Status Update
- Trading at both Saint Mary’s Axe and Broadgate has been strong, with occupancy above 60% at both venues for most of the year, and yields (net revenue per class attendance) at, or better than, plan (the absolute value of yield is commercial in confidence).
- In September, occupancy fell just below 60% and yield was 10% below plan. This was due to a period of discounting, particularly by Classpass, but also by new competitors opening competing formats in cycle (impacting Ride classes) and boxing (impacting Rumble). Circuit training (Reshape) was less affected.
- As a result of these factors, expected full year club EBITDA figures are now slightly below £1.5m, but management are responding with changes to class schedules and pricing of own brand packages, and believe that the Classpass impact and competitive programmes will be temporary. Central Costs are higher as staffing is increased ahead of new club openings.
- In mid-October, 1Rebel announced that Codex (a private equity group representing a number of ultra high net worth investors) would be investing £6.6m into the group for a 28% stake. The pre-money valuation was £10m, compared to the £3m pricing Growthdeck shareholders paid.
Trading Performance
| 2017
(£’000s) |
Jan-Sep
Actual |
| Turnover |
3,075 |
| Club Costs |
(2,051) |
| Club EBITDA |
1,024 |
| Head Office & Exceptional |
(419) |
| EBITDA |
605 |
| Depreciation |
(355) |
| Interest |
(111) |
| Net Profit |
139 |
Cash Update
- Excluding the Codex investment, 1Rebel had £620k cash at the end of September 2017.
- A condition of the Codex agreement is that the business will maintain a cash buffer of a minimum of £500k, (the plan shows lowest cash balance of £900k). In the event forecasts suggest the buffer could be breached for whatever reason, the intention is that the new build programme will be slowed down.
Revised Business Plan
Key elements of the revised business plan include:
- 17 clubs opened by 2022
- Average occupancy of each club at maturity 65%
- Occupancy build up in each new club 20%-65% in 12 months
- Yield at levels not impacted by further discounting
- EBITDA in 2022 >£10m
- Growthdeck shareholders’ net return would be 9x money if the exit multiple achieved was 8x EBIT
- Though the key occupancy and yield figures are above current trading, management believe that by applying lessons learned in the operation of their first two clubs, they are entirely achievable.
- Three new venues have already been secured, South Bank (opposite the Mondrian Hotel), Victoria and Bayswater, all of which could open in Q1 2018. Negotiations are advanced on one further site, and surveys are underway at a further 4 sites (all in London).
Exit Planning
- The new plan assumes an exit by IPO in 2022. There is no EIS component to the Codex investment, so were a trade or PE bid to be made before then, it can be considered on its own merit.
Summary
- The Codex investment materially de-risks this investment, and whilst the dilution and likely later exit are unfortunate, potential returns are healthy. The boutique gym sector is growing significantly and, despite a number of new entrants, the 1Rebel brand retains its strength.
- Occupancy and yield remain the key execution risks, but the business model has been thoroughly tested at St Mary’s Axe and Broadgate. Experience of everything from class size, format mix, equipment fit out, sales, marketing, pricing and customer service, from these two initial sites will be applied to all future venues.