level that even as energy prices come off, we don't think we'll get back to. We do think that some of that GBP 3 million will unwind. I think if anything, we probably expect more would unwind again in 2025, but I don't think we'd go all the way back down to the sort of very low energy costs that we had for that three-year period.
Final question from Hamish. Could the North-South divide actually have been influenced by customers trading up during COVID and the return to gyms, and those customers are not yet trading back down to The Gym Group?
John, I don't know whether you wanna kind of add something of what we're seeing at, in the market overall.
I mean, it's very interesting. I took our marketing team and our ops team to Berlin recently, as you're probably aware, Germany is the biggest low-cost gym market in Europe. They're experiencing exactly the same as we are. They're about 80% return to pre-COVID levels. The same is true of Spain. There's, you know, a fairly consistent situation. I do think we need to remember here that this sector has never experienced this environment before. We're clearly coming back strongly in 2022, and we will continue to do that through 2023.
Thank you. Question from Mark Walker, Tollym oore Investment Partners. To what extent can we expect low-cost market share acceleration and member volume per club recovery as mid-tier gym members are released from their higher price contracts and migrate to lower cost alternatives? I think that's John.
As Richard said earlier on, I mean, still consistently see about 50% of our members coming from either high-priced premium products, mid-market or local authority. That has been a consistent trend and very much continues. What we haven't, I think, seen yet is that impact yet, which may improve the situation. The current problems with the local authority market, there are forecasts, even though the government have agreed GBP 60 million of help for swimming pools, most of that will go to decarbonization and won't actually make very much difference from an energy cost perspective. Of course, that's one of the things we really need to remember. Our gyms always have been very energy efficient. We've just found new ways of making them even more so. We don't have swimming pools.
We don't have the size of premises, so we're always gonna be better protected against those sort of headwinds.
Thank you. Next question, Emma Stevenson, CQS. How much do you think you can increase membership fees to still be considered a discounter? The follow-up, is there a cap on how much you can increase pricing?
I think that kind of feels like the same question, asked a slightly different way. I mean, the kind of traditional, way that the low-cost market is considered is under 30 GBP. Clearly we're at GBP 21.50 at the end of 2022, so there's still quite a long way to go. I think the kind of the key point here is that we saw an immediate opportunity to close the gap against our competition, and that's what we've really put in place in 2022, and that's kind of an over a 2 GBP increase overall. The next element of yield growth, we think it's important to have a more sophisticated, price product architecture, which is why we're introducing this three-price product architecture.
That will just give us much more flexibility both to be able to change the entry price, but as I said in my presentation, to also charge a more kind of premium product that's got more features in it. I think having that widened ability to be able to both get kind of entry price members as well as premium price members is the next thing that actually leads to our yield increases. We will continue to clearly selectively reprice where we see opportunity, and there is still opportunity because clearly the competition is not standing still. We're seeing competition also put their prices up, which creates another opportunity for us to go again on pricing. I think we're very much focused on being the lowest cost nationwide 24/7 chain. That's kind of part of our marketing in January, February.
We think that positions us very well, but there is opportunity clearly to continue to increase price.
On the back of today's soft results. Sorry, this is from Sahill Shan. On the back of today's soft results outlook, where does this leave your five-year ambition, per CMD? Can you shed some light on whether the slow membership growth is a function of competition being more price driven?
Just in terms of those CMD targets, clearly that was a slightly different environment. We were assuming greater speed of membership bounce back kind of post-COVID and also higher level of expansion. I think it's fair to say that we won't achieve those 2025 targets that we set out. Sorry, is there a second part to the question?
Yes.
About the speed of membership growth, and whether or not that's to do with greater competition. I think it's very difficult to be absolutely certain. I think that we've always had a long-term competitor in the market or multiple competitors in the market. I don't think the competitive set has changed massively, which leads you to think it must be more to do with the macroeconomic environment.
Mm-hmm.
