Annual
Report
2017

esp

wellness

360º

Wellness

We are Wellness

WE ARE PART OF A TRANSFORMATION PROCESS.

WE PROMOTE A HEALTHY AND ACTIVE LIFESTYLE SO THAT OUR CUSTOMERS CAN BE THE BEST VERSION OF THEMSELVES.

Clients

84,823

cac: 13.3%

MORE THAN A LIFESTYLE

WE STRIVE TO TURN WELLNESS INTO A LIFESTYLE. WE WANT OUR CLIENTS TO ACHIEVE A BETTER VERSION OF THEMSELVES THROUGH OUR PROGRAMS AND SERVICES.

Incomes

1,665,842

cac: 16.9%

Figures in thousands of MXN

EXPANSION PLAN

WITH THE OPENING OF EIGHT NEW CLUBS DURING 2017, IN LINE WITH OUR EXPANSION PLAN, SPORTS WORLD HOLDS ITS POSITION AS THE LEADER IN THE PREMIUM SEGMENT.

Ebitda

292,757

cac: 14.1%

Figures in thousands of MXN

SW STRENGTHENED ITS WELLNESS STRATEGY IN 2017, BROADENING ITS SUPPLY AND BRINGING TO ITS CLIENTS THOSE ACTIVITIES AND SERVICES NEEDED TO HAVE A HEALTHY AND BALANCED LIFESTYLE.

Excellent service
that shows results...

UNDER OUR FOUR SERVICE PILLARS SCHEME, WE OFFER OUR CLIENTS A QUALITY EXPERIENCE.

Clubs

57

cac: 13.0%

* Considering clubs in shared operation.

Always on the lead

EVERY DAY THERE ARE MORE COMMUNITIES FORMED WITHIN SPORTS WORLD. THIS CREATES A SENSE OF BELONGING THAT HELPS US RETAIN MORE CLIENTS.

Sustainability

model

WE WORK TO INTEGRATE OUR PHILOSOPHY OF SUSTAINABILITY IN EACH STEP THAT WE GIVE, MAKING EACH ASPECT AN IMPORTANT PART OF THE SUSTAINABILITY MODEL.

  • Our Interest Groups

    Social Performance

    Environmental Performance

    Job Performance

AS A WELLNES COMPANY, WE CONSIDER OURSELVES RESPONSIBLE FOR THE PROMOTION OF ACTIVE AND HEALTHY LIFESTYLES WITHIN OUR COMMUNITY AND, PARTICULARLY, AMONGST THE NEW GENERATIONS.

A MESSAGE

FOR OUR SHAREHOLDERS

WE ARE VERY PLEASED WITH THE RESULTS OF 2017. THANKS TO OUR STRATEGIES AND INITIATIVES FOCUSED ON SERVICE AND HOSPITALITY, AS WELL AS OUR CONSTANT INNOVATION, WE CONTINUE TO STRENGTHEN SPORTS WORLD'S LEADERSHIP IN THE MEXICAN MARKET AND WE CONTINUE TO IMPROVE OUR OCCUPANCY AND CHURN RATES.

Corporate
profile

WE ARE THE LEADING FAMILY SPORTS CLUB OPERATING COMPANY IN MEXICO AND THE ONLY PUBLIC COMPANY IN THE WELLNESS INDUSTRY IN LATIN AMERICA. WE OFFER A WIDE RANGE OF SPORTS PROGRAMS FOCUSED ON THE SPECIFIC DEMANDS AND NEEDS OF OUR CLIENTS, AS WELL AS TRAINING, HEALTH AND NUTRITION SERVICES FOLLOWING THE LATEST INTERNATIONAL TRENDS IN THE INDUSTRY, TO ENSURE THAT OUR CLIENTS MAINTAIN A WELLNESS LIFESTYLE.

MISSION

To make our customers feel special in a fun, dynamic and hospitable environment, activating and transforming their lives.

VISION

To be the leading Wellness organization, distinguished for creating experiences that allow us to exceed our clients' expectations through quality in service and innovation, ensuring the growth of our collaborators, our profitability and the Company's sustainability.

