Immotion Group revenue increased 230% during a year of recovery and progress

Immotion Group

Immotion Group plc (LON:IMMO), the UK-based immersive entertainment group,has today announced its audited results for the year ended 31 December 2021 and to provide a Group update.

Highlights

·    Group revenue increased 230% to £9.4m (2020: £2.8m)

·    Group positive adjusted EBITDA of £0.9m (2020: £1.7m negative)

·    Strong recovery from the Location Based Entertainment (“LBE“) business

·    LBE revenue increased by 204% to £6.3m (2020: £2.1m) with H2 revenue of £4.0m (2020: £1.3m)

·    Unaudited Q1 2022 LBE revenue increased threefold versus Q1 2021 (£1.8m v £0.6m) with April revenue expected to exceed £800k following buoyant Easter

·    First large-scale zoo installation contract for a large 24 seat theatre style installation agreed and contract expected to be signed this week; plus one further USA zoo agreement for large installation at final contract stage and signature expected to follow shortly thereafter; strong pipeline of discussions and opportunities

·    Strategic decision to focus on LBE and spin out both the Home Based Entertainment (“HBE“) and Uvisan divisions

Chairman’s Statement

Little more than a year ago the Company, along with many others, was suffering from declining or zero revenue as Covid-19, having caused the lockdown of many of the partner sites through which our core LBE business functioned, continued its seemingly unstoppable advance. The name of the game became survival via cost cutting, seeking all available government support and a decision to go direct to our audience with the Let’s Explore product and the related formation of our HBE division.

As the Chief Executive describes in his review below, the second half of 2021 turned out to be one of recovery and progress, particularly for LBE, at a much faster rate than we anticipated, as sites reopened and confidence returned, providing further opportunities to launch new sites at aquariums and now zoos. This, particularly in the United States, boosted our confidence in the potential of this part of our business as illustrated by very strong revenue and contribution growth to match.

It has also made us reconsider our strategy relating to our other two businesses, HBE and Uvisan, and we have come to the conclusion that we need to focus all our resources on LBE which has a strong pipeline.

We therefore intend to spin out HBE and Uvisan in the short term to enable us to be fully focused on LBE as we are confident that this compelling business model is highly scalable and can drive superior shareholder returns.

Chief Executive’s Review

Overview

2021 was a year of recovery and progress. The Group’s core LBE business recovered well despite conditions remaining challenging in the first half, particularly in Q1, as Covid-19 related closures and disruption continued. 

H2 2021 saw a return to more normal trading conditions, as the majority of our LBE sites were reopened, restrictions at partner sites were eased, and attendances recovered towards pre-Covid levels.  Overall, we were extremely pleased to be back in business with solid revenue performance, although we remained cautious when it came to expanding our core LBE estate as we sought to consolidate our finances and develop greater confidence in the market recovery.

As we ended the year, it was clear the LBE business had not only recovered, but was flourishing. This recovery, combined with increased demand from potential partner locations, has forced us to review our operations, allocation of resources and how we can best deliver maximum shareholder value.

Whilst we rightly took the decision in the middle of the Covid pandemic to launch two new businesses, HBE and Uvisan, as a way of hedging our position, we have decided it is in the best interest of our shareholders that we allocate all our resources to the LBE business.  We believe this will maximise returns, and therefore we will be looking to spin out HBE and Uvisan, seeking external investment for both.

Outcome

The landscape continued to be challenging in 2021, although significantly less so than the previous year, and I am pleased to report overall Group revenue was £9.4m (2020: £2.8m), with adjusted positive EBITDA of £0.9m, a significant improvement on 2020, where we were in the throes of the pandemic and suffered a negative adjusted EBITDA of £1.7m.  The split of revenue and EBITDA for 2021 was as follows:

 LBEHBEUvisanHead OfficeTotal
 £m£m£m£m£m
Revenue6.32.50.50.19.4
Adjusted EBITDA[1]2.3(0.4)0.1(1.0)0.9

Further details of divisional performance are discussed in the Review of Operations below.

Outlook

The Board’s focus is now about driving growth of Group revenue and profit based on the following pillars of growth:

·    Focus on core LBE business: Given renewed confidence and growth prospects.

·    Uninterrupted trading position: Trading in 2021 was impacted by lockdowns and capacity restrictions affecting certain locations. We do not anticipate any further disruption in our key markets and we expect 2022 to be our first full year of trading without capacity restrictions at our Mandalay Bay site.

·    Expansion of key locations: We have expanded capacity at our some of our best performing locations:

o Shark Reef at Mandalay Bay, Las Vegas, USA

o Sea Life London, UK

o Odysea Aquarium, Arizona, USA

·    Additional new sites:  We have a strong pipeline of new sites.

·    Operational gearing: With a fixed cost base that we do not believe will increase proportionately with revenue, every new site’s contribution flows straight to the bottom line.