If you look at the chart that actually shows the market, for the first time, we're actually seeing some of the low-cost operators going backwards, particularly the franchise operators. Yet The Gym Group and PureGym are obviously facing exactly the same environment. I'm sure they're experiencing, as the Germans are, exactly the same environment. The point I'd just like to stress that Rich had made, this differential has always impacted on this market, and that is where we can be so agile in terms of changing prices on a site-by-site basis.
You know, if you take a David Lloyd Center, they don't charge the same price in Brighton as they do in Liverpool, and we can reflect that and affect that differential that will enable us to lift prices in those sort of environments, particularly as those sort of operators all have swimming pools.
Just follow up on that one. Vivek Mehta is asking whether since The Gym Group has been a key contender for competitive prices with good quality gym equipment in areas, is there any further inclination to access the premium end gym markets with a higher cost, but offering more to the public?
No.
No.
I mean, we're very happy with the product that we provide, which is all about concentrating really just on the gym offer and the gym product. I think what we've seen, particularly with the energy costs, is it becomes very expensive to start providing things like sauna, steam rooms, swimming pools. I think we're very happy with our positioning in the market, and we think in the medium term it gives us great opportunity.
If you look at the international market, which is also obviously relevant, most of the failures are in the mid-market and premium end of the market. The best and most successful operators are the low-cost operators.
Just one follow-up from Vivek Mehta on that one. The question is, can you touch on if there are any benefits, options from your point of view, collaborating with corporate businesses to increase footfall in gyms in London?
We're actually doing quite a lot of work on the corporate, and we've put some resourcing in actually to dedicate itself on the, on the corporate market. That kind of plays out in different ways. Sometimes it's, you know, direct with particular companies. Sometimes it's actually doing, you know, particular kind of deals, such that kind of local companies as long as they bring a certain number of volume or a certain number of members, that they'll get a particular rate. Sometimes, more importantly, it's actually going on some of the employee platforms that are out there, and there's quite a few of those, and we're making sure that we get quite a lot of presence on those.
All those things will just help A, directly bring more members, but it also helps in terms of getting our brand out there and increases the brand awareness. Corporates has been an initiative that we've been focusing on in 2022, and I think we'll see, we'll continue to do that. We'll see more opportunities as we go into 2023.
Final question. Tristan Steenkamp, GP Capital. Would you not consider a share buyback instead of adding additional gyms? Presumably, the ROIC on buying your own shares is higher than on building new gyms.
Luke?
As it stands, our banking facilities do not actually allow us to buy back our shares. I think it is a good point. That there is a point where the share price merits considering that. Unfortunately, for the moment at least, we are not in a position to do it.
I think we've got time for one more final question. Can you, Sahill Shan, can you quantify target cost savings this year?
Slightly difficult to quantify it against what, I guess, is the question. Is it year on year or? I think it's slightly difficult to do that, to be honest.
I think the only thing we'd say is clearly, in this environment, we're making sure that we kind of bear down on all the key cost lines while still ensuring we maintain a really strong product. You know, what we don't wanna do is cut into those things that kind of would really impact what the member experience. I think it's really important in, with this particular model, that we give high levels of member satisfaction because that will ultimately drive strong rejoiner rates, and we do expect, and I've always seen very strong rejoiner rates. You know, yes, we're kind of bearing down on cost, and that's absolutely key, but we also do it to make sure that we maintain a very strong offer overall.
It might also be worth saying that when we look at our costs year-over-year, we always challenge each cost line to come in under inflation for that cost category. Our plans for the current year do deliver that, with the exception, I think, of marketing costs.
That's the end of the questions for those watching online.
Okay.
Thank you.
That brings an end to our full year results presentation. Thank you for joining. Clearly, this has been the first full year of trading post-COVID with some good progress against strategic priorities, albeit as we've seen with the difficult economic backdrop. If you've got any further questions, please do get in touch. Thank you.