VALUES

  • Service
  • Innovation
  • Passion
  • Growth
  • Honesty
  • Commitment
  • Team work

VALUE
PROPOSAL

CUSTOMERS

Join them in the achievement of their goals, in a comfortable environment, guaranteeing the optimal operation of our facilities.

PEOPLE

Find the balance between the Company's growth and the people's development, transforming ourselves into an example that inspires wellbeing.

SUSTAINABILITY

Promote active and healthy lifestyles, managing the efficient use of our natural resources and operating in an ethical and transparent manner.

MORE THAN
A LIFESTYLE

WE STRIVE TO TURN WELLNESS INTO A LIFESTYLE.
WE WANT OUR CLIENTS TO ACHIEVE A BETTER VERSION OF THEMSELVES THROUGH OUR PROGRAMS AND SERVICES.

2017 was a key year to strengthen our wellness focused strategy. With it, we seek to offer our clients all the services that will lead them to a healthy lifestyle.

Besides the wide and innovative sports offer, we have nutrition services; programs focused on improving health issues such as “Feel Healthy” (focused on improving diabetes, hypertension and overweight); special activities for children (tae kwon do, early stimulation, ballet, sports climbing, special swim program “SafeSplash”, hip hop, yoga, and others, as well as special seasonal events: “Summer Camp”, “Spring Camp” and “Winter Camp”); recovery programs; special yoga events and other programs included in our sports offer, such as “Grit Games”; SPA service and, finally, coffee shops that seek to improve their products every day in order to have a healthy and rich offering that goes along with the lifestyle we encourage.

  • Nutrition
    services

  • Activities
    for Children

  • Recovery
    programs

  • Spa
    service

  • Coffee shops
    service

EXPANSION
PLAN

WITH THE OPENING OF EIGHT NEW CLUBS DURING 2017, IN LINE WITH OUR EXPANSION PLAN, SPORTS WORLD HOLDS ITS POSITION AS THE LEADER IN THE PREMIUM SEGMENT.

As part of our expansion plan, in 2017 we added eight new family format clubs, strengthening our presence in Mexico City with five of them, in Queretaro with two and in Merida with one. Locations are determined based on a growth and economic development analysis by state, as well as a sensitivity analysis carried out by the management team and expansion area experts.

We are proud of the strong welcome we have received in openings outside of Mexico City and its metropolitan area, which is shown our results, demonstrating a 16.2% increase in active clients in comparison to 2016. Thanks to this positive response, we are confident of the success we will continue to have in the expansion towards other states of the country with high potential.

At the end of 2017, we had 53 clubs in operation and four operating under another brand in a shared operation agreement, in line with our growth plan and medium term goals.

8

New
Clubs '17

5

CDMX

2

Queretaro

1

Merida

53

Clubs in
Operation '17

+4

Clubs under scheme
operation agreement

EXCELLENT
SERVICE THAT SHOWS
RESULTS

UNDER OUR FOUR SERVICE PILLARS SCHEME, WE OFFER OUR CLIENTS A QUALITY EXPERIENCE.

We started 2017 with the launch of a new campaign focused on enriching our client service, with which we implemented a new “four service pillars” scheme:

01

Equipment maintenance:

a 72 hrs. commitment to deal with any breakdowns

03

Coaches:

always available

02

Cleanliness:

impeccable facilities at all times

04

Client service:

less than 24 hrs. response to comments

The result of this campaign's implementation was an increase in clients' satisfaction:

80.3%
at the end of 2016

88.1%
at the end of 2017

Through this, we have achieved an increase of 2.5 percentage points in the occupancy rate of clubs with more than twelve months in operation and a 6.4% increase in the monthly average attendance in comparison to the previous year.

On the other hand, we maintained a healthy churn rate of 3.6% by the end of 2017, a level that was kept below the one of the industry and similar to the one we held in 2016, despite the additional increase in prices carried out mid-year and the unfortunate happenings of the September earthquake.

Always
on the lead

EVERY DAY THERE ARE MORE COMMUNITIES FORMED WITHIN SPORTS WORLD. THIS CREATES A SENSE OF BELONGING THAT HELPS US RETAIN MORE CLIENTS.

