Les Mills International Club Owner CVM Report

1. Les Mills InternationalClub Owner CVMReport February 2008

2. CVM Overview

3. Image & Reputation Les Mills business processes Customer view Customer process Les Mills process Customer Value Management(CVM) Customer process Les Millsprocess Products & Services Customer process Les Millsprocess Les Millsprocess Customer process Prices & Costs Les Millsprocess Customer process Les Millsprocess Customer Value Management is based on customer trade offs between what they get and how much they pay, organised around customer facing processes and linked to internal business processes so pragmatic changes can be implemented

4. The link with business processes is vital as these processes are the levers that managers can use to change customer perceptions of value and ultimately impact EBIT Business processes…(across LMI and its agents) …influence customer perceptions of Les Mills performance… …to provide clarity as to where Les Mills can focus its business improvement efforts and quantify what's at stake… …which are modelled… HR • Recruiting, retaining and training the right people e.g. Initiative: Improve Programme Quality Operations • Training Finance • Billing • Direct Financial Impact • Cost of project • Revenue gain • Indirect Financial Impact • Impact on customer perceptions which impacts share of wallet Sales and Marketing • Communicating the value proposition of the Les Mills programmes effectively Customer Service • Providing the required level of service to the customers EBIT Impact

5. Illustrative We also know that what is important to customers can vary across their lifecycle so we also measure the key decision criteria customers use when deciding to spend on Les Mills programmes Performance on Key Decision Criteria determine likelihood to spend with Les Mills High Level of consideration given to selection / changing Group Fitness Provider Customer perceptions (as shown by CVM) determine likelihood to change spend levels e.g. Renegotiation of contract, bad service experience, new entrant in the market New Relationship Trigger Point Trigger Point Low Time

6. A Customer Value Model has three key metrics which each serve a purpose in understanding perceptions of performance Image and Reputation xx% x.x ± xx 1 Absolute performance 1=poor, 10=excellent CVM is a measure of the markets perceptions – as a result CVM scores take time to move as perceptions lag actions and therefore slowly change over time CVM x.x ±xx Products and Services xx% x.x ± xx 2 Change relative to 2004 survey 3 Level of impact of driver 0-100% Prices and Costs xx% x.x ± xx Impact weights vary by CVM model and by competitor

7. There are a few things that need to be borne in mind when considering the results of a CVM survey

8. In addition to the customer value data, we collected data on key decision criteria, other business issues and information about the customers’ businesses as part of the survey Key Decision Criteria Other Business Issues Other Business Information • The five factors (rated in importance) which the customer considered in buying the Les Mills programmes initially • Likelihood to reduce usage of Les Mills programmes in the next twelve months • Customer views on who the main competition for Les Mills programmes are in each market • Customer views on performance of main competition identified • eClub usefulness • Advanced Instructor Training usefulness • Scorecard usefulness • BODYPUMP™weight attributes • Number of Les Mills programmes • Length of time using Les Mills programmes • Proportion of timetable devoted to Les Mills programmes • Number of members within the club • Size of Group Fitness facilities in the club • Attendance • Internet connections of clubs

9. The purpose of collecting this information is to form action plans to maximise profitability across the lifecycle, which because of the supply chain for Les Mills programmes, are undertaken by either LMI and / or the agent Les Mills CVM Action Framework Actions that need to be carried out across all markets e.g. addressing programme quality issues Actions that need to be carried out on a market by market basis but are common across markets e.g. addressing price issues Global Scope of Action Actions that can only be carried out by LMI to address a particular issue in market e.g. change to programme content to address individual market issue Actions that need to be carried out to address issues particular to individual markets e.g. addressing billing issues Local LMI Agents Implementation of Actions

10. Response rates from the clubs were good enabling detailed information to be provided for seven markets – Australia, Brazil, France, Germany, the Netherlands, Baltic and U.S.A. – and indicative results for Japan The Netherlands 83 responses Baltic 92 responses Germany 59 responses Total Sample = 649 China 1 response France74 responses Japan 19 responses USA 151 responses Brazil88 responses Spain2 responses Australia81 responses The United States did not participate in the last CVM study and as a result this sample is different to the last study and this will influence the results shown

11. USA

12. CVM Performance

13. USA The USA is very sensitive to prices and costs, evenly split between financial and non-financial costs, but performance on these drivers outperforms other markets Insights and Implications • Although relatively lower than other measures, Les Mills is rated higher in the USA on both financial and non-financial costs • Actions on non-financial costs should focus on how the convenience of workshops can be improved • Actions on financial costs should aim to remove focus on prices and costs and put it on the programs • Within the US market Les Mills programs have a very strong reputation for being technical and leading edge which should be reinforced through marketing as it is a high impact driver • People are also important and are perceived as a positive with strong performance particularly for proactive contact, being fair, likeable and credible and respecting the customer as valued

