It is putting its attractions arm up for sale in a move expected to net pounds 60m to pounds 70m, and is spending pounds 22m to buy the Chelsea Harbour Club, Britain's premier fitness club and a cherished haunt of Princess Diana and the former England rugby captain, Will Carling.
The purchase is a key part of a pounds 160m investment programme to make Vardon the leading fitness business in Europe. It will expand its Cannons chain in Britain by 15 clubs over the next year and open up-market clubs for families in Europe under the Harbour Club name.
The push into Europe will be carried out by a joint-venture company owned 50-50 by Vardon and Peter Beckwith, the property magnate who is selling his half share in the Chelsea Harbour Club. The joint venture will spend pounds 60m on new clubs, starting with one in Milan followed by others in Holland, Belgium and Germany by 2002.
Vardon has already spent pounds 60m expanding in fitness clubs and boasts 70,000 members. It plans to boost that to 150,000 by December 2000.
The expansion will be financed largely out of disposals. Vardon has already pulled out of bingo and holidays, realising pounds 70m, and the proceeds from selling the attractions will fund most of the forward programme, with part of the Harbour Club expansion.
The switch of focus will not be painless. Vardon's results in the half to June show a pre-tax loss of pounds 1.8m after pounds 6m losses on disposals, against profits of pounds 5.1m in the period last year. Chairman Nick Irens is warning that 1999 will be "relatively flat" due to start-up losses on new health clubs.
However, Mr Irens believes that the real returns will come in 2000 and 2001, and claims that the Chelsea Health Club purchase is a good deal with a purchase price equal to 10 years of operating profits.
Analysts welcomed the new focus on fitness and look for pre-exceptional profits of pounds 12m to pounds 14m this year. Vardon shares closed up 12p at 172.5p.