Basic-Fit N.V. (OTCPK:BSFFF) Q2 2022 Earnings Conference Call July 29, 2022 8:00 AM ET
Company Participants
Richard Piekaar – Head of Investor Relations
Rene Moos – Chief Executive Officer
Hans van der Aar – Chief Financial Officer
Conference Call Participants
James Clark – Barclays Bank PLC
Edward Young – Morgan Stanley
Robert Vos – ABN AMRO Bank
Marc Zwartsenburg – ING
Christophe Beghin – Kempen
Operator
Good day, ladies and gentlemen. Welcome to the Basic-Fit’s 2022 Half Year Results Conference Call and Webcast. At this time, all participants are in a listen only mode. We will be facilitating a question-and-answer session after today’s prepared remarks. [Operator Instructions] Please note that this conference is being recorded.
I would now like to turn the call over to your host, Richard Piekaar, Head of Investor Relations. Sir, you may begin.
Richard Piekaar
Well, thank you, Eli, and good afternoon, and welcome, everyone, to this conference call during which we will discuss our results over the first half of 2022. With me today are, as usual, Rene Moos, our CEO; and Hans van der Aar, our CFO.
This call is being broadcast live on our website, and a recording of the call will be available shortly afterwards. And as usual, I would like to point out that safe harbor applies.
We will start with Rene, who will discuss the highlights and the operational developments, followed by a more detailed look at the financial results from Hans. After these prepared remarks, we’ll open the call for questions. This call will finish no later than 3 o’clock.
And with that Rene, I would like to hand over to you.
Rene Moos
Thank you, Richard. Welcome, everyone, and thank you for joining today’s call. During our conference call in March, I mentioned that our company was in good shape and that we were at the start of a new era of higher club and membership growth.
I’m happy to report today that we achieved both of these goals in the first half of 2022. In the first half, we added 107 clubs to our network to reach 1,122 clubs. This July, we opened another 18, which left our total to 1,140 clubs. Following the end of the lockdown in the Netherlands on the 15th of January and the lifting of the health pass and all other COVID restrictions in the first months of the year, we experienced record membership growth. But also, several months after all these restrictions were lifted, we are still experiencing strong membership growth trends, which I believe is a clear evidence of our strong go-to-market strategy and our favorable product and price proposition.
At the end of the first half, we had almost three million memberships compared to the two million we had a year ago. Revenue for the first half of 2022 of €355 million was well above that of the first half of last year when our clubs were closed for 81% of the time. Underlying EBITDA was a profit of €60 million compared to a loss of €12.5 million in the first half of last year. We ended the first half with €181 million of available liquidity, which allows us to execute our club growth plan.
Let’s go to the next slide on club openings. In France, we added a record of 80 clubs to our network in the first six months. Early in June, we celebrated the opening of Club number 600 in France. At the end of the period, we operated 608 clubs in France. I understand that you might get used to these growth numbers, but for all of us at Basic-Fit, we think this is an incredible achievement that makes us very proud. Think about it. We started 2016, the year of our IPO with just 25 clubs in France and 337 clubs in total.
As I said before, we are far from reaching saturation in France. I believe we can double the current number of clubs in the years ahead of us.
In Spain, where our Club Growth Acceleration Plan is gaining momentum, we operated 67 clubs at the end of the first half year. We opened another two clubs in Barcelona and a fourth club in Valencia. In the coming years, these large metropolitan areas that become the second and third place after Madrid should turn orange, just like Madrid, where we are operating more than 40 clubs. Since the end of the first half, we opened another six clubs in Spain, of which fifth in Valencia, which means that we currently operate 73 clubs in Spain.
We remain confident that by the end of the year, we will operate around 100 clubs in Spain. We expect our first clubs in Germany to open in October, depending on when we receive the permits and can start building. I expect that we will open between five and 10 clubs this year. In the first half of next year, we will further accelerate the number of club openings in Germany.
