1. © 2007 Les Mills International Limited SHIFTING THE FOCUS TO VALUE

2. © 2005 Les Mills International Limited THE PROBLEM

3. © 2005 Les Mills International Limited THE WORST SCORE Prices and costs are the highest driver for measuring value BUT Our performance in this area is the worst - Financial score 5.7 (Fees 5.7, Other 5.5) - Non financial 7.2 (Hassle 7.3, Time 7.1, Training convenience 7.0)

4. © 2005 Les Mills International Limited AND YET.. More than 75% of clubs and instructors see no or freestyle as competition Clubs still rate value as 25% above competition despite price and costs And price rates low as a decision maker (7 th ). Much more important are - contribution to membership - innovative and exciting - consistent quality - image and reputation - consumer demand

5. © 2005 Les Mills International Limited PRICING, WHATS HAPPENING?

6. © 2005 Les Mills International Limited IN 2006 AND 2007 MOST AGENCIES MANAGED TO INCREASE THEIR AVERAGE PRICE DESPITE GROWTH IN AVERAGE NUMBER OF PROGRAMS PER CLUB Average Price Per Program 2002–2007 (USD) (1)(2) Australia (4.29) Germany (3.19) Japan (3.82) United Kingdom (3.05) Spain (2.33) Netherlands (3.81) France (3.14) Sweden (2.61) Notes: (1) Constant exchange rates as at 31 January 2007; (2) Numbers in brackets shows average number of programs per club Sweden (2.07) France (2.18) Japan (2.00) United Kingdom (1.83) Netherlands (2.73) Spain (1.62) Germany (2.34) Australia (3.11) Brazil (2.44) Brazil (3.49)

7. © 2005 Les Mills International Limited ALTHOUGH IT MIGHT NOT BE POSSIBLE TO INCREASE PRICING ON EXISTING CONTRACTS TO CURRENT LEVELS, INCREASING AT THE RATE OF INFLATION IS LEADING TO ADDITIONAL REVENUE Expected Change in Average Prices from Applying Forecast CPI Increases(1) — 2007 to 2009 (USD) (2) Additional revenue achievable by 2009 if CPI increases applied (US$000’s) 29181417257133737 Notes: (1) Source: Economist; (2) Assumes constant exchange rates as at 31 January 2007; (3) Assumes forecast 2007 inflation continues to 2009 (3)

8. © 2005 Les Mills International Limited ALTHOUGH AVERAGE PRICE PER PROGRAM HAS TYPICALLY INCREASED THE AVERAGE PRICE PER PROGRAM THAT COULD BE ACHIEVED IF ALL CLUBS WERE CHARGED ACCORDING TO CURRENT PRICING RATES IS SUBSTANTIALLY HIGHER Comparison of Actual Average Price versus Potential Average Price Given Current Pricing Arrangements (USD) (1) Additional monthly revenue given program penetration (US$000’s) 265462702232631540289951 While it is not realistic to expect that prices to all clubs could be increased to the current pricing rates, this analysis does indicate the size of the gap that opens up if the price clubs pay is not regularly increased to reflect market value Notes: (1) LMI program statistics, Conversa Global analysis; (2) At 31 January 2007 exchange rate

9. © 2005 Les Mills International Limited FOCUSING ON VALUE NOT PRICE

10. © 2005 Les Mills International Limited The ability to increase fees to existing clubs is a key way to grow revenues Although a relatively small proportion of the costs of operating a club, increasing fees to existing clubs is difficult A key reason club owners use Les Mills programs is because they expect to be able to increase their profit by doing so As an ingoing hypothesis any licence fee increase which decreases club profitability is going to be difficult to implement and cause club cancellations How can LM agents increase their prices to clubs while minimising club cancellations? Situation INCREASING LICENCE FEES FOR CURRENT CLUBS REPRESENTS AN OPPORTUNITY FOR LM TO INCREASE REVENUE BUT MUST BE CAREFULLY MANAGED TO AVOID CLUB CANCELLATIONS Issue to be Resolved © 2005 Les Mills International Limited

11. Options to increase fees without impacting club profitability Increase licence fee in conjunction with increasing group fitness numbers Increase licence fees in line with membership fee increases from the club Increase licence fees while removing cost elsewhere in the clubs operation IN ORDER TO INCREASE CLUB LICENCE FEES WITHOUT IMPACTING CLUB PROFITABILITY THERE ARE THREE MAIN OPTIONS This is the subject of the rest of this presentation In many countries clubs traditionally have a CPI increase By timing the licence fee increase to coincide club profitability is maintained Examples of this could be through electronic downloads of release materials if the club purchase this for their instructors

