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Hello and welcome to the basic SITS 2022 year results conference call and webcast. Please note that today's conference is being recorded and for the duration of the call, your lines will be on listen only. However, you'll have the opportunity to ask questions at the end of the call. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now turn over the call to your host for today's conference, which is Richard Pieker, Head of Investor Relations. So, you may begin now. Thank you.

Thank you, Caroline. And good afternoon and welcome everyone to this conference call during which we will discuss our results over 2022. With me today are, as usual, René Moos, our CEO and Hans van der Erre, our CFO. This call is being broadcast live on our website and a recording of the call will also be available shortly afterwards. As usual, I would like to point out that Safe Harbor applies. We will start with Rene, who will discuss the highlights and the operational developments, followed by a more detailed look at financial results from Hans. After these prepared remarks, we will open the call for questions. The call will finish no later than 3 o'clock.

And with that, Rene, I would like to hand over to you. Thank you, Richard. Welcome, everybody, and thank you for joining today's call. 2022 was a year in which we recovered from two years impacted by COVID. At the start of the year, we still had to cope with all kinds of government restrictions, but as these were gradually lifted and consumers were able to join our clubs without limitations, membership growth accelerated. And by the end of the year, our membership base had increased by 51% to more than 3.35 million. Equally important, our 502 mature clubs back at pre-COVID levels with both membership and profitability. This means that with our membership structure changes in France and the Benelux, with a higher average revenue per membership, we have a better starting position in 2023 for further revenue and EBITDA growth. This better starting position also allows us to deal with the impact from cost inflation. With 185 NetClub openings, we ended the year with 1,200 clubs, which is an increase of 18% compared to 2021. Our revenue more than doubled to 795 million and our underlying EBITDA was 204 million. Acting in a sustainable and socially responsible way has been part of BasicFed's DNA for many years. By expanding our club network in Europe, we enable more people to work on their physical health and well-being in a social way. At the same time, we aim to use our natural resources carefully, both in our clubs and in our offices, by reducing our energy consumption and using sustainable energy. We aim to reduce our carbon emissions and be carbon neutral by 2030. Our first goal is to reduce the average energy consumption per club by an average of 20% in the course of 2023 compared to 2022. Our energy department will work on further energy consumption reductions and help us achieve our long-term goals. As we work toward our 2023 goals, gas heating systems in our clubs will be replaced by fully electronic alternatives. and we are installing solar panels on our head offices and on our clubs when possible in the coming years. Let's go to the next slide about the club openings. With a record of 185 net club openings, we have further strengthened our leading position in Europe. At the end of 2022, we had a network of 1,200 clubs with almost 650 clubs in France and nearing the 100 club mark in Spain. We closed six clubs. To start with Spain, we are now the clear number one in terms of clubs and memberships. And this also means that we are now market leader in five of our six countries. In 2022, we opened our first two clubs in Barcelona and we strengthened our clusters in regions like Madrid, Valencia and Seville. In these last two regions, we already operate eight clubs each. And last month, we celebrated the opening of club number 100 in Spain in Cordoba. In France, we further extended our leadership position with 119 net openings to 647 clubs at year end. And with around 40 openings already this year, we are rapidly heading towards a new 700 club milestone. And our team is convinced that we will further extend our market leadership in France as we see potential to grow to 1,000 to 1,300 clubs in the coming years in France. Our third high-growth market, Germany, we opened our first three clubs. Originally, we had planned to do more openings, but as we start to look for the right locations, negotiate contracts, and apply for permits, we learned it takes a bit more time to build a large pipeline like we have today in France and Spain. But we are building momentum and have already 65 new contracts signed for clubs to be opened in Germany in the next 24 months. Lastly, our Benelux club network enjoyed a steady growth of almost 30 clubs to 460 clubs. We will continue to open new clubs with the pace in line with the past few years in the Benelux. Let's move to the next slide on membership growth. Our membership base grew by 51% to 3 million March last year we told you that we had a