Let’s move to the next slide on membership growth. At the end of the first half, we recorded 2.92 million memberships, which is an increase of 45% compared to a year-ago. Since the start of the year, our memberships went up by 32%. In March, we told you that we had a strong start of 2022, as we also benefited from the lifting of all the COVID-19 restrictions in all our countries. I’m happy to say that several months later, we are still witnessing strong journey growth trends in all countries, including the month of July.
Our growth is broad-based and comes from newly opened clubs, ingrowth at clubs that never experienced a normal ingrowth period during the pandemic and the further recovery of our mature clubs. All our countries recorded strong membership growth in the first half of the year.
In the beginning of the year, the performance of France and the Netherlands were particularly noteworthy. The recovery in Belgium and Spain was a bit slower due to the more severe and long-lasting COVID-19 related government measures. But these countries are now also starting to catch up. I’m happy with the strong momentum in all our countries, and that is also why for the full-year, I expect we can grow our membership by 1.3 million to a total of 3.5 million memberships.
We have affordable pricing in a market where many of our peers have raised their list prices this year by 20% or even 50%. We are planning to keep our list prices unchanged, but we will further optimize our membership structure in the second half of the year to increase the positive yield development. I will explain some elements on the next slide.
We are continuously testing and optimizing our membership structure. In the coming months, we will roll out changes to our membership structure with the aim to further increase the uptake of the premium membership. We will broaden the value gap between the comfort and the premium memberships. This will be achieved by modifying both the perceived as well as the factual value of the memberships. The higher uptake of the premium membership will increase the average yield per member and has a positive impact on our revenue.
We have seen premium membership as a percentage of the base grow from 23% at the start of the year to currently 27%. And the uptake of the premium for new members has increased already to over 35%. So more than 35% of the joiners recognize the added value of the premium membership and are willing to pay €10 more each period. I’m comfortable that the premium membership will grow to in between 30% and 35% of the base at the end of this year.
Next to increasing the average yield per member, we also aim to make the membership structure more future proof as we will add flexibility to our go-to-market strategy. In addition, it will pave the way for the addition of a new third membership in the second half of this year. I will be more specific about this in due course when we introduce the new structure.
With the introduction of the new membership structure, we will also make the use of the QR code on mobile phones mandatory. Beyond this, will no longer automatically obtain a membership card. And as most people will not be sharing their phones with others, we believe this will reduce improper use of the membership card and should result in some incremental membership growth. Additional benefits for us are a reduction in the use of plastic and higher usage of engagement of the Basic-Fit app.
That brings me to my last slide for now, the execution of our growth strategy. Last November, we announced our plans to accelerate club openings to around 235 clubs for this year and between 200 and 300 clubs as from 2023. With our network growing by 125 clubs so far this year, our expansion process is well set to achieve these goals. We expect to grow our club network to around 1,250 by the end of the year and towards 1,500 by the end of 2023. I would also like to confirm our 2,000 and 3,000-plus targets for 2025 and 2030.
With our strict site selection process and dedicated software system, we are in full control of the expansion process and continue to pick the right locations. We see this confirmed in the ramp-up of memberships in our new clubs that we opened this and last year after COVID-19, which are developing according to the expectation and are expected to reach a return on invested capital of at least 30% at maturity. In October, we will open our first clubs in Germany with many more to follow in 2023. As you can see in the chart, we have a full pipeline for the group for this and next year.
I’ll now hand it over to Hans for the financial review.
Hans van der Aar
Well, thank you, Rene, and hi, everyone. Let me first walk you through our P&L and KPIs on Slide 8. After two very difficult years due to the pandemic, our numbers are starting to look more normal again in the first half of 2022. We are in full recovery mode, which also means that the most comparisons with last year are of little or no use. Nevertheless, I will give it a try.
Our revenue increased by €302 million in the first half. The increase is the result of all our clubs being opened for nearly the entire period this half year, while last year, our clubs were closed for 81% of the time. Our underlying club EBITDA was €120 million compared to €9 million last year. The strong year-on-year improvement was driven by a combination of clubs being open for the entire period, a strong recovery of memberships at mature clubs and strong ingrowth of memberships at new and immature clubs. The impact from inflation was limited on our club operating costs.
