The Pure Gym Group has decided to pull the plug on its Polish operation, by filing for bankruptcy for its group of 19 Fitness World clubs in the country.
The gyms have been closed since October 17, as ordered by the Polish government. They will remain closed until the court appoints a trustee, who could then decide to reopen, and to sell some or all of the clubs.
Pure Gym said it won’t run a sale process, but it would be able to consider a “credible and compelling” offer in the next couple of weeks.
The 19 Polish gyms with 26,000 members make up a small chunk of the British group, which has 500 clubs across the U.K., Denmark, Switzerland and Poland. Polish sales amounted to £1.8 million (€2.0m) for the first six months of this year, down by 37% from the same six months last year. They generated negative adjusted EBITDA of £0.1 million, after profit of £0.4 million in the year-ago period.
Pure Gym acquired the Polish gyms earlier this year as part of its takeover of the Fitness World group. The Danish-based operator moved into Poland in 2015 by purchasing four clubs trading as Condizione. They were renamed as Fitness World and the concept was expanded to 15 gyms with about 24,000 members at the start of this year.
Fitness World’s chief financial officer back then, Niels Meidahl, was upbeat about a “significant uplift in earnings” in Poland. But this progress was undone by gym closures in March, and again in October.
Humphrey Cobbold, the Pure Gym group’s chief executive, explained yesterday that the Polish business was pushed into a “significant loss-making position” due to the health crisis. With the latest restrictions, there was “little prospect of a return to positive cashflow in the near term.”
“The Group has provided significant funding this year to support the business, but in light of the latest wave of Coronavirus the shareholders concluded not to put further capital into the Polish operation,” Cobbold said.
There were some exemptions to the Polish closures, but Pure Gym said that the authorised activities listed in the unclear guidance were “not considered a feasible basis for re-opening.” This means that Fitness World could not generate any revenues in the last weeks.
More broadly, Pure Gym reiterated that it’s well capitalised since it raised over £200 million (€222.7m) in new liquidity, but it has to carefully evaluate where it should deploy capital and management resources to deliver growth. “We are not confident that the return on capital by investing in Poland over the medium to longer term would be as attractive as in our core markets and so it makes sense to withdraw from the Polish market,” Cobbold adds.
The Polish operation has been led since 2017 by Klaus Neess, who was previously in retailing. It could not be established what the plans are for Neess.
Fitness World underwent restructuring measures in Denmark in August, which led to 75 job cuts as well as the decision to give up on the Urban Gym brand. This was launched four years ago as a cheaper alternative to Fitness World, and it had up to ten gyms. The Danish group indicates the Urban Gym clubs will be transformed into Fitness World.
Steen Albrechtslund, Fitness World’s chief executive, left the Pure Gym group earlier this year, and Meidahl left a few weeks ago, as previously reported.
Pure Gym was due to publish its third quarter results this week, but the group indicates that the presentation has been delayed until the week starting on November 23, because it’s working to finalise the offer of €445.0 million senior secured notes launched last Monday.
The proceeds of the 5.50% notes due in 2025 will be used to repay amounts drawn under a bridge facility contracted to buy Fitness World, which has a maturity of January 13, 2020.
The full story will be in FNE#117.
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