At the beginning of the year, we launched our new image along with an aggressive marketing campaign. They were both remarkably successful and have been an important factor in strengthening the brand positioning in the premium segment, as well as to reach all generations.

This brand positioning improvement, along with the strengthening of our wellness strategy, have brought an increasing interest from other companies to have presence in our clubs, which has led to an increase in sponsorships and commercial exchange income. We believe these partnerships are important to continue growing the wellness market in the country.

On the other hand, as we have been doing for the past few years, we carried on with our constant innovation, with the goal of always leading with the latest global trends in the fitness and wellness market. In 2017, for example, we implemented IndBike in 18 more clubs, reaching a total of 21 clubs that offer this highly accepted and demanded activity. Another program that has proven to be very successful is GRIT®, in which we have had over 1,000 attendees in three generations and one GRIT® CAMP.

21

CLUBS WITH
ACTIVITY INDBIKE

1,000

ATTENDEES
GRIT® CAMP

Sustainability

The results of other programs in which we actively participate are the following:

Game Change

We participated in the 2017 “Copa Valores” by the Asociación Cambio de Juego A.C.

  • We managed to sponsor six soccer and one dance team, formed by young people in vulnerable situations.
  • With our donation, they acquired sports uniforms and food for their good performance during the tournament.

From Oblivion to Relief

We offer a new life to forgotten clothing that is not claimed back by our clients.

  • In 2017 we donated a total of 250 clothing items to several foundations.

For a Healthy Mexico

We continue to strengthen our alliance with Mexico City’s Health Ministry in order to address the health issues in our country.

  • We took part in the program “Muévete”, giving group physical activation classes in several public spaces, schools, health fairs and sports clubs in Mexico City.

Smiles Mailbox

The volunteers from our corporate team sponsored 50 children in vulnerable situations to give them a toy they wanted during December, creating, with this, a harmonic space while delivering the gift personally to each child.

Sustainability

Job
Performance

IN 2017 WE TOOK AN IMPORTANT STEP TOWARDS A NEW PERSONNEL MANAGEMENT FOCUS, DEVELOPING OUR HUMAN RESOURCES PROGRAM INTO TALENT & CULTURE. PROMOTING A WELLNESS LIFESTYLE IN OUR COLLABORATORS, WITH THE OBJECTIVE OF INCENTIVATE AN INDIVIDUAL AN PROFESSIONAL BALANCE.

Our Team

1,120

Women (45%)

1,396

Men (55%)

2,516

Total

22%

Professional growth vs previous year

ALMOST 500 PEOPLE JOINED OUR TEAM IN DIFFERENT STATES OF THE COUNTRY.

Training and Assessment

Training is essential for collaborators to have the knowledge that helps them develop necessary skills to improve their job performance.

During 2017 we continued our training programs “Espíritu SW”, “Star Trainer” and “El Impacto de tu Excelencia”, focused on strengthening our hospitality culture. Furthermore, we moved to a new stage in leader training by starting our Management School, in search for skills and competences development in our internal talent to face present and future growth.

56

OF OUR COLLABORATORS WERE
CHOSEN TO BE A PART OF THE
MANAGEMENT SCHOOL

41hrs.

of training per collaborator
(+2hrs vs 2016)

Wellbeing, health and safety

We are natural promoters of wellbeing and, beyond our clients, we also want our collaborators to lead active and healthy lives, in line with our philosophy.

In this year, we continued with the implementation of actions that form our internal “Wellness” health program, such as:

Alignment and Balance Months

To promote a prevention and self-care health culture, implementing days when we offer free medical services such as glucose, BMI and blood pressure measurement, and sight exams among others, getting 71% of collaborators to participate.

21-day Challenge

An initiative that promotes physical activation amongst corporate collaborators, encouraging the use of stairs to head into our facilities.

Family Day

Amongst the initiatives of our internal health program, “Wellness”, we have the Family Day, which allows direct family members of our collaborators to use our facilities on weekends. During 2017, 45 of our collaborators took advantage of this benefit.

Our wellness culture has been recognized by the Wellness Council Mexico, who awarded us for the third year in a row, the distinctive of a Responsibly Healthy Organization (Distintivo Organización Saludablemente Reponsable).

