Health Club group's independence under threat due to massive provision and slow growth in new memberships

At the same time as appointing a new chief executive, the Esporta group has revealed that they will be making a massive provision as a result of the deterioration in the secondary market for resaleable membership of the Riverside Club.

The new CEO, Maurice Kelly, who has joined from internet cafe, easyeverthing, will be finding his new role anything but easy with the group struggling to get new members and under threat of a take-over. Close to a third of members are not renewing according to the company.

"over 67% of those who were members of Esporta twelve months ago have been retained as members of Esporta today, but the level of new joiners has continued to be disappointing."
Esporta trading statement

Esporta purchased the Riverside club in recent years but were receiving complaints from members who were unable to resell memberships on a timely basis. They therefore took the decision to offer to redeem rights to membership sold under the resaleable membership category. Competition from new clubs in the area such as the Park Club may have had an impact.

Historically, the company had not recognised any liability in respect of these rights, as there had previously been a ready market for transfers of those rights to replacement members. In a recent trading statement they revealed that the company had decided to take a £4 million charge (after discounting) for this liability in their 2001 accounts.

City analysts described the trading statement as "disastrous". Further charges are also expected for severance and recruitment payments to senior directors as well as a reduction in the value of the clubs. The company confirmed that it has received approaches that may lead to offers being made for the business. City analysts believe the business could interest other health club operators or a company looking to realise value from the freehold properties held by the company.

Esporta Web Site

The Hogarth Group

The Park Club

June 7th 2002