A further £2.9m was raised via Crowdcube in December 2015 at a much-enhanced valuation of £11.1m. Growthdeck investors were offered the opportunity to invest in this round.
Growthdeck investors currently hold 9.6% of the total issued equity.
Progress update
Although the Company is some way behind the original business plan, good progress has been made this year.
By the end of 2016, it was planned to have four clubs.
In January 2015, the first club opened at St Mary Axe EC3 and the second site at Broadgate Circle EC2 opened in December 2015. Management is currently reviewing a number of sites for a third London venue. This next club is expected to open in Q1 2017 and be in more of a mixed business/residential area, offering the prospect of more mid-morning and afternoon class-usage.
Trading results
The trading results for the 9 months to 30 September show the business to be profitable at club level, but loss-making after Head Office costs. However, revenue is growing month-on-month, and EBITDA has been positive after Head Office since July. Performance for the nine months to 30 September and the annualised run rate were: -
| 9 months ended 30 Sept 2016 (£’000) | Actual | Run rate* |
| Total Revenue | 2,348 | 3,655 |
| Gross Profit | 1,724 | 2,869 |
| Overheads | (1,421) | (1,768) |
| Club EBITDA | 303 | 1,101 |
| Head Office | (370) | (683) |
| EBITDA | (67) | 418 |
*annualised numbers based on trading results for September
Although visitor numbers and individual class occupancies are on a steadily rising trend, the first two clubs proved to be bigger than was required for local user demand. Average class occupancies are now running at 53% of capacity, dragged down by low club usage outside of the peak early morning, lunchtime and evening periods. The close proximity of the first two clubs also resulted in some cannibalisation of users from the first club to Broadgate Circle.
The original business plan was based on One Rebel selling its own classes to users on a “pay as you train” basis, and did not anticipate the launch of “ClassPass” to the London fitness sector. This new US concept offers subscribers access to 150 competing London fitness facilities, and, until recently, on an unlimited usage basis for a monthly fee.
The ClassPass offering has been disruptive and unpredictable for 1 Rebel and its competitors, but in recent months its business model has been called into question. To partly counter ClassPass, One Rebel now offers its own class package deals but users can still just buy single class tickets.
After an appeal, the first two clubs have been re-rated. This will result in a rates rebate of over £250k and a monthly saving going forward of £10k.
The addition of the next club, coupled with continued growth at the existing units, is expected to take the Company to positive EBITDA after Head Office costs for the 2017 full year.
Balance Sheet
At 30 September the Company had £2.1m of net assets and total bank debt and equipment finance of £1.25m. Cash at bank stood at £1.2m which is sufficient to fund the third club fit-out and launch.
Management
In April 2016, James Jack, co-founder and former FD of PureGym, replaced Zillah Byng-Maddick as Chairman. Jack is now the largest investor in the Company, investing £300k in December 2015 in the £11m Crowdcube funding round.
Founders James Balfour and Giles Dean are focused on sales and operations respectively, with Mike Balfour OBE, the Fitness First founder, playing an advisory role.
Summary
While the Company has under-performed against the original business plan and new medium term forecasts are being prepared, we believe that the Company has valuable assets in the form of the first two clubs and what is now a high profile London brand.
Standard fitness clubs are often priced at 6x EBITDA. Based on annualised club level EBITDA of £1.1m, it would suggest that the existing One Rebel clubs could be worth in excess of £6m. As the Company currently has negligible net debt, if the clubs were to be sold for £6m, it would suggest that Growthdeck shareholders would receive a c20% gain on their original investment. However, given the premium, boutique nature of the St Mary Axe and Broadgate Circle clubs, and the growing brand value, the clubs could be more valuable.
We will report against the new plan in the next Investment Review in June 2017.