Our rent and wage increases were limited, and our utility and unit costs were flat because we have natural gas and electricity contracts with low fixed prices. We have low fixed energy unit prices for the full-year 2022 and for a large part of our energy consumption in 2023. Newly opened clubs in our countries are part of the mentioned contracts.
Our underlying EBITDA showed a strong recovery with €60 million reported in the period compared to a loss of €12.5 million in the same period last year. Total overhead expenses increased to €58.5 million, mainly due to marketing spend having increased by €25 million.
Last year, our marketing spend was, of course, very low because our clubs were closed 81% of the time. We also made a decision to increase our marketing spend as a percentage of revenue, as we want to benefit from our strength in our markets and want to recover our average memberships in our mature clubs as fast as possible to have a strong start next year. The increased marketing budget will also be used in relation to the optimized membership structure, which Rene just explained and the expansion into Germany.
For the full-year 2022, we now expect to spend approximately 6% of revenue on marketing compared to our earlier guidance of 4% to 5%. I believe most other line items speak for themselves, which brings me to our net result, an underlying net loss of €20.6 million. I’m happy to say that in June, we made our first net profit again since the start of the pandemic.
Let’s go to the next slide on mature club development. As you all know, we consider a club mature when it’s at least 24 months old at the start of the calendar year. Because of the pandemic, we temporarily report mature club development based on the 503 clubs that were mature before the start of the pandemic. Our 503 mature clubs had on average 3,138 memberships at the end of June compared to 2,646 memberships at the start of the year. This strong improvement gives us the confidence that we will return to pre-COVID levels by the end of 2022.
If you look at the Netherlands, we see that our mature clubs have already returned to pre-COVID levels. And the mature clubs in France are also getting there rapidly. Because of the more severe impact and the longer duration of the COVID-19 measures in Spain and Belgium, we will need until Q4 this year before we are fully recovered in all our countries.
Let’s go to the next slide on capital expenditure. The average initial CapEx for newly built clubs was €1.16 million in the first half this year compared to €1.17 million in the first half of last year. Despite some inflationary pressure, we are confident that the average initial CapEx will remain below €1.2 million in 2022. Given that we have fixed prices for a lot of products and that we are still able to benefit from our increasing scale, benchmarking, a more cost-efficient material selection, we should be able to remain at around €1.2 million also next year.
On maintenance CapEx, we spent on average €30,000 per club compared to €14,000 in the first half of last year. The spend last year was, of course, low due to the lockdowns. For this and the following years, we continue to expect an average spend of around €55,000 per club. Lastly, other CapEx amounted to €4.1 million, the same as last year. The investments relate predominantly to IT and software development. For the full year, we expect around €8 million of other CapEx.
Let’s go to my last slide before I hand it over back to Rene. At the end of the first half of this year, we had €181 million of available liquidity. Thanks to our improving cash flow trend on the back of our strong membership growth and mature club recovery, I believe we have ample available liquidity to finance our club rollout for the coming years. Excluding rent lease liabilities, net debt amounted to €690 million at the end of June 2022. The increase of €142 million compared to the end of 2021 reflects our net loss in the first half of the year and our strong club opening program. Bearing any unforeseen circumstances, we expect to become self-financing halfway 2023.
Our net debt-to-EBITDA ratio for the 30 of June testing was below the 3.5x as agreed with our bank. As a reminder, for EBITDA, we were allowed to use 2x the adjusted EBITDA for the fourth quarter of 2021 plus the adjusted EBITDA of the first half of 2022.
And now I give the word back to Rene for our outlook for 2022.
Rene Moos
Thank you, Hans. I will conclude our presentation with the outlook for 2022. Our key focus this year is on memberships, both the ingrowth of our new clubs and the recovery of the average membership base to pre-COVID levels. We want to take advantage of our increased competitive strength and decided to increase our marketing spend this year in full support of membership growth to have a great starting point in 2023.
The increased uptake of the premium membership in the first half of the year will continue in the second half due to the optimized membership structure, which we will launch in the coming weeks and months in all countries. This will further increase the average revenue per membership, and this is how we expect to mitigate cost inflation.
