CFO Report

Summary of Results

This was another year of continued growth for the Group, with 5 year compound average annual growth (CAGR) of 13.7% of revenue and 11.3% of EBITDA pre-exceptional items over the financial years 2004-2009. This was despite a reduction in number of clubs, with 14 new clubs opening offset by closure of 20 underperforming tail clubs. The growth reflected the benefits of the continuing investment programme in our existing clubs, a tight control of controllable costs and foreign exchange benefits.

Retained Profit
Financing charges in the year were £140.2m (2008: £125.4m) reflecting lower interest cashflows of £42.3m (2008: £46.0m) offset by increased interest on Preference shares and Eurobonds and an exceptional provision for VAT on debt arrangement fees of £2.5m. There was a goodwill impairment of £104.9m relating to the European businesses, as a result of declining business performance. The tax charge for the year was £10.6m (2008: £2.6m) reflecting higher overseas tax payments and non-recurring adjustments in 2008 relating to prior years.

It shows that Fitness First are at the forefront when it comes to tackling climate change and have proactively taken action by reducing the carbon emissions that they are directly responsible for rather than just paying others to off-set our emissions.

Segmental Analysis

¹ Asia includes Thailand, Hong Kong, Singapore, Indonesia, Philippines and Malaysia
² Europe includes Belgium, Netherlands, Luxembourg, Italy, Spain and France
³ Other includes India, Franchise Income, China (2 clubs which have closed subsequently) and Group Head Office costs. (In note 2 to the financial statements on page 54, India, Franchise Income and China are included within Asia.)

Cash and Capital Expenditure

Free cash flow was £42.7m (2008: £26.3m).

Capital investment in the year was £59.9m (2008: £79.1m), reflecting a reduced opening programme for new clubs. Expenditure on existing clubs for maintenance and equipment upgrades was marginally up on 2008 as we continue to maintain high quality clubs with up to date equipment.

Funding
At 31st October 2009, the Group had net debt of £1,297.2m (2008: £1,155.5m)

The bank loans are secured by fixed and floating charges over the Group’s assets in certain jurisdictions. The finance leases and hire purchase contracts are secured on the assets concerned.

The principle bank loans include a £40.3m Term Loan A repayable in two equal instalments in April 2010 and October 2010, a £550.3m Term Loan B repayable in November 2013, a £52.7m capex loan repayable in November 2011 and a £20m revolving Credit Facility repayable in November 2012. These loans are denominated in Sterling, Euros, Australian Dollars and US Dollars. The £20.2m first instalment of the Term Loan A was repaid on 30th April 2010.

The principle covenants on the bank loans are a debt to Ebitda covenant, interest cover, and cash cover. The group has met all covenant requirements under these agreements.

Debt maturity profile

Treasury Management
As at 31 October 2009, 71.6% of the floating rate borrowings were fixed.

In addition, the Group continues to match its borrowings to the underlying asset base of the Group creating a natural hedge to currency exposure, but it is not the policy of the Group to hedge the translation of overseas earnings into Sterling. Credit risk of third parties that the Group deals with is managed by setting a credit limit using published credit ratings.