14. USA Process xx% x.x Key: Impact Weight 2007 CVM Score The US is the strongest performing country with all aspects significantly higher than the market average Overall CVM Performance(1) Insights and Implications • Overall perceived value is high at 8.0 • The US is price sensitive with two thirds of perceived value accounted for by prices and costs with relatively high performance at 7.4 • The remainder of perceived value is split between image and reputation and products and services both of which are performing extremely strongly Image and Reputation Perceived value ofLes Mills products to clubs Perceived value of the Les Mills system to clubs Perceived value of the Les Mills systems to clubs Products and Services Prices and Costs Note: (1) Sample size n = 151

15. USA Process xx% x.x Key: Impact Weight 2007 CVM Score Image and reputation is a real strength within the US, especially in having a reputation for technical and leading edge programs which is of particular importance to US clubs Image and Reputation CVM Performance(1) Insights and Implications • Of most importance to the customer is that the programs are technical and leading edge and performance on this factor is very high at 8.9 • People are also important and Les Mills is seen as having of reputation for fair, likeable and credible people Recognised brand Brings in and retains customers Image and Reputation Recognised as effective and safe Fair, likeable and credible people Technical and leading edge Note: (1) Sample size n = 151

16. USA Process xx% x.x Key: Impact Weight 2007 CVM Score Products and services generally perform very highly, especially the actual programs themselves Product and Services CVM Performance(1) Insights and Implications • Overall products and services rated highly at 8.3 • Only a very small portion of US customers’ overall perceptions of value are shaped by their views in respect of products and services • In general Les Mills performs well on these factors within the US market • Although it is a longer term strategy, within USA Les Mills should look to move the focus away from price and cost to products and services through concentrating marketing and promotion efforts on the quality and effectiveness of the Les Mills system Getting set up and going Using the programs Products and Services Using the services Account management Billing Note: (1) Sample size n = 151

17. USA Process xx% x.x Key: Impact Weight 2007 CVM Score Getting set up and going currently has no impact on perceived value but performance is high on all aspects Getting Set Up and Going CVM Performance(1) Insights and Implications • Performance is generally very strong with performance across all aspects at or above 8.0 • Although of no current impact to the USA clubs overall, the high performance on these drivers indicates that Les Mills support of new clubs is working well Providing me with training and education on programs Providing me with programs that suit my needs Agreeing a fair and reasonable contract Getting set up and going Assisting me with launching my programs The initial training of my staff Providing training and education to run Group Fitness Note: (1) Sample size n = 151

18. USA Process xx% x.x Key: Impact Weight 2007 CVM Score Performance across all subdrivers connected with using the programs is very strong Using the programs CVM Performance(1) Insights and Implications • Customers rated performance of the programs as very high at 8.6 • Performance is strong across all subdrivers • Of particular note is that clubs rate the programs highly as generating a return on investment which is likely to support the better performance on prices and costs • Although still high, performance on providing programs and training to recruit and retain the best instructors is slightly lower Ensuring ongoing quality of programs Ensuring programs are innovative and exciting Using the programs Providing programs that generate a return on investment Providing updated programs on a timely basis Providing programs and training to recruit and retain the best instructors Note: (1) Sample size n = 151

19. USA Process xx% x.x Key: Impact Weight 2007 CVM Score Using the services within the Les Mills system is important to US customers and although still relatively good, performance is lower than on other drivers Using the Services CVM Performance(1) Insights and Implications • In general Les Mills performance in respect of the services associated with the programs is perceived to be less than performance on the programs themselves • Most importance is placed on training the instructors, followed by assisting with measurement of the success of the programs and providing instructor certification • All other subdrivers currently have no impact • Although still high performance on these areas is relatively lower and improvement initiatives should be focused on training and assisting the measurement of the success of the program Providing assistance with marketing any programs Training my instructors Using the services Assisting me in keeping my staff happy and motivated Assisting me with measuring the success of my programs Providing certification of my instructors Note: (1) Sample size n = 151

20. USA Process xx% x.x Key: Impact Weight 2007 CVM Score United States performs well on account management which suggests the “club coach” system is working well Account Management CVM Performance(1) Insights and Implications • All areas of account management are currently performing well and generally exceed other markets across most subdrivers • In particular, compared to other markets, the USA agencies perform well on proactive content • Performance on this driver and other drivers suggests that the “club coach” system is working well and should be considered for introduction to other markets Committed to my business Available when I need them Provide me with information when I need Account management Assist me in sorting out issues related to my programs Respect me as a valued customer Proactively contacting me to add value to my business Note: (1) Sample size n = 151