Following a strong first half of the year and with all our plans in mind, we expect membership to grow by 1.3 million to 3.5 million membership by year-end. We expect full-year revenue of around between €800 million and €850 million. Because of our decision to spend more on marketing, we now expect an underlying EBITDA of around €225 million. And lastly, we are on track to grow to around 1,250 clubs by year-end.
This concludes the presentation. Operator, please open the lines for questions.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] And we’ll go ahead and take our first question from James Rowland Clark with Barclays. Please go ahead.
James Clark
Hi. Good afternoon, everyone. I’ve got three questions, please. My first is just on the mature club recovery of members by the end of this year. If we go back to the CMD last year, you outlined guidance of about 50% club margins. And I guess since then, you’ve seen high single-digit revenue per member growth probably by the end of the year. You’ve also got some labor and rent inflation, albeit other OpEx is fairly flat. So is that 50% margin guidance still relevant by the end of the year for mature club or could it be higher or lower? And what are you seeing in terms of rent labor inflation today? That’s my first question. I’ve got two more, but I can ask them now or ask later, whichever is easier.
Rene Moos
We can answer the first one now then.
Hans van der Aar
Yes, I’ll answer the first question, James. Thanks for this very sensible question. What we expect is that the EBITDA on our mature clubs will be the same. So there will be impact on cost inflation. But as we said, we will mitigate those inflation impact by selling more premium memberships. This, of course, means that the revenue will be up and cost will be slightly up, so the margin will be slightly lower on the mature clubs. But the EBITDA that we have shown on a run rate will be on the same level.
James Clark
Great. Thank you. And then my second is on marketing. So the new guidance is 6% of revenue, and it was 4% to 5% of sales previously. And obviously, you’re raising marketing to drive member growth from 1 million to 1.3 million. It does appear to imply a slight increase in marketing cost per new member. So is there any inflation in marketing costs at the moment or are you sort of front loading in order to sort of blitz market – sorry, member growth in early 2023?
Rene Moos
I’m not sure if I completely understand the question. But yes, we saw for this year, we expect to use around 6% of the turnover for marketing costs. And with that, we will use that not only to get more members in, but also to speed up people changing to the premium membership and the announcement of our third membership. Also, of course, we’re entering country number 6, Germany. So we have a lot of different things while it made sense for us to increase the marketing spend. But the inflation, so do you mean the marketing cost is becoming more expensive or…
Hans van der Aar
You mean the marketing cost per joiner, James, or not?
James Clark
Exactly, yes.
Hans van der Aar
Yes, that’s more or less on the same level. So if you – just like Rene said, we are spending more marketing also on the Germany to get into the new market. We want to emphasize the importance of our new membership structure. As Rene explained, we will come back to that later when it’s introduced. So we will spend more marketing on that, but there is no inflation impact on marketing.
Rene Moos
So the marketing cost for a new member is still below €30. And what we expect is that the length of stay will be also more or less the same as before COVID, so 23 months. So spending €30 on a 23-month membership is, we think, a good – is a good return.
James Clark
And my final one is just on the mix of new members. Do you have a sense as to the proportion of your new members who are sort of returning members and first-time gym members and also from competitors? Just any color you have on that would be great.
Rene Moos
Yes. The last point from different clubs, we don’t see that yet. We don’t see a big increase of members from other clubs. We do see a lot of people returning. And we see a lot of ingrowth of members that have never been to gym before. There’s one group that is slightly behind. That is the 50-plus age group. That group is not growing, and that is still far behind to what it was before COVID. So we see a lot of younger members returning, and we see a lot of people starting with the fitness membership.
James Clark
Excellent. Thank you very much.
Rene Moos
Thank you.
Operator
And we’ll move on to our next question from Ed Young with Morgan Stanley. Please go ahead.
Edward Young
Good afternoon. Just a quick follow-up on marketing. You’ve actually answered most of what I wanted to know in the previous questions, James. But very quickly, would you expect that 6% of turnover spend to remain into outer years or is it kind of a one-off in your view?