strong start of 2022 and we benefited from a strong catch-up demand triggered by the lifting of all the COVID-19 restrictions in all our countries, new club openings and lower than usual churn rates. This exceptionally strong performance with joining numbers per club significantly above normal levels continue until September. when joint growth trends returned towards average growth rates that we had before the start of the pandemic. Churn rates were slightly below pre-COVID levels in 2022. All countries in which we operate had a solid performance, and we saw growth rates at new clubs which were quite similar to those in pre-COVID periods. In October, the average number of membership in our 502 mature clubs had recovered to the average pre-COVID level of 3,300 memberships per club. This recovery once again confirms the strength of our business model as well as our cluster strategy. Since the outbreak of the COVID-19 pandemic, the number of immature clubs increased from close to 400 to nearly 700 clubs. Hans will give some more further details on our mature club performance. On the next two slides, I will update you about our effective marketing spend and our successful membership structure changes that helps to lift the premium membership uptake to more than 50%. Let's go to the next slide about marketing. Because we wanted a speedy membership recovery last year, we decided to increase our marketing budget to around 6% of group revenue from previously anticipated 4% to 5%. The increased budget also helped us to support a record number of club openings. If you divide our entire marketing spend by the record number of new members that we welcomed, what you will see is that the average spend per joiner was comparable to the last three years before COVID. This shows that we continue to be effective with our marketing spend. With an average length of stay of around 23 months and a gradual increase in the average revenue per membership, we think we get a good return on our marketing investment. For 2023, we again foresee a marketing spend of around 6% of revenue, like last year. Let's move to the next slide. In an environment with rising cost, basically all our competitors had to substantially raise their pricing during 2022. Because of the low club operating costs and favorable long-term energy contracts, we were able to keep our membership list price unchanged during 2022. In anticipation of further cost inflation in 2023, we optimized the value gap between the basic and premium membership propositions to further increase the average revenue per membership. The premium membership uptake rate increased from 35 to over 50% in the second half of the year. when we introduced the basic membership for all joiners. The result of these changes was that our premium membership penetration rate rose from 23 at the start of the year to 34 at the end of the year. This means that by year end, 11% of our member base are paying 10 euros extra per four weeks. But it doesn't stop here. As we want to safeguard our 30% minimum return of invested capital, we decided to implement another membership structure change, which involves a list price increase. By the end of the year in France, the Benelux countries followed this successful French structure change at the beginning of February this year. With the basic membership in France and the Benelux being replaced by the 5 euro higher price comfort membership, we also added access to all clubs in a country. The introduction of the comfort membership did not reduce the interest in the premium membership, and the uptake is still over 50% today. If the trend continues, I believe that by year end, we could have a premium penetration rate of between 40 to 45%. Let's move to the next slide. Year to date, we already grew our network by 64 clubs. And as you can see in the chart, we have a full pipeline. This year, most openings will take place in France and Spain. In this last country, We worked hard the past few years to build a pipeline with the right location and this is now starting to bear fruit. In Germany we are gaining momentum and are filling the pipeline. We have already 65 new contracts signed for clubs to be opened in the next 24 months. These are the first steps in reaching the 600 club target for Germany. Lastly, in our Benelux markets we will continue to open new clubs with the pace in line with the past few years. That brings me to the last slide about our track record. Many of you will recognize these charts that we always include in our Roadshow investor presentation. We have updated this slide with our results of 2022, and although we ourselves see 2022 as a recovery year after two years of COVID, it is clear that we are reversing our track record of growth. Between 2016, the year of our IPO, and 2022, our KPIs have a CAGR of between 17 and 21%. With the recovery after COVID and the continuous optimization of our product offering, I am convinced we will continue to deliver strong growth rates going forwards. This concludes my part of the presentation and now handed over to Hans for the financial review. Well, thank you, René.

