People are slowly returning to the gym after the global pandemic, but not in the way some private equity owners of the assets would be hoping for, as the cost-of-living crisis makes it all the more difficult to get them match fit for a sale or an initial public offering.
The evidence is showing up in the latest accounts of Quadrant Private Equity’s embattled gyms business, Fitness and Lifestyle Group, which appears to be gradually clawing its way out of the challenges it faced from gym closures during Covid-19, as it narrowed its losses and improved its sales.
According to its accounts lodged with the Australian Securities and Investments Commission, Quadrant’s Fitness and Lifestyle Group’s headstock reported a 5 per cent lift in its sales to $685.6m from $651.8m in the previous financial year, while its loss narrowed to $222m from $290.7m in the previous year.
The accounts said that the performance in Australia, where it owns Fitness First Australia, and New Zealand mirrored that of the whole group, with strong membership sales and increased yield achieved during the year amid weaker consumer spending with higher interest rates and a slower economy.
The South East Asia unit recognised a $33.1m impairment due to prolonged challenging economic conditions in Vietnam, operations that were subsequently sold after the financial year ending June 30.
However, in Thailand, better economic conditions, in conjunction with a strong brand presence, delivered strong income growth and profitability, the accounts said.
Seven new sites were opened during the current financial year, with a further seven planned for the 2025 financial year.
Fitness and Lifestyle Group is continuing to focus on organic growth in Australia and New Zealand and the rollout of its portfolio in South-East Asia.
The accounts said that while the group has incurred losses before tax, which have contributed to its net liability position, it continues to generate significant cash earnings.
“Due to the tenure and structure of the group’s recently refinanced borrowings and its ability to recapitalise if required, the directors have reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future.”
Fitness and Lifestyle comprises Fitness First Australia and Goodlife Health Clubs, Jetts Fitness in New Zealand and Thailand, Zap Fitness, Barry’s and Emily Skye FIT, and was created by Quadrant following a series of acquisitions.
Operating in four countries, it has 319 locations, more than 585,000 members and 6000 employees.
It describes itself as Asia Pacific’s largest group of corporately owned health and wellness clubs.
Putting aside the group’s financing costs of $280m, the group generated a $280.3m operating profit, lower than in the previous financial year after property-related expenses and other costs increased.
The company’s borrowings are almost $2bn, increasing from almost $583m in the previous corresponding year amid a high interest rate environment, while total equity is $1.5bn.
It comprises $667.1m of syndicated bank debt provided in three tranches, $361m of senior loan notes, $720m of mezzanine notes and about $240m of preference shares.
Run by Chris Hadley, the Sydney-based private equity group has made major profits on various investments, but recently, it handed the keys of its restaurant chain business that owns Rockpool Bar and Grill to lender Metrics Credit Partners.
Other companies it currently has on the market are The Rite Bite Group and MotorOne, and it made efforts to sell its Affinity Education business in the past year, while Amart Furniture has been on and off the market.
Buyout funds typically hold businesses they have purchased for four or five years with the hope of floating them or selling them at a profit, in some cases at 20 per cent to their investment cost.
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