My second question is on build costs. I think it’s quite impressive you’re not seeing material inflation there. You touched a little bit how you’re doing it. Is it protected through master contracts or how are you doing it? Because it’s quite rare. If you look across, most companies are seeing difficulties of getting building done on time and on budget. So how are you achieving that? And then the final one, just on the balance sheet, there’s another €25 million buildup in inventories, which went up again into the full-year. So can you just give us some color on what’s driving that, please? Thanks.
Rene Moos
Yes. So I’ll start with the membership of the marketing, the 6%. Yes, it could be that we will remain also next year with the 6%, but that really depends how it’s going this year if it’s really helpful and really makes sense. So we do not have made a decision on that yet. So it could be going back to, let’s say, 4% or 5% or it could stay on the 6%, depending what the results are in the second half of this year.
About inflation, I think what is helping us a lot for this year and also for next year is that we made contracts for 2022 and 2023 with fixed prices. So even if, for instance, a supplier of equipment or air conditioning wants to increase it, we have contracts that don’t allow them to increase it. So I think that is the main driver. But also, we see some changes in use of equipment that we are using.
For instance, as an example, the cardio equipment is being used less and less, and there’s more free weight and strength equipment and that is cheaper than the cardio equipment. So it’s a lot of little things. And so we are also very comfortable that for next year, we will stay below the €1.2 million.
Hans van der Aar
And then your question on inventory on the balance sheet and €25 million, actually, that’s a combination of equipment that we already bought to make sure that we can open the clubs when we want to open the clubs and also part of the inventory is the bikes that we bought for launching of our new membership that will be launched in the coming months. So that’s the reason why the inventory is €25 million higher than normal.
Rene Moos
And maybe to add to that, it is – so we made in the new contracts, we also made with our suppliers agreements that they also increased their inventory. So with €25 million inventory, of course, you cannot build 250 clubs. But it’s a combination of inventory that we have in our own storage and inventory that our suppliers have to keep in their storage. So if there’s two months or three months, no ships coming in that we still have the equipment and furniture to open up clubs.
Edward Young
Okay. Understood. Very clear. One quick follow-up, if possible, on the bikes side of things. You said you’re sort of hoping to get that driven in the next few months. In that case, how much have you sort of stored up? It seems like maybe quite a large pool of purchase. Is that to achieve better terms or is that just to ensure you’ve got the sort of supply available in terms of building up the inventory?
Rene Moos
Yes. Like that, is we need to have the bags available. If you sell a membership that includes the bag. Of course, you have to be able to deliver it. There, we have a cooperation with the tech with Matrix. So partly of the storage is – they’re doing partly of the storage, and we’re doing partly of the storage. But we will start not in a few months, but we will start with it in a few weeks, in two weeks to be fair.
Edward Young
Okay, great. Very clear. Thank you.
Operator
And we’ll move on to our next question from Robert Vos with ABN AMRO. Please go ahead.
Robert Vos
Yes. Hi, good afternoon. I have a few questions as well. To start with working capital. Will it – it was minus 8% of revenues in the first half. Will this reverse to your target of minus 15% to minus 20% by the end of the year? So that’s my first question, maybe do them one at a time.
Hans van der Aar
Yes, Rob, the reason why the working capital is now a bit lower than we normally see is because of the inventory. What we gave guidance on, we used to have a minus 20% of revenue on working capital. But as we introduced the new system of direct debt with the 4-week system, that number will get – will be lower, and we already gave guidance on Capital Market Day that it will be around 10% to 50% minus of revenue. So – and that we expect to have at the end of this year.
Robert Vos
Okay. That’s clear. Thank you. Then also a clarification. Did you say, Hans, that your liquidity, the €180 million is sufficient to basically reach the phase during which basically it will fund growth internally? So no further funding needed. Is that what you said?
Hans van der Aar
And that’s what I said, and that’s what I meant to say. So we don’t need a further liquidity with €180 million liquidity that’s available. And of course, with the positive EBITDA that we – and the membership growth that we see, now we can open the clubs that we want to open and be cash flow positive in the second half of 2023.