This slide shows you our income statement and the underlying performance. Of course, 2022 was a recovery year for us after two years impacted by COVID. Because of that, it doesn't make a lot of sense to compare online items of the two years. Instead, I will walk you through some of the key items of 2022. Our revenue more than doubled and came in close to 800 million. Revenue growth was driven by our strong membership development and a higher average revenue per member of close to 23 euros. Compared to the €20.60 we had before COVID in 2019, this means an increase of 11%. Revenue in the second half of the year of €440 million was 24% higher than in the first half and shows the strong momentum we developed throughout the year. For the year as a whole, we experienced the modest impact from cost inflation in areas like rent and wages. although on a monthly basis, cost inflation crept up in the course of the year. With rents, we have a broad mix of contracts. In the Benelux, we have a lot of contracts with caps, while in France this is not possible. Luckily, the French government already intervened earlier in the year by adjusting, in our favor, the commercial rent index on which indexation is based. Energy was of course a hot topic in 2022. But with the exception of Spain, we had low fixed prices in place. On average, we spent around 25,000 a club on energy, which is comparable to previous non-COVID years. In December last year, we provided guidance for energy costs for this year of around 55,000 per club. Please keep in mind that this figures without any benefits from lower energy consumption in initiatives. that we are going to implement this year. Overhead costs consist of costs of our corporate and regional head offices, as well as our marketing spend. As a percentage of revenue, overhead costs were around 14%, which is slightly higher than the 12.5 or 13% range we had pre-COVID. The reason for this is twofold. Firstly, because our group revenue was still in recovery mode, notably in the first half of the year. And secondly, because we decided to increase our marketing spend to around 6% of revenue to enable a speedy membership recovery, but also for a record number of club opening campaigns. Before COVID, our marketing spend was around 4% of revenue. So if you look at our overhead cost excluding marketing, Then the percentage has actually come down by some 50 basis points compared to pre-COVID. Our underlying EBITDA came in at 204 million for the year, which implies 144 million result in the second half of the year. As a percentage of revenue, the underlying EBITDA margin in the second half of 2022 is now slightly higher than it was in the second half of 2019. pre-COVID. A great achievement, if you ask me. For the year, we recorded a net loss of 3.7 million, compared with a net loss of 150 million in the previous year. However, if you look at the second half of the year, then we realized a net profit of 24 million. On an underlying basis, we had a net profit of 11 million for the year, compared with a loss of almost 100 million in the previous year. And in the second half of the year, we recorded an underlying net profit of 32 million. Let's go to the next slide on mature club development. As you know, we consider a club mature if it's at least 24 months old at the start of the year. Because of the pandemic, we reported in 2022 only on the clubs that were mature before the start of the pandemic in March 2020. These 502 mature clubs ended 2022 with an average of 3,326 memberships. This means that these mature clubs' average membership level has fully recovered from the COVID period. Our mature clubs in all countries had a strong recovery. I find this important to tell, because you might remember that we told you last year that France and the Netherlands had a stronger start in 2022. However, as all restrictions were lifted in the first part of the year, also members in our Belgian and Spanish mature clubs came back. René already spoke about a strong start of 2023. Thanks to this, if we add the clubs opened in 2018 and 2019 to the group of 502 mature clubs, then the large group of close to 770 mature clubs now also have has around 3,300 memberships, which is the pre-COVID average level. Lastly, also the clubs opened in 2020 have performed well in 2022 and in the first months of 2023. We have decided, therefore, to return to the original mature club reporting as from the first half of this year. That means that we will report on the performance of 891 mature clubs. With membership at our mature clubs coming back at the pre-COVID level, so is profitability. We believe that our club network embeds a lot of value, which will become visible with maturation. In 2022, we had 502 mature clubs, which had an underlying EBITDA on average €431,000. If we assume that the 1,200 clubs that we started the year with will all be mature in the two years time, and assuming they will reach the same underlying EBITDA, the total underlying EBITDA of these clubs will then be 580 million euro. This compares to 316 million underlying club EBITDA last year. This increase in profitability we call the embedded growth potential for maturation. With the expected increase in average revenue per membership, we expect to mitigate the cost inflation that we are currently experiencing. As we will start the year with a higher cost base and the impact of the introduction of the comfort membership and a higher uptake of the premium membership will only gradually fit us through, we still expect that the return on invested capital of mature clubs will again be well above the 30% this year and years after. Let's go now to the next slide on capital expenditure. In 2022, the average CAPEX per newly built club was 1.17 million compared to 1.15 million last year. Next to building relatively more rural clubs, the low initial CAPEX is the result of further scale benefits, intelligent benchmarking, selection of more cost-efficient materials, and tweaks to the fitness kit in the clubs, in line with trends and changing demand. For 2023, we again expect KPICs of new clubs to be around 1.2 million. Regardless of the initial KPIC for a club, we only sign a lease contract for a new club when we expect to achieve a rowing of at least 30%. Maintenance tax amounted to an average 55,000 per club, compared to 50,000 in 2021. The average spent per club in 2022 was in line with our multi-year planning. The lower amount in the previous year was of course the result of clubs being closed for 36% of the time, and our decision to use that period to roll out our smart camera system in more clubs and to further optimize the club layout. For the medium term, we expect maintenance CAPEX to remain around 55,000 per club per year. Other CAPEX amounted to 11.2 million and is related to ongoing investments in software and innovations. One such development is our mobile phone app that was developed in-house. In 2022, we again made additional improvements to the mobile phone app. Last week, when I checked the app store ratings of our app, I saw for Belgium a 4.1 star rating out of 5 stars. The Netherlands and Spain each had 4.2 stars, and France scored 4.4 stars. Also important to mention is that the embedded QR code in the app has become the standard tool for joiners to enter our clubs. Let's go to the next slide. Balance sheet. We ended the year with available liquidity of 143 million, which allows us to continue our accelerated glob growth program. Please note that we will do that in a sensible way. With market conditions having normalized post-COVID, we will provide an update on our available liquidity when we report our half-year and full-year results, just like we did before COVID. Excluding rent-lease liabilities, Our net debt amounted to 694 million at the end of 2022, compared with 548 million in the previous year. The increase took place in the first half of the year, at a time when our mature club profitability was still in recovery mode. Our net debt to adjusted MDA ratio came in at 2.9 times, and is well below the allowed maximum of 3.5 times as agreed with our syndicate banks. Lastly, to once more point to the normalization of our operations post-COVID, this year we will repay the final two installments of the government-backed facility. Our focus the coming years is on growth and profitability. And now for the final slide of our presentation, the outlook for 2023. On the back of the positive membership development year to date, We remain optimistic on the outlook for 2023 and will continue to execute our accelerated club opening plans. We opened 64 clubs in the first 10 weeks of the year and are on track to open at least 200 clubs. This is in line with our longer term target to open between 200 and 300 clubs a year. We will continue to monitor macroeconomic and membership developments so we can adjust the pace of club openings when necessary. Most clubs in 2022 will be opened in France and Spain, while we are building momentum in Germany. For the full year, we expect revenue of at least 1 billion, on the back of a strong membership growth and a gradual increase of the average revenue per membership. And finally, as I explained, Our 891 mature clubs will have a strong underlying EBITDA as our actions will mitigate cost inflation, which will result in an heroic of our mature clubs of well over 30% this year. This concludes the presentation. Operator, please open the lines for questions.

