Viva Leisure Limited (ASX: VVA) a market leader in the personal wellness industry, announced last Friday an impressive set of full year 2023 results.
Despite cost of living and inflationary pressures, revenue increased 55% to $141 million and Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) increased by 429% to $29 million. The share market lapped up the numbers with the share price increasing 11.54% on the day to a 52 week high of $1.45. You can read up on our previous commentary around the business here.
Viva Leisure offers a diverse range of facilities within the health and leisure industry. Viva Leisure’s mission is to connect fitness and wellness to as many people as possible and aims to provide its members with affordable, accessible and high quality facilities. Its strong brand portfolio includes Club Lime, Pinnacle Health Clubs, Fit n Fast, HIIT Republic, and Plus Fitness positioning itself to be a leader in the thriving wellness market.
Viva Leisure CEO and Managing Director Harry Konstantinou spoke glowingly of the result:
"Our FY2023 results underscore the resilience and robustness of Viva Leisure's strategic direction and operational capabilities. The impressive 55.4% surge in revenue to $141.2 million, primarily driven by our organic growth, speaks volumes about our team's commitment and our members' trust. The outstanding 429.2% rise in EBITDA to $29.2 million and the EBITDA margin reaching 20.7%, despite external inflationary pressures, are testaments to our enhanced operational efficiency and improved margins.
The Big Wins
Membership and Location Growth
Throughout 2023 corporate membership increased by 14%, reaching 181,950 members, while network membership rose by 7.2%, totalling 343,325.
Viva expanded its reach, adding 20 new owned operating locations, growing from 151 in FY2022 to 171 in FY2023. Total network locations now stand at an impressive 346 as of June 30, 2023. Notably, Viva completed eleven strategic acquisitions, including key corporate buybacks, and opened nine greenfield sites. Like-for-like membership saw a 5% rise, reflecting the ongoing success and maturation of Viva’s locations.
Utilisation and Margin Expansion
The month of June 2023 achieved record portfolio utilisation and could have been higher had it not been for multiple club openings in the month.
For the full year Viva’s utilisation rates improved by 340 basis points and increased to 72.7%, showcasing strong demand and heightened customer satisfaction. Viva estimates utilisation based on maximum capacity per location, being 2 members per square metre for Health Clubs and 1 member per square metre for Boutiques. Improving utilisation rates across the portfolio enhances margins with limited additional costs for new members. Utilisation decreases temporarily as new locations open and rises as locations add members. Viva’s long term utilisation target is 75-80%.
Non-Membership Revenue & Innovation
Viva is looking to capitalise on in-house developed technology platforms, billing services, and unique apps which has the potential to add to its already significant non-membership revenue base.
Non-membership revenue currently makes up $16 million per annum, and is anticipated to increase to $20 million annually when Viva Hub licensing fees, Viva Pay processing fees, and Digital Signage initiatives reach full capacity.
Viva achieved a significant turnaround in its financial performance with statutory Net Profit After Tax (NPAT) improving remarkably, shifting from a loss of $12.1 million in FY2022 to a positive $3.4 million.
As a result, diluted earnings per share transformed from negative 13.1 cents to a positive 3.61 cents per share. As of 30 June 2023 Viva has $6.8 million in cash on hand having seen an outflow of $3.2 million for the year. Considering Viva's significant capital requirements, a substantial portion of its operating cash flow is reinvested into the business for building leases and equipment payments
Investors should consider that while Viva's margins and cash flow are robust enough to support the addition of new locations, it's essential to acknowledge certain financial nuances. Excluding the non-cash expenses of depreciation and amortisation, employee costs rank as Viva’s predominant expenditure. With rising superannuation and minimum wage obligations, there's potential for some pressure on the company's margins, cash flow or cash reserves..
Looking forward, Viva is incredibly bullish following its encouraging 2023 results.
The FY2024 upgrade program has been expanded and accelerated, targeting 27 locations to be a part of the program. 11 new Greenfield locations were secured and a further 12 Greenfield locations are under negotiation as well as the consideration for additional acquisitions.
Viva's strong brand portfolio and strategic expansion, including acquisitions, has solidified its position as a market leader in the personal wellness industry. The company's focus on operational efficiency, innovation, and member satisfaction has yielded impressive results, and with a robust outlook for further growth, Viva's future prospects appear bright.
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.