Fitness First tones up accounts to get ready for £1.5bn flotation

Improved reporting standards signals gym chain's resolve to list in Asia to reduce £550m debt
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The Independent Online

Fitness First, the privately owned gym giant, is revamping its accounts to meet international standards this year, a signal that the Dorset-based group will press ahead with its £1.5bn flotation.

Its auditor, Deloitte, will now use international financial reporting standards (IFRS) in its results for the year ending 31 October 2010. Listed firms must use the standards when they report results.

Despite the recent postponement of the listing of rival Virgin Active and some chatter that Fitness First's private-equity owner, BC Partners, would consider an outright sale, it is still keen to list in Asia in 2011 or 2012. Banking advisers, who would co-ordinate the listing, are expected to be appointed by the end of the year.

The listing would help pay off about £200m of its £550m bank debt. About 25 per cent of the company would be floated, with BC reducing its 80 per cent stake but still retaining majority ownership. The listing could value the business at between £1bn and £2bn.

The biggest impact of adopting IFRS on Fitness First's figures would be on its leases in the 20 countries where the chain operates. IFRS leasehold standards are exacting on firms that rely heavily on renting buildings.

"There are 550 gyms, so that will mean 550 calculations on 550 leases," said an industry source. "Fitness First really has no idea what impact this will have on the accounts and is waiting to hear from Deloitte."

In the 12 months to 31 October 2009, the group had revenue of £670.3m and earnings before interest, taxation, depreciation and amortisation (ebitda), a key financial indicator, of £145m. Revenue was up 9.9 per cent and ebitda up 7.5 per cent; smaller improvements are expected this year.

BC Partners bought the company fromCinven in 2005, 13 years after the first club opened in Bournemouth. Fitness First's founder, Mike Balfour, who still has a small stake in the firm, quit the board after a row with BC last year.

Despite Fitness First's strong results, the gym sector has struggled through the recession, as consumers cut back on spending.

Esporta's latest accounts show that turnover was £139.9m last year, down from £147.8m in 2008. Ebitda, not including one-off exceptional items, was down nearly £8m to £20.3m.

The results also show that Esporta's then-chief executive, Glenn Timms, was paid £457,000 "as compensation for loss of office" when he resigned in June last year. In total, Mr Timms received £680,000 from Esporta in 2009, including company pension contributions totalling £19,000.