David Lloyd Leisure poised to open two new clubs a year

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David Lloyd Leisure is fast approaching the stage where it will be able to self-finance the opening every year of two large clubs, costing about £6m each.

The tennis-oriented health and fitness club group is enjoying a renewal rate of 82 per cent of its annual membership, allowing it to raise prices by about 5 per cent a year.

Pre-tax profits for the year to September advanced 35 per cent to £7.6m, reflecting the first-time contribution from the Glasgow club and organic growth of 12 per cent.

The result was at the top end of analysts' forecasts. They expect the current year to produce profits of as much as £9.5m.

The final dividend is 2.2p against 1.95p previously.

David Lloyd, the former tennis player who heads the group, said: "We can self-finance the building of one club now, and probably two out of cash flow this time next year."

The company, which has eight large clubs, two golf courses, two gym and health clubs, and three ten-pin bowling alleys, spent £18m on development last year, largely on two new clubs in Bristol and Birmingham.

The debt-to-equity ratio shot-up from 12 to 40 per cent, although the figure largely reflects short-term spending on new projects and should fall sharply once membership fees from club openings start to roll in.

Besides the big membership renewal rate, the company has also increased revenues by changing the mix of facilities at existing clubs, such as converting a low-usage squash court into a higher-usage gymnasium. The introduction of nursery facilities has also proved profitable.

The nursery at the Finchley club in North London made a bottom-line profit of £35,000 within two months of opening.

This backdrop of strong underlying demand has enabled the group to increase membership fees by about 5 per cent a year.

The average cost of family memberships is £60 a month.

Total memberships, excluding the Glasgow club, have risen from 17,865 in 1992 to 21,169 last year. Value of membership sales rose 14 per cent to £11.3m in 1994.

Membership levels at Glasgow have exceeded expectations by 20 per cent, at almost 3,500 by the end of last October, up from 1,000 in 1993.