Thank you, sir. If you would like to ask a question at this time, please press star 1 followed by the digit 1 on top. your telephone keypad. Please ensure that the mute functions on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has been answered, you may remove yourself from the queue by pressing star 2. We will take the first question from line Robert Walsh from ABM AMRO. The line is open now. Please go ahead.

Yes. Hi. Good afternoon. I have three questions, if I may. Firstly, maybe a little bit elaboration on Germany. It's only a few data points I know, but how was the ramp up in memberships in the open club so far? And how many clubs do you expect to open in 2023? And then my second question and my third is I think for Hans, where is the guidance for expected positive cash flow in the course of the second half of 2023? I don't see that back. So maybe you can elaborate on that. And finally, I'm a bit puzzled by what I see in the cash statement, cash flow statement on the inventory. There's a big, again, a big cash outflow for inventory. Balance sheets shows lower inventory. So maybe you can explain. It's the second year in a row with quite a material inventory related cash outflow. So what should we assume for the coming years? Thank you.

Well, if I start with Germany, Yeah, we opened three clubs at the end of last year. So it's just a few months open, the three clubs, and what we see there is normal in-growth of members. So nothing extremely good or extremely bad, just a normal in-growth of new club openings. Your second part of Germany was how many clubs you would open. It will be around 10% of the clubs that we will open this year will be clubs in Germany. It also a bit depends how many clubs we open. So if it's going to be 200 clubs, it's going to be around 10%, so around 20 clubs in Germany. But if we will open more clubs, that number can go slightly up. So it depends how many clubs we will open this year. But I would say 10% is a good percentage.

Thank you for your questions about the positive cash flow. As you know, I'm always talking about positive cash flow, but it always depends on the amount of openings that we plan to do. And that also hasn't changed. As I said, we want to keep the guidance a bit more modest. So we want to get back to the guidance that we gave pre-COVID. and memberships, amount of clubs, and give you ample information on the other parts on a half-year basis on the end of the year. So we don't want to give too much guidance. As I said in my part of the presentation, the higher costs that we experienced in the several countries due to the higher energy costs and also the wages and the rent start immediately. And the impact of the new pricing, because we only do that for the new members, will take some time to really kick in. So in the first half year, the cash flow will be less positive, and it will start in the second half of the year. And your question about inventory, yeah, that's a technical issue. As you know, we, in 2021 and also in 2022, we acquired a stock of bikes. uh to at first sell them to our members and to potential members and in due in course of 2022 we changed that model and now it's part of our subscription and due to that it went from those bikes that we still had went from the inventory to the assets so it's not really a cash out at this moment we have on on our balance sheet around 20 000 bikes which will be part of the subscription in the coming years, the all-in subscription. So, again, it's a shift between inventory and assets and doesn't have any cash impact. And to come back to your cash flow question, again, like I said already for the last seven, six years, it depends on the amount of club openings and the timing of those club openings. All right, thank you.

Thank you. We will take the next question from line Hans Bluegaze from Kepler Charwe. The line is open now. Please go ahead.

Yes, good afternoon, gentlemen. A few questions from my side. First of all, on your ROIC guidance for the full year for the mature clubs, well over 30%. At the same time, you are, let's say, somewhat more cautious for age one due to the higher cost levels. So how should we read this guidance? Indeed, let's say maybe for H1, you are slightly still below that. And indeed, in H2, you are clearly ahead of that. And can you maybe, in general, give some more building blocks of that guidance, please? going to other revenues, an increase ahead of, let's say, your average revenue increase. Could you give maybe some feeling, what are the key drivers there? And secondly, more importantly, what do you see for this year? Do you expect, again, that as a percentage of total sales, this will increase? And then a last question from us at this moment. In Spain, as I said, several changes are becoming more available. How do you see the market? I know that the prices are still quite high, but how do you see this, especially the risk of a change in the competitive environment if several of those maybe could merge? Do you have some feeling on what you see in Spain on that?