Robert Vos
Yes. That was also a question. Is that – basically, have you brought it forward by six months or is it six months later? Because I think previously you said, as from 2023. Maybe you can clarify that?
Hans van der Aar
Well, it didn’t change. So it’s still – we can now be more detailed because we have more information, of course. So now we can say, and you know that I’m conservative in this. So I can clearly say that we will finance our own growth. We’ll be able to finance our own growth with our own money that we make, our own cash flow. And that will be in the second half – as from the second half of 2023. No different circumstances, no lockdowns, and based off, of course, on the amount of openings that we want to do.
Robert Vos
That’s very clear. All right. Then my final one. You mentioned that you stayed within the amended covenant of 3.5x from net debt-to-EBITDA. My calculations, you don’t provide the building blocks, but on my calculations, you’re very close. Can you maybe say what the exact ratio was at the half year?
Hans van der Aar
It’s a bit difficult to say that because then we could give – we never give quarterly information about the EBITDA that we make. And of course, Q4 2021 is we can do that twice, but we’re not very close. We are on a respected level. So we’re very comfortable with the leverage that we have now.
Robert Vos
Okay. And the amendment will disappear, in the normal calculation, this year?
Hans van der Aar
At the end of the year, we’ll have the normal calculation based on the adjusted EBITDA, and we have to stay below the 3.5x, and then I will give also more information about the covenants that we met because then you can make the calculation.
Robert Vos
Okay. And any indication of what you expect roughly? Is it below 3% or can you say anything on that for the end of this year?
Hans van der Aar
The EBITDA is going to be €225 million, more or less. So it’s not going to be – it depends, of course. We will explain it, but we are very comfortable that we stay within the bank agreements.
Rene Moos
I think I am pretty confident that it will be around that 3%.
Robert Vos
All right. That’s very helpful. Thank you.
Operator
And we’ll move on to our next question from Marc Zwartsenburg with ING. Please go ahead.
Marc Zwartsenburg
Yes, good afternoon. A couple of questions from my side. First of all, on the statements you made, Rene, on the list prices. You mentioned that there will be a third membership introduced. But will that then not restrain the ingrowth of the premium membership to reach that 30%, 35%, or is this even a premium plus sort of membership? How should I think about that?
Rene Moos
Premium Plus.
Marc Zwartsenburg
Okay. And in order to increase the perceived value gap between comfort and premium, just to get a bit of feel for that. But does that mean that the comfort contract will be less rich as a contract? Will you take out certain functionality from the contract or should I think in a different direction?
Rene Moos
Yes.
Hans van der Aar
I’ll answer that one Marc. I’ll give you an example of what happened in the last months, and then we stopped charging entry fee with the premium membership and start asking the entry fee with comfort membership. And then we immediately saw that people chose the premium membership to avoid paying the entry fee. So that was one of the ways we can stimulate people to choose the premium membership, and we immediately saw the result on that?
Rene Moos
So we have tried different things – yes. So it’s not that you’re going to come only during the day or not in the weekends or something now. It’s just a membership and you can have a full usage of a club on the opening time. So it’s not that, but it’s just small changes that we are adjusting. But we will – in the coming weeks, we will launch the new prices, and then we will explain exactly what we are offering. But the €19.99 will stay and the €29.99 will stay, and there will be one more expensive membership added to it.
Marc Zwartsenburg
I see. So it’s not that the list prices will become flexible or something like that?
Rene Moos
No, no. It’s still a year contract. That stays the same.
Marc Zwartsenburg
Okay. And then a question for Hans again on the liquidity. Can you – because halfway next year, you expect to be cash flow positive on a monthly basis. But can you give a bit of an indication what the negative cash flow is for the next 12 months or for the second half of this year? And just an idea how the liquidity will develop towards mid next year, for example?
Hans van der Aar
Well, if you do a quick calculation, then we expect to have a €225 million of EBITDA. We did €60 million. So we’ll definitely have a positive cash flow there. So we have €225 million EBITDA guidance for the whole year, and we did €60 million. So there will be on €165 million EBITDA, and we will still have to open 120 clubs, 125. So that will be sufficient. And so we will have enough liquidity there.
