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Gym Group PLC (The) (GYM)

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Thursday 18 March, 2021

Gym Group PLC (The)

Annual Report

RNS Number : 7793S
Gym Group PLC (The)
18 March 2021
 

18 March 2021

 

The Gym Group Plc

(the 'Company')

 

Annual Report and Accounts 2020

 

Following the announcement on 18 March 2021 of its full year results for the year ended 31 December 2020 (RNS: 6896S ), the Company announces that it has published the 2020 Annual Report and Accounts ("2020 Annual Report") on the Company's website, http://www.tggplc.com/.

 

The 2020 Annual Report has also been submitted to the National Storage Mechanism and will shortly be available for inspection at  https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

 

For further information, please contact

The Gym Group

Richard Darwin, CEO

Mark George, CFO

 

 

via Instinctif Partners



Instinctif Partners

Matthew Smallwood

Justine Warren

020 7457 2020

 

Appendix

The additional information set out below is included in compliance with Disclosure Guidance and Transparency Rule 6.3.5, and should be read in conjunction with the 2020 Annual Report as a whole. The principal risks and uncertainties are set out on pages 46-50 of the 2020 Annual Report and page references below are to the relevant pages of the 2020 Annual Report. The full and unedited text relating to these disclosures are set out below:

Principal Risks and Uncertainties

Risk Management

In order to gain an understanding of the risk exposure of the Group, we review each area of our business annually and use a methodology that will assist the Group in measuring, evaluating, documenting and monitoring its risks within all areas of its operations.

We use our risk management process as described to identify, monitor, evaluate and escalate risks as they emerge, enabling management to take appropriate action wherever possible in order to control them and also enabling the Board to keep risk management under review.

This is an area that the Board has always taken seriously. However, it has never been more important than now, as the past year has shown us through the impact of an uncontrollable event in COVID-19.

Principal risks

The risk factors addressed below are those which we believe to be the most material to our business model, which could adversely affect the operations, revenue, profit, cash flow or assets of the Group and which may prevent us from achieving the Group's strategic objectives. Additional risks and uncertainties currently unknown to us, or which we currently believe are immaterial, may also have an adverse effect on the Group.

Risks and uncertainties in 2020 relating to COVID-19

The impact of COVID-19 and resulting risks have been a significant feature of the past 12 months. We are continually monitoring the impact of the pandemic and our priority is to ensure the safety of our staff and members. Whilst there are signs of optimism that we will soon be through the cycle of lockdowns and that our business may soon be able to return to trade as normal, there remains uncertainty on the continuing impact of COVID-19 on the wider environment and the Group's operations.

We are following our robust risk management framework and ensuring that an active risk assessment and business continuity plan is in place, overseen by our Health and Safety Manager, reporting to the Executive Committee. The Group will follow Public Health England and Health Protection Scotland guidance, and medical and local authority advice where relevant, to ensure that we respond to any developments quickly, safely and in the best interests of our people. In addition, management has taken a number of actions to increase available liquidity, reduce costs to mitigate the disruption caused by the outbreak, and it will also continue to seek to access the various government schemes to support businesses. As set out on page 51, appropriate financial modelling has been undertaken to support the assessment of the business as a going concern with the material uncertainty from COVID-19 and in support of viability.

The table below sets out the principal risks of the business and for each risk identifies whether and how COVID-19 has affected that particular risk.

Responsibility for risk

The relevant roles and responsibilities in monitoring and operating the system of risk management are illustrated in the diagram on page 46.

Principal risk

 

Definition

Impact

Mitigation

1) Business interruption

 

 

Whilst this risk is highly relevant today as a result of COVID-19, this risk is wider than pandemics and there could be other causes of significant disruption or widespread closure of our estate, including for example:

(a) Climate change resulting in an increase in the likelihood and severity of environmental disasters such as storms or droughts, which could result in major infrastructure damage and outages of electricity and water supplies.

(b) Major health scare in relation to gym usage.

(c) Failure of a key supplier impacting our ability to operate our gyms.

(d) Significant reputational damage.

Extended periods of closure would result in a loss of revenue and could also cause a decrease in membership numbers.

This is specifically the case during the current COVID-19 pandemic, with reduced member numbers and enforced temporary gym closures.

Over an extended period, a loss of revenue coupled with the inability of the Group to remove certain of its cost base in a closure scenario means this could lead to a material uncertainty in the Group's ability to continue as a going concern.

• A detailed exercise is being undertaken to assess each of the sources of business interruption risk and determine where appropriate action can be taken to mitigate it, based on whether the cost of the action is proportionate to the risk it is mitigating.

• This will be turned into a clear action plan with agreed owners and timeframes.

• In addition, business continuity procedures and risks are monitored and refreshed regularly.

• In relation to COVID-19, management has identified and implemented proven measures to preserve cash and reduce discretionary expenditure during a period when all of the Group's sites are closed, and to be able to reopen quickly to minimise revenue loss. Appropriate financial modelling has been undertaken to support the assessment of the business as a going concern with the material uncertainty from COVID-19 and in support of viability.

• As part of our response to the TCFD recommendations, we will review the risks of future climate change on our business and identify adaptation action required.

2) Operational Gearing

 

High operational gearing from

the fixed cost base.

A limited number of corrective options in the cost base could be made to correct any underperformance in membership numbers, which could have an adverse impact on profitability. COVID-19 lockdowns have caused a significant drop in revenue, which has been only partially mitigated by cost management measures.

 

• Monthly monitoring and reforecasting of business performance at site level.

• Active yield management on a gym-by-gym basis.

• Regular financial management by the Executive Committee and Board.

• Option to slow down expansion in order to preserve cash.