Hans, thank you very much for your questions. I will start with the ROE question that you got. The ROE of 30% that we mentioned is on a mature club level, and that's on a yearly basis. So what you see is that actually what I already explained is that in the first half year we'll have the higher cost and then the impact of the increases of prices for our new members will kick in later. But the number that we mentioned, the 30% is on a whole year basis and it will be well above the 30%. If you look at secondary revenue, it will remain a low percentage of the total revenue. It is a growing number. Part of that is the advertisement that we do on our narrow costing screens and things like that. It's a growing number because there's more clubs, but it will remain a low percentage of our total revenue because the most important part of revenue is, of course, the membership subscriptions. And that will always, by far, be the most important part of our revenue.

The question about Spain being changed for sale. We saw that two companies are for sale. Our focus will continue on building our own new clubs. We are very comfortable with building new clubs. It is for everybody a good experience. Everything is new. New staff, new members, everybody happy. Well, if you do acquisitions, you never know exactly what you're buying. You will change the structure for staffing, for customers. So it's a lot of work. So it has to be a really good deal if we would go for a big acquisition. So for us, we are not looking at it at the moment and depending what will happen with those changes if we look at it in a later stage. But our focus is building new clubs and not doing acquisitions.

Okay, maybe one follow-up question. On the membership trend in the first few months, you gave already the number, but you're looking at the mature clubs. Do you see a continual growth in that? And then I'm talking more about the 502 mature clubs at the end of last year. Do they all still continue to show growth in average number of members?

Yeah, so what you see is two things. So we are opening a lot of new clubs next to the old ones. And even though we are opening so many new clubs in the cluster next to our 502 old ones, you still see a small increase in members. So, yes, it is still an increase, even though we open more clubs next to the old ones.

Okay, thanks.

Thank you. We will take the next question from line Ed Young from Morgan Stanley. The line is open now. Please go ahead.

Thank you. The first one is, you said that the price rises will come through gradually. I understand, obviously, that that's the case of premiumization as well. I wondered if you could give us any metric, whether it's around churn or kind of ARPU, how you accept that actually to be during the year. I appreciate it goes up during the year, but any more detailed cover on that would be useful. The second question is around consensus EBITDA. Since January, you've frozen or fixed more of your costs. You've obviously put through these price rises. I appreciate you haven't given any formal commentary on EBITDA, but could you give any commentary generally about how you feel relating to what consensus underlying EBITDA is for 2023 as it stands? And then third, just a final follow-up on the cash break-even comment you made. You're saying it depends on the pace of club openings. If we just accept that you're doing the lower bound of 200, which is kind of what you intimated the last time you gave that guidance, is there any reason to expect you wouldn't be cash flow positive in H2 as you previously guided? I understand what you're saying is if things are good, you might accelerate and that might change things a little bit, but is that still a fair... underlying assumption to understand that. Thanks.

Well, your first question is about what will be the timing of the in-growth of the growth of our average revenue. It's a bit difficult to predict because it depends on the amount of joiners that we get during the coming months and how many of those will take the premium membership and how many will take the comfort membership. We now see that the uptake of the premium membership is above 50% of the new joiners. And of course, the remaining part is the comfort membership. But it's more difficult to really calculate the amount of people who, how that youth will develop in the coming months. So I won't go into that detail because it's too hard to predict that. What we see is that on the membership base, of course, at the end of the year, we expect that it will be more 40% to 45% of our members will have the premium membership. Consensus, if we are happy with the consensus on EBITDA, what we explained is that we don't want to give any guidance anymore on EBITDA performance for 2023. We want to get back to the guidance that we gave pre-COVID. During the COVID years, we thought it was important to give more certainty to our investors what we would do and what our EBITDA would look like. We think we're now back to a normal status. We want to report again on our mature club levels. We're very happy how the performance of mature club is going. We gave guidance on that. We won't go that far to give guidance on our EBITDA for the coming year. Hope you understand that and appreciate that. And on the cash flow breakeven, it's based on the amount of openings that we do. And if we go to the 200 clubs, which is on the low end of that range and which we expect to open, it also has to do with the timing of the openings. So we are now looking at around 100 club openings in the first half year. It can even be a bit more. It depends on when the permit is received and when we're allowed to open that club. So it's hard to say when the clubs will be opened, and the opening date is also crucial for seeing a cash flow positive. Well, I expect to be cash flow positive in the second half of the year, but again, it depends on the amount of openings, and if we do very well with our member development, we can also decide to open more clubs, and that will have clearly an impact on our cash flow. But we'll definitely look at our cash flow position and we'll make sure that we have enough liquidity available to finance that growth.

Okay, thank you.

Thank you. We will take the next question from line James. What call from Jeffrey? Is the line open? Please go ahead.

Good afternoon to you all. I've got three questions, please. Firstly, could you just remind us of the shape of utility cost fixes as they run through the next year or so, just in terms of timing, etc.? ? And secondly, what proportion of your new customers were members of elsewhere previously, and how much has that changed, if at all? And then you sort of change in consumer behavior around the usage of the gyms, et cetera. And then thirdly, just in terms of the financial model for Germany, I'm assuming that it's going to be a very similar financial model to elsewhere. Any thoughts on the pricing model there, please?