12. © 2005 Les Mills International Limited INSTRUCTOR CLASS PARTICIPANT provides classes conducts class pays membership fees trains and accredits Instructor & provides materials Licenses club Pays licence fee pays Instructor fee Australian Example THE KEY TO IDENTIFYING HOW LICENCE FEES CAN BE INCREASED IS TO UNDERSTAND THE GROUP FITNESS VALUE CHAIN LMAP CLUB

13. © 2005 Les Mills International Limited THERE ARE SOME KEY ASSUMPTIONS BEHIND THIS VALUE CHAIN ANALYSIS LMAP licence (independent club - seven programs)AUD 1340 per month Number of LM classes offered (independent club – seven programs)250 per month* Fee paid to instructorAUD 40 per class Club membership feeAUD 65 per month** Number of GFP classes attended by participant13 per month Effective cost per class for participantAUD 5 per class Number of participants in a class30 *Ten per day. Monday to Friday, five each on Saturday and Sunday **Fitness First, Deakin, ACT Australia

14. © 2005 Les Mills International Limited OF THE $5 PER CLASS PER PARTICIPANT THAT IS SHARED IN THE GROUP FITNESS VALUE CHAIN THE MAJORITY GOES TO THE CLUB Value Chain Element Value/ Head ($AUD) Share (%) Rationale (Based on Total Value Available Being $5) Club3.5070.0Membership fee spread over number of classes attended less LMAP and Instructor’s shares (65/13) - (0.17 + 1.33) = 3.50 Instructor1.3326.6Class fee spread over number of participants (40/30 = 1.33) LMAP0.173.4Costs of licence spread over number of classes spread over number of participants (900/250/30 = 0.12)

15. Base Case Club Profit per Class $104.64 GIVEN THE SHARE OF GROUP FITNESS GROSS PROFIT THAT IS CAPTURED BY THE CLUB RELATIVE TO THE AMOUNT PAID TO LM AS A LICENCE FEE A SMALL INCREASE IN MEMBERS DUE TO GROUP FITNESS OFFSETS A LARGE INCREASE IN LICENCE FEES Base Case +10% Growth in Class Numbers Club Profit per Class $119.64 Base Case + 10% Increase in Licence Fees Club Profit per Class $104.64 14.3% increase in gross profit 0.5% decrease in gross profit Therefore for any percentage increase in membership number, the impact on gross profit is 30 times the impact from the same percentage decrease in fees © 2005 Les Mills International Limited

16. THIS ANALYSIS ONLY WORKS WHERE IMPROVING THE NUMBERS IN GROUP FITNESS CLASSES INCREASES MEMBERS ACQUISITION AND / OR RETENTION WHICH RESEARCH SUGGESTS DOES HAPPEN Note: (1) Source: “Winning the Retention Battle”, Fitness Industry Association UK The more often members visit the greater the retention rate (1) Les Mills Research in the United States showed that 75% of members would consider changing clubs if the club stopped running Les Mills programs © 2005 Les Mills International Limited (1)

17. © 2005 Les Mills International Limited At $AUD65 per month the value of these members is $43k © 2005 Les Mills International Limited USING RESEARCH CONDUCTED BY LES MILLS INTERNATIONAL IN NORTH AMERICAN IT IS POSSIBLE TO CALCULATE IN OUR HYPOTHETICAL EXAMPLE THAT INCREASING AVERAGE CLASS SIZE FROM 30 TO 36 WOULD IMPROVE A CLUBS GROSS MARGIN BY $43K PER ANNUM, THROUGH ENCOURAGING MORE VISIT PER WEEK BY THOSE VISITING LESS THAN THREE TIMES Number of Unique Visitors to Group Fitness Average Class Size Change in Expected Retention Through Improving Class Size 1,838 members attending Group Fitness do so less than twice weekly Given 250 classes averaging 30 members and assuming the percentage attendance is as per the US research there are a total of 3,258 unique visitors of whom 1,838 visit less than three times a week … If these 1,838 members can be enticed to come to Group Fitness one more time per week average class size grows to 35.8 … … and based of the UK research annual retention rate improves by 3% meaning 55 more members are retained

18. © 2005 Les Mills International Limited A KEY STRATEGY THEREFORE IN INCREASING LICENCE FEES IS FOR LM TO PROVIDE TOOLS OR ASSISTANCE TO INCREASE GROUP FITNESS IN CONJUNCTION WITH A LICENCE FEE INCREASE LM could increase licence fees but provide additional marketing resources The caveat on this is that is cannot erode revenue streams that already come from selling marketing resources or GFM by Les Mills or its agents LM could increase licence fees but include “free” attendance at GFM sessions LM could increase licence fees but provide “free” consulting services on how Group Fitness members can be increased Examples of Assistance LM Could Provide Provide GFM Modules Provide Marketing Resources Provide Adhoc Consulting

19. © 2005 Les Mills International Limited