21. USA Process xx% x.x Key: Impact Weight 2007 CVM Score As in other markets billing is a strength with the USA agents on all aspects Billing CVM Performance(1) Insights and Implications • The USA agents perform extremely well in all aspects of billing • Although unlikely to confer any significant competitive advantage it is an important hygiene factor where non performance could impact club retention The bills I receive are accurate The bills I receive are simple to understand Billing There is a convenient payment system Ensuring confidentiality of financial arrangement There are fair payment terms Note: (1) Sample size n = 151

22. USA Process xx% x.x Key: Impact Weight 2007 CVM Score Prices and costs performs very well compared to all other countries, which is likely to be related to the high rates of the programs for generating a return on investment Prices and Costs CVM Performance(1) Insights and Implications • Prices and costs are currently rated at 7.4, significantly ahead of the global average • Perceived value is driven by both financial and non-financial • Although performing well compared to other countries, perceptions of financial costs are still well behind those for non-financial costs Financial Costs Prices and Costs Non Financial Costs Note: (1) Sample size n = 151

23. USA Process xx% x.x Key: Impact Weight 2007 CVM Score All aspects of financial costs have a large impact on overall perceived value with performance being relatively good, compared to other countries, across all factors Financial Costs CVM Performance(1) Insights and Implications • All aspects of financial costs impact on customers views of overall perceived value • Performance across all factors is relatively good compared to other markets • To improve performance within the US market on price and costs Les Mills should look to identify areas in operational costs that can be reduced without impacting EBIT • In addition a strategy of trying to move focus from price onto the qualities of the program through developing and promoting tools to measure the success of the program and use of marketing should also improve overall perceived value Licence Fee Financial Costs Costs of setting up the program such as marketing and training Costs to use the program eg music, video, headsets, uniforms, training etc Note: (1) Sample size n = 151

24. USA Process xx% x.x Key: Impact Weight 2007 CVM Score In general customers perceive performance of the US operation to be good in respect of non financial costs, although improving the convenience of workshops should be investigated Overall Non Financial Costs CVM Performance(1) Insights and Implications • Perceptions of performance in respect of non financial costs account for a large portion of overall perceived value • The US operations performance is perceived to be good across all factors except convenience of workshops • Given the relative impact of this driver it is worth investigating with customers what aspects of workshops (timing or location) can be improved and determining whether those issues can be improved without undermining program quality or profitability Time and effort involved in setting up the program Time and effort in operating the program Non Financial Costs Managing the resistance from staff eg instructors Convenience of workshops Note: (1) Sample size n = 151

25. Competition and Retention Analysis

26. USA Surprisingly only 19% of customers perceived branded programs to be the main competition for Les Mills in the USA Customers Views on the Main Competition for Les Mills programs(1)(2) Note: (1) Sample size n = 145

27. RVS calculated as Les Mills Score x 100 Competitors Score 1 USA Process x.x Key: 2007 RVS Score Where competition does exist in the US market, Les Mills programs outperform it on all aspects of customer value drivers leaving only 3% of the customer base at risk Customers Views of Les Mills programs Main Competition(1)(2) Likelihood to Reduce Usage of Les Mills programs in the Next 12 Months(3)(4) Image and Reputation 3% of customer base at risk Products and Services Perceived Value of Competitors Products to Clubs Proportion Expecting to Decrease Number of Les Mills programs Used in Next 12 Months Prices and Costs Overall Perceived Value Notes: (1) Excludes responses that say there are “no competitors”; (2) Sample size n = 151; (3) Customers who rated 8 to 10 on a scale of 1 to 10 where 1 = ‘not likely” and 10 = “highly likely”; (4) Sample size n = 151

28. Key Decision Criteria Performance

29. USA As in other markets it is the programs contribution to attracting and retaining members, together with the image and quality of the programs which is most important to buyers, and performance is rated highly on all factors Insights and Implications • Promotion to new clients should centre around how the programs generate a return on investment for the club and this needs to be reinforced once the club has purchased the programs so as to remove focus from price • This promotion will be best achieved through direct contact, using case studies and selling tools • Marketing of the programs to raise awareness of the programs should also focus on the programs themselves • The training and certification of instructors is important to clubs considering purchasing Les Mills programs which is different to the other markets but which is also an area of strength within the USA Price ranks sixth with an 8% weighting