As our refocused business builds a track record of profitability and operating cash flow generation we can fund our plans by reinvesting the cash generated in order to further expand the business.

2022 has begun in a very promising fashion with Q1 Group revenue of £2.1m (2020: £0.8m). LBE revenue has tripled to £1.8m versus £0.6m in the same period in 2020. The growth in LBE revenues is continuing and, with a buoyant Easter period, we expect April LBE revenues to exceed £800k.

We are at a very advanced stage for the signing of our first major zoo installation which we expect to be this week, with an agreement for another large zoo installation in the USA also imminent.

We are also developing a new ‘plug and play’ solution for zoos; a containerised solution that can be delivered to site with minimum setup required. This will be particularly useful for many zoo sites that do not have available indoor space.  We will look for a trial later in the year with a view to finessing and being ready to scale this additional model in 2023.

The combination of large purpose-built theatre solutions, including pre-show experiences, along with a modular solution and our existing mini theatre offering will allow us to address all potential partner opportunities and choose the appropriate model for each partner site.

Since the period end, we have added significantly to the portfolio in the first quarter including the expansion of some of our best performing sites: taking our installation at Shark Reef Aquarium at Mandalay Bay from 36 headsets to 48 headsets (along with a contract extension to 31 January 2024); and doubling our capacity at both Sea Life London (under a new three year contract) and Odysea Aquarium.  These sites are illustrative of our future direction – larger installations which represent significant new key attractions for our partners, in high traffic, established destinations, driving significant revenue for both parties.

We believe that there remains significant potential in the aquarium sector, as we have seen by the scaling up of a number of our existing sites, as well as the active pipeline of new sites with new partners. 

The combination of ‘on message’ proprietary content, immersive motion platform technology, and locations that deliver large and predictable footfall underpins our belief that we can achieve very significant enhancement in shareholder value moving forwards.

Naturally, uncertainties remain, not least the appalling situation in Ukraine, but it now feels like a wholly different trading picture compared to the same period last year. 

Review of Group Operations

Location Based Entertainment

Our LBE division recovered strongly in H2 of 2021 but the first half, and in particular Q1 2021, was heavily impacted by the Covid-19 pandemic.  H1 revenue was £2.3m, an increase of 186% versus 2020 (£0.8m) and H1 divisional adjusted EBITDA was £0.9m (2020: £0.5m negative).   The second half saw much more normalised trading conditions, as can be seen from the table below:

 H1 2021H2 2021FY 2021H1 2020H2 2020FY 2020
 £000£000£000£000£000£000
Revenue2,3024,0016,3038061,2692,075
Gross profit1,0001,7692,76970259329
Overhead(439)(473)(912)(617)(681)(1,298)
Other income313135448484484
EBITDA[2]8741,4312,305(547)62(485)

Notes:  LBE revenue is the total charged to consumers (excluding VAT and sales taxes). Gross profit is revenue charged to consumers (net of VAT or sales taxes), less partners’ shares of revenue and other direct costs of delivering revenue.

Overhead includes direct and apportioned overhead and excludes Head Office (unallocated) overheads.

We installed 62 headsets across seven new sites in 2021, and 43 headsets were removed from predominantly underperforming sites for redeployment elsewhere, giving us a net increase of 19 headsets during the period and taking us to 364 installed headsets by the period end (302 in our partner estate and 62 in our ImmotionVR sites). These numbers reflect our cautious view of capital expenditure and also the initial focus of prospective partners on their own re-openings and recovery.

We currently have 402 headsets in operation (338 partner and 64 ImmotionVR) across 49 sites as shown in the table below:

 USAUKROWTotal
As at 1 January 2021    
Headsets16312161345
Sites24141048
     
Net changes in 2021    
Headsets41(16)(6)19
Sites2(1)(1)0
     
As at 31 December 2021    
Headsets20410555364
Sites2613948
     
Net changes 2022    
Headsets2810038
Sites1001
     
As at 26 April 2022    
Headsets23211555402
Sites2713949

The partner portfolio performed well with overall weekly average revenue per headset of £441[3] compared to £329[4] in 2020.

Average revenue per headset per week at our ImmotionVR sites was £284 in 2021 compared to £175 in 2020.

Home Based Entertainment

During the year progress was made in the HBE business. A distribution partnership was established in Australia, as well as direct to Amazon relationships in both the USA and Canada, to add to the already existing UK setup. Third party distribution centres were opened in the USA and Hong Kong allowing us to supply goods directly to North American and Asia Pacific customers.

Whilst sales increased to £2.5m the business was severely impacted by the global logistical problems resulting on occasion in much of the stock either being stuck at port or having to be air freighted at a significant cost to the business. We took the decision that we needed to turn bought stock into cash, but we also recognised there was a significant impact on the margin in doing so.

With the vast majority of stock sold during the period the team turned their attention to future years and how to grow the market. The idea of Vodiac arose following feedback from Let’s Explore customers. In the main they wanted to see more content, and a more user-friendly menu system.