Well, you talk very quick, but... Yeah, the first question is about utilities. And what we get guidance on that we will have on utilities, so energy costs per club that will grow from the 25K that we have in 2022 to around 55K per club on average for this year. So it's a significant increase. What's not taken into account in that number is the outcome of our energy savings program. We expect to reduce usage of energy with around 20%. We have a task force in place who's only looking at energy saving and what we can do at all our clubs. We expect to have a saving there of around 20%. The 55K has not taken that saving into account. So it can be lower, but we put in the maximum position and that's based on the contracts that we signed and already had signed in the Benelux and also signed a new contract in France. So based on those contracts, We now calculate with a 55K cost per club for energy.

I think the second part was consumer base or consumer behavior. Well, I'll discuss both then. Consumer base is what we saw during COVID is that we had a lot of young members joining. So age group 17 to, let's say, 27 years old. That was the big block of joiners. Female were behind. That is almost back. I would say 95% it is back again. And the older members, let's call it the 60 plus age group, is still behind. So very, very slowly returning. The behavior is it is busy in the clubs. So people are visiting a lot more than pre-COVID. So we have a lot of usage in the clubs. but having only on average 3,300 members on a 1,200, 1,300 square meter club, that is not a problem. So the consumer behavior is more or less back to normal. Germany again, some of the clubs are open now for three months, the other one four months, so it's very early days. It's just a new club, there's not much really to add to those. three clubs for four months. But the German market is a very good market. The fitness penetration we think can really rise. We still have the old pricing in place because we just started there. We didn't want to, with one or three club openings, change the price immediately after we opened. That is something we might do at the end of this year. Same story for Spain. So we started with our biggest country end of last year. We changed the Benelux in February and we will look how Spain compared to the Benelux and France is going and probably change our pricing in Spain in September and maybe Germany as well.

Thank you. Thank you. We will take the next question from line James Rowland-Clark from Barclays. The line is open now. Please go ahead.

Hi. Just one question from me, please. Just on the competitive backdrop, I wondered if you could comment on what you're seeing from your main peers in your markets in terms of pricing trends and marketing trends. And a follow-up to that would be you used to – used to describe how perhaps the smaller gym players in the market were going to struggle once COVID support had fallen away. Is that something you're seeing today, or do you think that still needs to play out? Thank you.

Thanks. Well, we do see some smaller gyms struggling and stopping or going bankrupt. So we do see that as we speak. It's not huge, big numbers, but more than normal. Comparative pricing, the competitors, we saw price in the low cost, we saw price increase between 5 and 10 euros, but some exceptions even increased price with 15 euros. So we are still the cheapest in the countries where we are. And with the current way we set up the pricing, we always have the possibility to bring the basic back in. So if you look at our pricing now, you have the premium membership for $29.99 per four weeks. You can use all the clubs in all the countries, and you can unlimited bring a friend. So that's our most expensive membership, $29.99. And then we have now the comfort being $24.99. Then you can use all the clubs in one country, so let's say 230 clubs. But if necessary, we can introduce, of course, again, the third membership, having the basic back in with only one club. And then you can go below the 20 again if you think that is necessary. So I think it is good now we are focusing on the comfort and the premium, so all clubs in the country or all countries and bring a friend. And maybe in time when prices and inflation and everything normalized again, we can decide to bring back, or because of competition or whatever reason, we can decide to bring back the basic membership again to allow you to join for a low price for just one club.

Thank you. So which markets are you seeing smaller players going bankrupt in?

Well, we've seen it in all countries. And what we've also seen is that We were offered a lot of clubs actually in all countries for, let's say, for a million euros. They have been offered to us again in the last one or two months for half that price. So there's a lot of things. There's a lot of movement there. Again, we will maybe buy one or two clubs, but we are not really focusing on by existing clubs. We're focusing on building new ones. It has a lot of advantages, having the layout exactly how you want it, and a happy moment for everybody, for the staff and the members who join. Excellent. Thank you.

Thank you. Again, please press star 1 to ask questions. We will take the next question from line Hans Blago from Kepler Charter. Thank you.

Yes, thank you. A few follow-up questions. Looking mainly at H2. First of all, the cost of goods sold for the services went down in H2, despite the fact that non-membership revenue continued to increase. Is there any specific reason for that? And I should read it as a trend. Then in H2 also, other income, an increase in H2. If you give maybe some feeling on that. And then OPEX in H2 went down compared to H1. As I understand from 124 down to 120, despite you have more clubs. So what's driving that? And one question on the bikes, again, coming back. You moved it to assets. So is it now in PPE? Or is there any impairment on those bikes? Could you give maybe some background, more background on what happened there?

