The UK arm of Virgin Active, the fitness chain controlled by South African investment group Brait, has warned of doubts over its ability to continue as a going concern after government lockdowns forced the closure of its gyms.
In accounts filed at Companies House, Virgin Active said its debt covenants would be breached unless it raised money and warned that continued lockdowns and reduced footfall to city centres were adding to pressure on the business.
However, the UK company said it was trying to raise additional funds and expected to be able to rely on the support of its parent group.
Virgin Active said: “We are in discussions with all our stakeholders, and with their support we look forward to getting back to business as usual across all our territories, enabling the business to benefit from global trends towards health and wellness which are accelerating as a result of the pandemic.”
Virgin Active had 243 health clubs at the end of 2019, with more than half in southern Africa and the remainder in the UK, Italy and Asia, with 42 in the UK.
The UK accounts report performance for 2019. In more recent unaudited accounts published on Brait’s website, the company said the wider Virgin Active group’s revenues fell to £224.7m in the nine months to the end of September 2020 from £450.8m a year earlier. This resulted in a loss before interest, tax, depreciation and amortisation of £8.4m, compared with a profit of £102.4m previously.
The need for further cash underlines the severity of the pandemic, which forced Virgin Active to raise £20m from shareholders in June. Brait, which owns roughly 80 per cent of Virgin Active, provided £16m of the fundraising.
Sir Richard Branson’s Virgin Group, which owns the remainder of the company, injected the rest and agreed to defer £5m of royalty payments. It is the latest fundraising required in Mr Branson’s empire, following Virgin Group’s £200m commitment to Virgin Atlantic, the airline, in July.
Bank lenders also provided access to £25m of new debt earlier this year. The group relies on its banks to fund its fitness chains in the UK, Italy and Asia.
Documents show that the company may ask for additional banking facilities of up to £50m, or another amount subject to agreement from lenders, which include HSBC, AIB Group, Barclays, Lloyds and Standard Chartered.
Virgin Active also made use of government furlough schemes, including in the UK, deferred rental payments and agreed staff salary reductions as it froze memberships.
Brait has been selling assets as it unwinds a strategy of investing outside South Africa. Last November, Brait agreed a deal for private equity firm Ethos to manage that process and return capital to shareholders.
Peter Hayward-Butt, a partner at Ethos, said in an interview with Bloomberg earlier this year that the pandemic had “put a spanner in the works”, delaying the sale of the fitness chain.
Brait held 60 per cent of UK supermarket Iceland but earlier this year sold its stake back to founder and executive chairman Malcolm Walker.
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