Vodiac was ‘beta’ launched earlier this year. Initial feedback showed the need for an even greater library of content, as well as the need for the VR menu system to be fully operational whilst wearing the VR headset.

The concept of delivering a VR video streaming solution, combined with an affordable VR headset is a “big idea” and as such we accept if this business is to fulfil its ambitions it may be loss making for some time and is likely to consume significant capital.  We have therefore taken the view that it is not appropriate to embark on this using Immotion’s balance sheet.

Uvisan

Uvisan made good progress in its first full year of trading.  Revenue increased by 669 per cent to £477,000 (2020: £62,000).  A small divisional profit of £67,000 was reported (2020: loss of £6,000).

In 2021, the business was focused on the sale of UVC sanitising cabinets (three size options) through our growing network of resellers and distributors, as well as direct. Notably, we signed our first distributor in the USA and one that covers both Australia and New Zealand. 

We delayed the launch of Cleanroom, our room and surface sanitising system, whilst we put the finishing touches to our proprietary control system and app. We believe it has application in settings (both new build and retrofit) where hygiene is key – such as hospitals, laboratories and cleanroom manufacturing/engineering.  We are also looking at its potential application for pathogen control in indoor farming facilities.

Whilst Uvisan made a promising start in 2022 having completed its first major customer delivery in the USA it will also require capital for growth, as such this too should not be done using Immotion’s balance sheet.

Financial review

Revenue for the year increased 230% to £9,391,000 (2020: £2,848,000).  The Immotion Group’s H1 revenue was suppressed by Covid-19, with no revenue coming from its UK operations until leisure businesses were able to reopen on 17 May 2021.  The table below shows the split of revenue between H1 and H2, and by segment:

 H1 2021H2 2021FY 2021
 £000£000£000
LBE2,3024,0016,303
HBE3372,1892,526
Uvisan88389477
Other (inc licensing)335285
Total2,7606,6319,391

The Group made gross profit in the period of £3,196,000 (2020: £466,000), a gross profit margin of 34.0% (2020: 16.4%).

The Group benefited from other income of £532,000 in the period (2020: £575,000), £503,000 of which came from Covid-19 government support packages (2020: £479,000) and £29,000 being sublease rents (2020: £96,000).  Government support in the period included £235,000 relating to the forgiveness of both the 2020 and 2021 Paycheck Protection Program loans in the USA and £206,000 received under the UK government’s Coronavirus Job Retention Scheme.

Despite the significant growth in revenue, administrative expenses (excluding depreciation, amortisation, impairment, share based payments and one-off items) remained relatively flat at £2,820,000 (2020: £2,731,000).

The Group achieved a full year positive adjusted EBITDA[5] result for the first time since its inception of £908,000 (2020: £1,690,000 negative).

The Group’s loss after tax reduced to £1,999,000 (2020: £4,732,000).  The adjusted loss[6] per share was 0.28p (2020: 1.17p).

The overall cash outflow in the period was £565,000 (2020: inflow of £1,190,000).  The distinction between H1 and H2 trading illustrated above can also been seen in the cash flows for the respective periods with strong cash generated from operations in the second half, as shown in the table below:

 H1 2021H2 2021FY 2021
 £000£000£000
Opening cash1,6646291,664
Operating activities(847)1,139292
Investing activities(278)(539)(817)
Financing activities90(130)(40)
Closing cash6291,0991,099

The operating cash inflow of £292,000 (2020: £2,012,000 outflow) was net of a working capital outflow of £725,000 (2020: £192,000 outflow). This was primarily driven by a £989,000 increase in trade and other receivables (including prepayments and accrued income), which itself resulted from the low levels of trading activity at year end 2020.  This was partially offset by inflows of £49,000 and £215,000 in respect of inventories and trade and other payables (including deferred income) respectively.

Investing cash outflows reduced to £817,000 (2020: £1,393,000 outflow), largely a result of a cautious approach to capital expenditure in the period and the deployment of hardware which had been acquired prior to Covid-19.

The Group had a net financing cash outflow of £40,000 (2020: £4,595,000 inflow). During the year, the Group received net equity proceeds from an existing investor of £285,000 and received a Second Draw Paycheck Protection Program loan of £119,000. Loan and lease repayments (including rents payable under IFRS 16 leases) were £405,000.

Net assets at the balance sheet date were £5,720,000 (2020: £6,714,000).

Conclusion

Overall, we are satisfied with the progress we’ve made. The second half of 2021 underpinned our belief in the core LBE business, with 2022 to date providing further support for our decision to focus solely on this business as we move forward. We are seeing high levels of engagement from prospective partners, and with the new ‘plug and play’ solution in the wings we are confident we will have the tools at our disposal to continue a significant and rapid roll out of partner solutions.

2022 has got off to a great start with very strong Easter trading. This combined with a strong pipeline of new partner sites and the summer season ahead of us gives the Board considerable confidence in the business and its future.

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