Thank you, Hans, again for your questions. Let's start with the last one because I can't remember that one. The bikes were actually from inventory and now registered as an asset. We have to do that because it's still our property. And part of our subscription, we rent out that bike. So it's part of our... Inventory, not our inventory, our PPA. So that's actually true, it's part of our PPA. So we changed that from inventory to PPA. At first we aimed to sell the bikes, then it was inventory, goods held for sale, and now it's part of our assets, so it's part of the PPA. The question about the lower cost of goods, cost price of goods sold, course our other income now increased in the second half year by selling more narrow costing revenue so advertisement from companies on our narrow costing and there's no cost price on that so we have a higher income but no cost of sales so that's the reason why that and that was partly done in the mostly done in the second half of year because companies want to advertise to get more stuff in and and we were able to get more advertisements on AeroCasting. Again, it will be a low number. Our focus will still be on getting more members in. The other revenue was around 5 million this year, and we don't expect that it will be higher, but not much higher.

And then on the other operating income in H2 and operating expenses, so H2 versus H1.

Yeah, that's a timing issue. There's not a significant change of operating our clubs that our costs went down. It's only a minimum increase of costs in the second half year, so there's no really reason for that. It can be partly the first consequences of the inflation kicking in. Of course, we saw that, but it's not really a big reason why those costs went down or up.

Okay. Maybe one follow-up on average maintenance CAPEX. I know you give it, let's say, for a total number of clubs, but you gave me some guidance on the average maintenance CAPEX premature club. I always calculate with about 100K and also from your filings in Belgium, that's the case. It looks like that at least. Is that a correct number to calculate with for mature clubs?

Well, if you look at the maintenance cap, it can be for one club, it can be if we change all equipment and we do a really big rebuild, it can be 600K on a mature club. So it really depends on the club, the performance of the club, the length of the rental contract that we still have So it varies, but if you look at the average maintenance capex on our mature clubs, again, on the average, it's around 70 to 75K per year. Okay, thanks.

But if you combine it with the new club openings, it is the 55,000 that we have just mentioned. So on average, it's 55,000. Okay.

Thank you. We will take the next question from Eileen Huckett from KBC Securities. The line is open now. Please go ahead.

Yes. Thank you for the presentation. I have a question on the rental caps that you've mentioned. I was wondering if you could tell us the limits per country, and if you see any changes in current negotiations in new club openings. And then the second question that I had was on the churn. I was wondering if you could give any guidance on this. Thank you.

Well, if you look at the rental caps, we have rental caps in the majority of our contracts in the Benelux, and the index is there capped to around 3%, so it can't be increased more than 3%. In France, unfortunately, that's not possible. Legally, it's not possible to put in a cap on those contracts. But due to government measures, we see the index now in this year with all the inflation that we see, that's not more than a 5% increase of the rent. But the cap is on the Benelux contracts. And in new contracts for the Benelux, we always put in the cap of 3% maximum increase. Your question about the churn. Well, we used to work with a churn of around 4% per year. And what we saw post-COVID, logically in the first year post-COVID, we didn't have a lot of joiners during COVID. And all the people that want to leave already left. So there we saw a very low churn. But it's very good to see that now also in 2023, in the last month of 2022, we see the churn going down. Now it's less than 4%. It's more getting into the 3% to 3.5% churn. So that's actually good. So we think that also with the new pricing, we keep our members longer in. And we're really focusing now on retention, keeping our members in. We're very successful in that.

Yes, our old members who are paying $19.99 are still allowed to join every club in all countries. So when they cancel their membership, we of course send them a text saying, well, you have a very good deal now, are you sure? And we see actually a lot of members rethinking and staying in. So I think the price increase also helps the retention.

Thank you. And then on the rental caps, you mentioned the Benelux and France, but what about Spain?

Spain and Germany, again, it's not per country, right? It's contract per contract. So some landlord is somebody who owns one building, then you can make maybe a cap of 2%, and other land building owners are a big change that... So it's really not country by country, but it's really contract by contract. The only big change is in France, there it's not allowed. So by law, it's not allowed. If you put it in a contract that you have a cap of 3%, then nobody has to follow it because it's not allowed.

Okay, thank you.

Thank you. We will take the last question from line Mark Swensenberg from ING. The line is open now. Please go ahead.

Yeah, thank you for the last question. I have a couple of questions left. First of all, on the club openings, can you give us a bit of a split also between what you intend to open in France and in Spain, please, to start with that one?

Yeah, the club opening in France and Spain, I'm doing it now on the top of my head, but I would say that in Spain we will open 40 clubs this year. And in France, I think it will be around 100 clubs.

Okay. And then if you look to the first 10 weeks, say you open 65 clubs, but some were already in the pipeline since Q4. I don't think you will be able to achieve the 100 gyms that I think was a bit targeted by the end of April. Is it right? Are you running a bit slower or can you give a bit more follow there?