• During COVID-19 lockdowns, operating costs have been reduced significantly to minimise the impact of lost revenue and we have taken government support in the form of business rates relief and wages support for furloughed staff. Capex has also been reduced significantly to preserve cash.

3) Member Experience

Failure to provide members with a high quality product and service would damage the Group's reputation.

 

 

 Reductions in actual or perceived customer service could result in a decrease in membership numbers and revenue generation.

COVID-19 has had an adverse impact on this risk.

Whilst member feedback is at an all-time high in response to the COVID-secure steps implemented in the gyms, there are significant numbers of former members who continue to be uncomfortable returning to their normal day-to-day activities - including due to COVID-19.

• Monitor gym utilisation and member satisfaction scores.

• Enhance monitoring and feedback processes.

• Ongoing review of equipment usage to ensure we meet member requirements.

• Explore further innovations to improve the member experience.

• Enhanced cleaning protocols to reduce risk of COVID-19 transmission and increase member confidence.

• Maintain appropriate levels of expenditure on repairs and maintenance.

• Significant work completed on preparing gyms to be COVID-secure.

• Gym busyness tracker helps nervous members to visit at quieter times.

• Strong communications plan in place to communicate the #safewithus commitment to members and to reinforce key guidelines regarding sanitisation, face coverings and social distancing.

4) Economic conditions

A prolonged uncertainty following wider economic shock such as the impact of COVID-19 could cause significant disruption to business conditions.

A period of disruption caused by continued national lockdowns may result in continuing challenges for the economy, resulting in a loss of membership and hence revenue.

Over an extended period, a loss of revenue coupled with the inability of the Group to remove certain of its cost base in a closure scenario means this could lead to a material uncertainty in the Group's ability to continue as a going concern.

• We are very well placed to operate successfully in a challenging economic environment; we are one of the lowest price gym operators in the UK market with an average monthly subscription of £18.81 which is £1-4 per month lower than most competitors in the low cost gym sector and significantly lower than rates charged by mid-market and premium operators. Although some of our members may choose to cancel their subscription due to financial hardship we would also expect to benefit from others 'trading down' from the mid-market or premium gyms.

 

5) Competition

The Group may face increased competition and pressure from competitor pricing decisions.

The ability of the Group to hold or increase prices and therefore achieve performance targets could be affected.

However, COVID-19 has led to the closure of competitors and so at this stage has reduced this risk.

• Continue to operate a low cost operating model to ensure we can retain price leadership.

• Maintain focus on choosing the best sites in a geographical area.

• Continue to invest in the member proposition.

6) Staff retention

Loss of key staff through retention policy and failure to manage succession.

A lack of experienced and motivated staff will have a detrimental impact on all areas of the business, from operations to central functions.

COVID-19 has resulted in a small reduction in staff churn, as the economic uncertainty is encouraging people to remain in role.

• The Group uses a variety of techniques to attract, retain and motivate staff at all levels across the business. These techniques include:

- competitive remuneration packages;

- opportunities to own shares in the

Company;

- opportunities for training and progression;

- short, clear reporting lines;

- succession planning; and

- utilising staff engagement surveys so our staff have an opportunity to provide feedback and ideas.

• In addition, the growth of central functions and way we run the business is reducing dependencies on key individuals by spreading knowledge more widely.

 

7) Information Technology Dependency

 

Our ability to enrol members, carry out online marketing activity, process payments and control gym access is dependent on the performance of our IT systems.

Disruption in critical IT systems could have a negative impact on our reputation and our ability to collect revenue.

There is a slight increase in this risk due to COVID-19, as we experience significant spikes in usage around the point of reopening post-lockdown.

• Our primary data systems are hosted by fully qualified organisations in suitable data centres.

• Our primary IT infrastructure is fully managed by specialist IT companies which provide best-practice architecture and support.

• All membership and business information is backed up using third party locations.

• Robust disaster recovery and business continuity plans are in place.

• Additional capacity has been added to our infrastructure to cope with large spikes in usage.

 

8) Organic Rollout

Site scarcity may affect the delivery of our rollout plan.

Delays to our rollout plan may have an adverse impact on growth targets and operational returns.

However, COVID-19 has resulted in increased availability of high quality sites, thereby resulting in a reduced risk.

• Our highly experienced property team is focused on site selection and sourcing the best deals to deliver a strong pipeline.

• Our expansion into small box gyms increases the range of suitable sites.

9) Data Protection

The Group holds business critical and confidential information electronically. A breach of security or data protection rules is a key risk.

Unauthorised access, loss or disclosure of this information may lead to legal claims, regulatory penalties, disruption of operations and reputational damage. We do not consider this risk to be affected by COVID-19.

• The Group's networks and systems are protected by firewalls, security software and secure passwords.

• All sensitive data is captured and presented using SSL encryption. Our transactional website is scanned quarterly to ensure PCI compliance.

• Access to central member data systems requires 2-Factor authentication.

• All customer payment data is stored externally on systems that are PCI-DSS and/ or BACS certified.

• We have implemented industry-leading authentication management software.

• We are recruiting a Data Protection Manager to oversee and optimise our control environment in this area.

10) Regulatory

Failure to adhere to regulatory requirements such as the Listing Rules, taxation, the Data Protection Act, employment law, health and safety requirements, planning regulations, noise abatement and advertising and marketing regulations.

Potential reputational damage and penalties.

We do not consider this risk to be affected by COVID-19.

• The Board has oversight of the management of regulatory risk and compliance, and delegates specific responsibilities to senior management.

• Expert opinion sought where relevant.

• Legal advice taken to ensure systems, processes and documentation conform with the Data Protection Act.

• Third party health and safety risks assessments and audits carried out. Staff conduct periodic health and safety assessments.

• Employment and continuous training and development of appropriately qualified staff.

 

 END OF ANNOUNCEMENT

 

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