103

Accidents
Total 2017

2

Administrative

101

Operational

Protection of Human
Rights, Diversity and Equity

We join the Global Deal to reject forced labor, child exploitation and discrimination in any form in the totality of our value chain. To ensure the fulfillment of this commitment, we support it internally with our:

  • Ethics code
  • Gender equity and no discrimination policy
  • No-discrimination trainings
  • Complaints processes for any breach

AT SPORTS WORLD WE INVEST IN THE WELLBEING AND DEVELOPMENT OF OUR COLLABORATORS AND, AS PART OF THIS EFFORT, WE OFFER BENEFITS THAT SURPASS WHAT THE LAW REQUIRES.

Compensation and Benefits

30-day
Year-end Bonus

10% in Food
Coupons

10% Attendance
Bonus

10% Bonus for
Arriving on Time

5% Savings
Fund

Use of facilities for
employees and some family members

Life insurance

Major Medical Expense insurance

Maternity and Paternity

Because we know that life-work balance is important, all our staff has the right to a paternity or maternity leave. This year, the number of collaborators that took advantage of this right grew a little over 100%; besides, the percentage of people who came back to their jobs after their time off grew by 9%.

36

Went on maternity LEAVE

31

RETURNED TO THEIR ACTIVITIES AFTER THEIR MATERNITY LEAVE

31

KEPT THEIR JOB 12 MONTHS AFTER REJOINING

71

Went on paternity LEAVE

71

RETURNED TO THEIR ACTIVITIES AFTER THEIR PATERNITY LEAVE

69

KEPT THEIR JOB 12 MONTHS AFTER REJOINING

Recognition

During 2017 we set as an objective to join all our internal recognition practices in one single model, which we called DA+ and one which strives to recognize the work, performance, extraordinary effort and contributions from Sports World's collaborators, fostering a superior performance and better results for the Company.

Time

Recognize and celebrate the permanence of our people in the organization.

Achievement

Recognize outstanding collaborators for actions that positively impact the organization.

Life

Celebrate special life moments of each collaborator.

Team

Recognize the work, results and integration as a team.

Development

Recognize those collaborators who strive to improve and develop themselves and make a difference within the Company.

Social

Recognize the participation of collaborators in activities that generate a positive impact in our community.

Sustainability

Environmental
Performance

Securing the sustainability of the Company and protecting the environment is our priority. Year after year, we work on improving our measurement systems, which allow us to know the impact of our day-to-day operations and to establish reduction environmental goals.

Energy

The natural gas and LP gas consumption for water heating make up the main energy source of our operation, followed by electrical consumption in our facilities.

Just like last year, solar energy supplied, energetically, some of our clubs, allowing us to heat water through this means and to turn our energy matrix greener for the future, reducing our dependence on fossil fuels.

80%

REDUCTION NATURAL
GAS CONSUMPTION

-31%

gigajoules
in operation

Electrical Energy
As part of our commitment to the environment, we strive to regulate our electrical energy consumption in each business unit through strategies that allow for its efficient use and the optimization in the use of this resource.

The electrical installation of new clubs has been planned strategically, based on these principles, because they work with compact fluorescence and special LEDs applications, reducing considerably the energy consumption, in comparison with a traditional lamp.

5%

Increase in CONSUMPTION
ANNUAL VS '16

Thermal Energy
Thermal energy is another essential resource for our operation, which is why each club has boiler rooms for water heating, most of which run on LP Gas.

For the most recent openings, we promoted the use of ceramic core boilers with high efficiency, aside from the incorporation of new technology that makes thermal energy use more efficient.

15

OF OUR CLUBS USE
NATURAL GAS

-4%

USE OF
GAS LP

-54%

combustion
emissions

Carbon Footprint

Nowadays, the measurement of the carbon footprint is important not just for the protection of the environment, but also as an indicator of use intensity of resources, financial efficiency of our organization and the analysis of risk associated to climate change.

Due to our growth with the opening of eight new clubs, we are aware of our growing impact on the atmosphere, which is why we are committed to the creation of a mitigation plan, foreseeing the additional pollution we might generate in the future.