No, we have, if you look at the slide number seven, you see that we are actually currently building 78 clubs. So that means that, it's not going to happen by the way, but for instance, next week we could open the 78 clubs that are under construction, but that will not happen. But for sure we will reach more than 100 clubs, let's say, in the first half. It is true that you cannot really predict exactly when a club is going to open. It is very unpredictable, especially the last year and a half. But that's why we have such a big pipeline so that we do not take, so we don't see any problem reaching the 200 openings this year. But yeah, it could be one or two months later. That's what we saw also in last year, right, when we said we're going to grow to 1,250 clubs and we're going to grow to 3.5 million members. When we said in September, October, we were not reaching that We got a lot of calls, a lot of discussions. We said a couple of weeks later, so we reached 1,250 clubs and 3.5 million members a few weeks later. But, yeah, you can hardly predict that. That's why we're not giving guidance to the exact numbers anymore because it's hard to predict. It's not in our control when the government gives the license, and it's not in our control when we are allowed to open the clubs. So yeah, we can miss that by one or two months.

And if I look to Germany where you have the contract signed, does it also mean that the permits are in?

No, that means the permits are not in. That means that we have to deal with the landlord and that we are working on the permits. And that is a very unpredictable outcome, how many clubs we are able to open this year. But we have enough clubs in the pipeline to make sure to open the 200 clubs. And that's what we're also focusing on for next year, that at least, let's say, if we want to do, let's say, 250 clubs next year, that at least we have 300 or more clubs ready, contracts signed, because you never know exactly when we're going to get the license. We know exactly how many weeks we need to open a club, to build a club, but we don't know when they're going to show up. to open a club. For instance, we have now a few clubs ready, but yeah, we're waiting for the government to give us the stamp so that we can open. So it's a bit unpredictable, not completely, but a bit. So we can be off one or two months like we were off in September, October last year.

Okay, clear. Now, talking about the revenue outlook for this year, so the one billion at least. If you take the 3.35 million members as a starting point and you have a normal ingrowth of the gyms again this year, it basically seems to suggest that the yield per member actually is based on that number, even slightly lower than what you performed last year, which is not that rational given the premium uptake and the price increase. So is it then the conclusion fair to say that the 1 billion is a very cautious number?

Yeah, it depends again, Mark, when we open the clubs. So if we don't get the license and we open all the clubs in December, then it could be a stretch. So it depends really when we're opening the clubs. And that is what we said before. Yeah, that could vary a few months.

So that's a bit the same... To add to that, Mark, we also see a gradual increase of the yield improvement, right? So all the existing members still pay the $19.99 and only the new members are paying the new pricing. So it will take some months to really have an impact of those new pricing. So the yield improvement will definitely be there in 2023, but it will be gradually done.

Yeah, true, but the premium uptake already ramped up quite significantly last year, so you have a bit of a follow-through effect from that this year.

If you look at that member development, there's also two periods where we really see the member increase, and that's in the first month, as we see now, and then in the summer, not a lot happens, and then the member increase is due to the August-September campaign. And then we have, of course, only four months or three months of revenue with those members. So you can't... I understand your calculation, but we made our budget, and based on that, we gave him the guidance that it will be more than one billion of turnover.

Yeah, because implicitly, Hans, you also give a guidance a bit on MBDA, with your own mature gyms. You have nine mature gyms, you do... you already know where you are and then you only have to make an assumption that you're going to bulk to be on it.

I know the analysts, especially more experienced analysts can do the math, but don't ask for me to give those guidance.

Maybe one for you Danon, free cash flow, looking at net working capital.

do you think of networking capital development in in 23 will it be an inflow for the year or would it be a small outflow what do you think i i personally think that will be an inflow of working capital and it will be uh around 10 to 50 percent of uh of revenue and minus of course so we'll i will expect we have a lot of differences now in the in in the working capital due to the uh

impact of those by transition but normally we'll see a negative uh working capital between 10 and 50 percent will so we see an inflow of uh or out of the working capital in the cash flow yeah yeah yeah then maybe a final one for um renee uh is there any any update on planet fitness and they were quite vocal maybe also teasing a bit the competition with maybe we'll move to europe is there any update on Is that noise, or can we change it?

No, no, not that I know. I think Planet is, of course, a very successful company. The product that they're having is more or less similar to what we're having, even though we have the personal training, we have live group classes, So we have some small differences. But no, we have not see or hear anything yet. No. All right. Well, thank you very much.

Thank you. Thank you. We have reached to the end of today's conference call. I would like to hand over to Mr. Richard Pickle for any closing remarks. Please go ahead, sir.

Well, thank you, Caroline, and thanks, everyone, for joining today's call. I hope we had time to answer all your questions. If not, or if any other questions come up, please give us a call. Have a nice day. Bye-bye.

Thank you for joining today's call. You may now disconnect.