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By Moneyweb

Moneyweb: Journalists

Virgin Active still not near pre-Covid members, revenue

Admits SA business is too big in the group.

Despite consistent recovery over the past year, Virgin Active remains quite far off its pre-Covid-19 membership and revenue levels.

Restrictions due to the pandemic saw between six and nine months of lost trading at its operations in South Africa, the UK, Italy, Australia, Singapore and Thailand. At the peak, it lost a third of its 1.1 million global members. Many of them shifted to training at home, some permanently.

Among the hardest hit has been its UK operations (42 clubs), given the concentration of health clubs in central London.

With many corporates shifting to work-from-home or hybrid models, these have seen the slowest recovery of members. In the UK, membership levels are at 87% of the pre-pandemic total.

In SA (138 clubs), as weak economic growth and inflationary pressures batter households, the recovery is even slower – the base here is only at 85% of the Q1 2019 number.

Italy (38 clubs) has performed well, with members above the 2019 base.

In total, members are 11% off the peak while revenue is 9% lower.

It says that despite a high fixed cost base (costs are at 98% of 2019 levels), it has “passed the Ebitda [earnings before interest, taxes, depreciation and amortisation] breakeven membership mark”.

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Still, it needs an additional 120 600 members to return to 2019 levels. If it achieves that (it has added about 100 000 in the last seven months), this will translate into £53 million in Ebitda. Yield (better quality, more profitable members) and price increases into next year will take this to £115 million.

This is roughly the level of so-called “maintainable Ebitda” that owner Brait sees as a reasonable basis for its valuation of the business.

Following the listing of Premier, Virgin Active is the core of the Brait portfolio.

Unlocking value

Its stated strategy to unlock value is to dispose of the remaining smaller assets in its portfolio (including New Look).

By 2025, all that will remain is some Premier shares and the Virgin Active business.

This is why is it so critical for it to get Virgin Active back into shape by next year. The bulk of the value in Brait now rests on Virgin Active. In its last accounts, Brait valued the gym business at around R8 billion.

The Kauai and Nü businesses, acquired as part of the restructuring of the SA business last year, are performing well. Sales are up 31% on pre-Covid levels, with Ebitda up 51% (both above the budget for the past financial year). In-gym stores are outperforming standalone ones.

Wellness evolution

CEO Dean Kowarski sees the gym business shifting into a broader wellness play (the Real Foods transaction was the first step in this).

He says in the current environment, though, “wellness businesses will face headwinds if they continue with their current models”. Membership churn, in particular, makes the business model challenging (attrition is at 36% across its operations).

It sees its gyms being “reimagined” as “social wellness clubs”, where people want to spend time (beyond simply ‘gymming’).

It has also highlighted the prospect of taking advantage of “M&A opportunities” and possibly entering new territories. It says new sites are increasingly hard to find and that it sometimes has to compromise on location “as incumbents have already secured superior locations”. It says “proven M&A sites offer a lower risk entry into a local market without adding market capacity”.


It clearly has a plan to grow beyond its current six territories, only three of which are sizeable. It may look to M&A in those operations in Australia, Thailand and Singapore (together 25 clubs) which it admits are “sub-scale”.

As it stands, the group is over-reliant on South Africa in terms of members (more than half the base is from SA). This is a problem when this operation is “experiencing higher bad debt and a challenging macroeconomic environment”.

Over the medium term, it is targeting 1.2 million active members. It also wants to move from a place where its business is concentrated in South Africa (about 56% of members and its gym estate) to one where it is diversified across territories.

Presumably, this means getting the proportion of the SA business to below 50% of the group within the next few years.

Get this right and the market may just award it with a higher valuation than it currently does.

This is the final piece of the puzzle in actually unlocking the value that’s been trapped inside Brait for years.

Brait share price

This article originally appeared on Moneyweb and was republished with permission. Read the original article here.

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