-2,964

Tons of co2e

Waste Management

This year, as part of a new initiative, we considered it of importance to reduce the water bottle consumption in corporate offices, carried out through the acquisition of dispensers which resulted in the reduction of 2,600 500ml water bottles consumed in 2017.

We achieved savings of 43.9% in fuel, reducing the related greenhouse gas emissions by almost half.

2,600

water bottles (500 ml)
not consumed

405,487

Recycled bottles

4,320

LITERS OF GASOLINE
BY FLEET OF VEHICLES

$101,599

equivalent in mxn

Actions in Support of the Planet

As part of our strategy to compensate for the carbon footprint generated by our operation, in 2010 we created the program “A Todo Pulmón”. For the seventh year in a row, we summoned our collaborators to join us for a reforestation day that, aside from creating a nice work environment, benefits our planet and community.

We reforest the Cumbres de Ajusco National Park:

100

collaborators
and family

67%

Greater assistance
17' vs 16'

Since the beginning of the program:

6,600

Total of trees
planted

1,500

planted
pine trees

Sustainability

Our Interest Groups
and our ethical behavior

AS A WELLNES COMPANY, WE CONSIDER OURSELVES RESPONSIBLE FOR THE PROMOTION OF ACTIVE AND HEALTHY LIFESTYLES WITHIN OUR COMMUNITY AND, PARTICULARLY, AMONGST THE NEW GENERATIONS.

We strive to keep a mutual trust and open dialog relationship with our interest groups, to continually improve their satisfaction and our operation. The communication channels we use allow us to generate permanent communication, to listen to their interests, opinions and expectations.

During the year, we managed a new proximity to our interest groups, to update our materiality research to continue the improvement process in our reporting forms. Up next, we show the material subjects we had:

Ethical Behaviour

Client’s
Health and Safety

Wellness, health
and job safety

Water consumption
for operation

Ethics and
business behavior codes

Transparency

Environmentally friendly
cleaning materials

Talent attraction
and retention

Human capital
development

Work practices and
Human Rights’ protection

Risks and
crisis management

Information safety
and governance

Operations’
energy consumption

Diversity and inclusion

Client
relationship management

Waste management

To guarantee the sustainability of our business, we must maintain lasting relationships with our interest groups. We consider that we will achieve this by reaching ethical standards and by being transparent with them.

Our Code also sets the path to follow in case we identify non-compliance, which is reported through our reporting channel “Denuncia SW”:

97

Complaints

3

in process

62

Solved

32

Not proceed

CONTACT INFORMATION

INVESTOR RELATIONS

inversionistas@sportsworld.com.mx

+52 (55) 5481 7777 ext. 105

CORPORATE SOCIAL RESPONSIBILITY

guadalupe.vazquez@sporsworld.com.mx

+52 (55) 5481 7777 ext. 220

CORPORATE OFFICES

Vasco de Quiroga 3880

Nivel 2, Santa Fe Cuajimalpa

Cuajimalpa de Morelos, 05348

Ciudad de México

+52 (55) 5481 7777

The 2017 annual reports might include statements about results expectations about the future performance of Grupo Sports World y Subsidiarias. Such projections, dependent on the management’s consideration, are based on available information. However, the expectations could vary due to facts, circumstances and events outside of Grupo Sports World y Subsidiarias’ control.

WE ARE VERY PLEASED WITH THE RESULTS OF 2017. THANKS TO OUR STRATEGIES AND INITIATIVES FOCUSED ON SERVICE AND HOSPITALITY, AS WELL AS OUR CONSTANT INNOVATION, WE CONTINUE TO STRENGTHEN SPORTS WORLD'S LEADERSHIP IN THE MEXICAN MARKET AND WE CONTINUE TO IMPROVE OUR OCCUPANCY AND CHURN RATES.

A MESSAGE

FOR OUR SHAREHOLDERS

This, along with the successful implementation of our growth plan during the year, helped us surpass our results guidance, reaching a Total Income growth of 22.1% and an EBITDA margin of 17.6%.