Marc Zwartsenburg
Yes, but you will still burn some cash in the second half of this year, obviously, because you have more – still about 30 to open?
Hans van der Aar
With the new membership, with all the memberships that we get in and the – of course, the cash burn was there when the clubs were closed. So now the clubs are open, and we expect to have a positive EBITDA, meaning a positive cash flow. And with that cash flow, we can fund the openings that we expect to do in the second half year. So I think the liquidity of the €181 million that we have now, will be more or less the same. It’s more than enough to accommodate and say for the clubs that we want to open, this is the CapEx. We’ll have €165 million EBITDA forecasted for the second half of the year. So there’s no CapEx, it’s on the [€65 million] plus.
Marc Zwartsenburg
Okay. Of course, I thought given that you said to mid next year, we will be cash flow positive but albeit in the meantime still burning some cash?
Hans van der Aar
Yes. There will be a slight cash burn. I’m conservative in that. You can expect that from me. But definitely, from the second half of next year, we can fund our own growth again, then we’ll open more clubs as well.
Marc Zwartsenburg
So liquidity will go down a little bit towards mid next year, but not that significant anymore?
Hans van der Aar
Not significant and of course, it also has to do with how we work with working capital, with the cash payable, and also with the timing of the openings.
Marc Zwartsenburg
Okay. Those are my questions. Thank you very much.
Rene Moos
Thank you.
Operator
[Operator Instructions] And we’ll go ahead and take our next question from Christophe Beghin with Kempen. Please go ahead.
Christophe Beghin
Hello, everyone. I think very good results. I have two questions. First question is on a remark of Rene. Would you say that so far, of the joiners, you didn’t see so far people changing from a fitness chain from competitors? First, how do you track that? And secondly, do you expect that to change into maybe H2 or beginning 2023? This is my first question?
Rene Moos
Yes. The way we track that, we ask people when they join if they ever did fitness before, if they were a member of Basic-Fit before or if they came from another gym and which gym was that. So that’s how we track it. And it is true, we did not see an increase of joiners from other clubs. We did have, in the last 30-plus years that we’re doing this work, we have seen a more difficult times that people downgrade from a premium or a mid-market club to low cost, but we haven’t seen that yet.
Christophe Beghin
And is that maybe because they are still within the existing contract of 12 months? And then do you expect maybe as soon that has finalized that, that could start to kick in?
Rene Moos
That’s what we think, yes.
Christophe Beghin
And then can you – it’s a noble question. Can you provide some flavor on the German market on the competitive field? Because we have seen that in most of your direct competitors you will compete with are struggling. They are significantly increasing each type of fee they charge to members. How are they financially, strong or weak? Can you elaborate there, not without naming some companies, but just a general remark?
Rene Moos
Yes. I think overall, there are a few very good companies, fitness companies in Germany. But on a 83 million population, they’re all very limited clubs. So the biggest one, a franchise company has around 400, the second biggest 200 and the third one, I think, 100, which is on 83 million inhabitants, extremely low. Also, the fitness penetration dropped dramatically in Germany from I think 14% to 11%. We think in time that can grow if you open enough clubs. And if the clubs are close by, that can grow to the same level as we have in the Netherlands, 17% on 18%. Of course, 1% or 2% extra on 83 million people is a lot of members. So we see the German market as one of our biggest opportunities going forward.
Christophe Beghin
Okay. Thank you.
Operator
[Operator Instructions] And we have no further questions. That does conclude today’s question-and-answer session. I would like to hand the call back over to Richard Piekaar for any additional or closing remarks. Please go ahead, sir.
Richard Piekaar
Thank you very much, and thank you, everyone, for dialing in and listening and participating to this call today. If any further questions come up, please don’t hesitate to call John, David or me, and we are happy to continue the discussion. Have a nice day. Bye-bye.
Rene Moos
Thank you. Bye.
Hans van der Aar
Thank you.
Operator
With that, that does conclude today’s call. Thank you for your participation. You may now disconnect.
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