UK media say the UK-based group has appointed Bank of America Merrill Lynch, Goldman Sachs, Morgan Stanley, Standard Bank and UBS to work on a proposed listing.
The appointment of Standard Bank as one of the lead banks suggests that the listing would be on the JSE, rather than the London Stock Exchange, Sky News says.
Virgin Active is part-owned by CVC Capital Partners, with a 45.58% stake; Richard Branson’s Virgin Group with a 42.50% stake; and management, with an 11.92% stake.
The company was founded in the UK 14 years ago and has become one of the largest global health club companies with 1.3 million members in 270 clubs in eight different countries. The focus is on Africa and Asia for future growth.
The UK accounts for the largest number of clubs, with 113, and South Africa/Namibia comes a close second with 109. Other than Italy (28), its remaining stores are negligible in other countries.
While CVC, Virgin Active and their media partners were not prepared to comment on the “speculation”, a closer look at the company’s latest financials – for the year to December 2013 – suggests that a listing may be more necessary than opportunistic to fund past and future growth.
The company grew turnover by 5% to £653.1 million (R 11.4 billion) and ebitda by 10% to £125.4 million. But after tax and interest charges of £93 million, earnings fell to £101.1 million – and improvement on the previous £80.4 million.
Virgin has been investing heavily in upgrading facilities, locally and abroad. Ross Faragher-Thomas, CEO of Virgin Active SA, said in 2012 the company would invest up to R350 million a year for the next three years upgrading its gyms.
Now long- and short-term liabilities amount to £1 176.9 million, more than total assets of £1 019.8 million.
Of this, bank debt of £337 million comes due between December 2017 and June 2018. Shareholder loans of £572.9 million are due in five years or more, and could probably be rolled over if necessary.
At a glance the cash-flow statement looks healthy with a net cash inflow from operating activities of £126.5 million and net cash for the period of £22 million after expenses. However a closer look shows that the group owed creditors £26.5 million up from virtually zero the previous year.
These figures suggest that unless the situation changes, the company may struggle to repay the capital portion of its debt.
The auditors, KPMG, have not issued a going concern statement. Results for the year t o December 2014 will be released in May.