The improvement in our profitability is a result of the greater maturity of our clubs with more than twelve months in operation, and of how they continued to increase their occupancy rate, going from 77.7% at the end of 2016 to 80.2% at the end of 2017, a result of the client retention and service focused strategies, as well as of the successful presale process and following evolution of the clubs opened during the year. We will stay focused on increasing the occupancy levels in our clubs to continue to improve the Company's profitability.

On the other hand, despite the unfortunate events that happened in September and the extraordinary increase in prices carried out mid-year to counteract the effect of the cost increase of our main services, we managed to keep our churn rate at 3.6%, a level close to the one shown in 2016, and lower than that of the industry at a global level, reflecting our responsibility to offer a unique experience and quality service.

In line with our expansion plan, during 2017 we carried out the opening of eight new clubs, strengthening our presence in Mexico City and its metropolitan area and expanding our footprint to other states of the country with high development potential. With these openings, we end the year with 53 clubs in operation and four operated under a different brand, under a shared operation agreement, strengthening our position as the biggest family club chain in Mexico.

One of the achievements in 2017 was the success of our new image, launched at the beginning of the year along with a strong marketing campaign, that has propelled our positioning as the leading chain in the market we are focused on.

In 2017 we kept our commitment to contribute to our environment's improvement: for the sixth year in a row, we received the Socially Responsible Company (Empresa Socialmente Responsable) distinction; we carried out our annual reforestation project along with Pronatura México, planting a total of 1,500 trees with the help of approximately 100 volunteers that joined the program; and we carried out the “Smiles Mailbox (Buzón de las Sonrisas)” initiative along with the TUK foundation, which consisted in sponsoring 50 children in vulnerable situations, giving them toys and clothes during the holidays.

To finalize, I want to thank our clients for their preference and for allowing Sports World to be a part of their lives, and to our shareholders for the trust they have placed in us; furthermore, I want to recognize the effort of our collaborators to continue to offer an excellent service.

  • Fabián Bifaretti

  • CEO

RELEVANT FINANCIAL INFORMATION 2017

FINANCIAL STATEMENT

2017

2016

Var. $

Var. %

Net Revenues

1,665,842

1,363,874

301,968

22.1%

Clubs' Operating Expense

1,277,616

1,049,277

228,339

21.8%

Gross Contribution

388,226

314,597

73,629

23.4%

Depreciation and Amortization

180,996

158,665

22,331

14.1%

Administrative Cost

95,469

86,371

9,098

10.5%

Administrative Cost/Net Revenue

5.7%

6.3%

-0.6 p.p.

Operating Income

111,758

69,561

42,197

60.7%

Operating Margin

6.7%

5.1%

1.6 p.p.

EBITDA1

292,757

228,226

64,530

28.3%

EBITDA Margin

17.6%

16.7%

0.9 p.p.

Net Financing Expense

(50,196)

(30,033)

(20,163)

67.1%

Income Tax

8,818

9,806

(988)

(10.1%)

Net Profit (loss)

52,747

29,721

23,026

77.5%

Net Profit Margin

3.2%

2.2%

1.0 p.p.

BALANCE SHEET

2017

2016

Var. $

Var. %

Cash and Equivalents

68,792

134,269

(65,477)

(48.8%)

Current Assets

187,945

191,531

(3,586)

(1.9%)

Improvements to leased properties,
construction in progress,
furnishings and equipment

1,394,054

1,206,292

187,762

15.6%

Non-current assets

1,698,009

1,450,291

247,718

17.1%

Total Assets

1,885,954

1,641,822

244,132

14.9%

Circulating portion of long-term debt

104,246

231,568

(127,322)

(55.0%)

Current Liabilities

490,700

534,249

(43,549)

(8.2%)

Long Term Debt

428,542

182,787

245,755

134.4.%

Non-current liabilities

462,918

217,909

245,009

112.4%

Total Liabilities

953,618

752,158

201,460

26.8%

Stockholders' equity

932,336

889,664

42,672

4.8%

Number of Employees

2,516

2,063

446

21.6%

*EBITDA is calculated by adding to the Profit (loss) before Taxes, The Net Financing Expense and Depreciation and Amortization.