Journal

Final Results and Trading Update

By 3rd April 2019 No Comments

Immotion Group (AIM:IMMO.L), the UK-based immersive virtual reality (“VR”) out-of-home entertainment business, is pleased to announce, in line with market expectations, its audited final results for the year ended 31 December 2018 and an update on trading and strategy. Having invested heavily in 2018 we are now starting to see the results of our investment. Since year end the Group has signed two Content licensing deals, and has seen strong trading especially across its Concession Partners, and its own ImmotionVR stores. The recent fund raise will allow the Group to continue investing in growth as it begins to build on the foundations created in 2018.

 

Financial Highlights – 2018

·     Total revenue £2.9m

·     Revenue from continuing operations £1.9m

·     VR revenue increased twelve-fold in H2 to £1.2m

·     Total revenue from VR operations £1.3m

·     Total underlying EBITDA1 loss £2.2m

·     Total underlying loss2 before tax £2.9m

·     Total underlying loss2 per share 1.71p

 

Operational Highlights – 2018

·     Placing to raise £4.8m net proceeds and admission to the AIM market of the London Stock Exchange completed on 12 July 2018

·     Creation of 12 proprietary VR experiences and Content Management System

·     Developed first recognisable VR retail brand in UK with multiple sites and formats

·     Successfully opened 10 ImmotionVR centres (11 trading at end of the period)

·     Initial concession agreement secured with major partners such as Merlin Entertainments plc 

·     VR equipment sales revenue £0.5m in the period

 

Post period end highlights

·     Further placing raising £3.1m net of costs completed on 5 March 2019

·     Third party monetisation of content, with first two licensing deals signed in January 2019

·     Early 2019 trading in ImmotionVR centres encouraging, especially with the February half-term holiday week

·    Strong trading in key concession partner sites, with new Legoland Discovery Centre installations achieving sales well above management expectations

·     First SEA LIFE centre installation expected April 2019

·     Launch of “Swimming with Humpbacks” immersive experience – a world first

 

Background

 

Immotion Group is a leading UK-based immersive out-of-home entertainment business focused on VR experiences. The Group combines award winning CGI and live action content with cutting edge hardware to deliver an affordable and rewarding suite of immersive experiences. Working with leading entertainment, leisure and retail operators, the Group is able to deliver valuable ancillary revenue, and footfall to its ever-increasing customer base.

 

The Group has several channels to market, including:

 

·    Content creation and licensing – The Group creates and curates immersive content for its own operations as well as licensing these experiences to third parties.

·   Concession partners – The concession model enables the Group to work with established high-quality leisure operators with proven high footfall destinations. The Group provides, at its own cost, the VR experience and motion platforms and other hardware. The partner provides the site, staff and utilities. The Group and partner share the revenue on a pre-agreed basis.

·     ImmotionVR – ImmotionVR is the brand name for the Group’s own Location Based Entertainment (“LBE”) centres.

·    Sales – The Group sells VR equipment, together with quality VR experiences through distributors and to selected partners.

 

Chairman’s Statement

 

The Group’s first full year of trading, 2018, was a year of intense activity and investment, building the foundations of our plan to become a leading player in the out-of-home VR market.

 

During the year we invested heavily in the creation of a wide range of quality VR immersive experiences combined with motion platforms. This was essential to help unlock the various channels to market. We are now starting to see the benefit of this investment. We signed our first two content licensing deals in January 2019, and are enthused by the ongoing interest in licensing our experiences.

 

Early 2019 trading has been very encouraging, especially across our concession partner estate.

 

Sales across our ImmotionVR centres also saw solid growth, giving us confidence to explore opening larger centres on a selective basis, where we will work with key landlords in a more strategic manner.

 

We continue to work with our newly appointed distributors to develop our sales strategy, and look forward to the launch of a new ‘attendant free’ VR booth.

 

Having made a significant investment throughout 2018 in content creation, equipment sourcing, and establishing concession relationships, the Group is now able to more precisely focus its expenditure, leading to a reduction in its cost base and cash outflow. As we move through 2019, we will begin to capitalise on the significant investment and activity of 2018 to propel the Group to the next stage.

 

I would like to place on record the thanks of the Board to all our existing and new investors and, in particular, to those who supported us in the most recent fundraise despite all the uncertainties surrounding Brexit.

 

 

Chief Executive’s Review of Strategy and Operations

 

I am pleased to report that, following a year of intense activity and investment, we are now in a position to start taking advantage of our efforts.  Strong early trading has encouraged us to focus on key growth areas, especially our concession partner relationships, and our ImmotionVR centres.

 

In what is a relatively new market we are quickly gaining traction and establishing ourselves as a key player in this exciting sector.

 

According to Greenlight Insights, the LBE market is forecast to grow from $1 billion at the end of 2018 to $12 billion by 2023, making up 11% of the forecast global VR market. Furthermore, it is now recognised as the fastest growing revenue sector for Brand Licensing according to LicensingSource.net.

 

We have now established several revenue generating channels to market, which we believe can underpin our strategy to become a leading player in this market.

 

Content Creation and Licensing

 

In order to become a serious player in this exciting market, the Group has developed a range of 12 high quality immersive experiences. In 2018, the Group invested circa £1.5m in creating these VR experiences. Immotion Group’s heritage of content creation through its award-winning storytellers is important in our market as we believe people buy ‘experiences’ and not technology per se.

 

VR hardware manufacturers are now looking to license our experiences, and AAA brands are now engaging with us to produce immersive experiences for them. All testament that our content creation team are ‘best in class’.

 

To date we have completed two license deals with LEKE. The first provides Immotion Group with 70% of all revenue generated.  The licensee must generate minimum revenue of £588,000 in the period to March 2020 for Immotion Group in order to maintain exclusivity. A further licensing agreement was signed in January 2019 for two experiences to be exploited in the Chinese market. This license guarantees a minimum revenue of £224,000 to the Group in the period to March 2021. Further license discussions are underway with other hardware manufacturers.

 

The Group is in the process of opening up its experiences, reversioned as appropriate, to the home and educational markets via SpringboardVR with SonyVR and mobile channels to follow in the near future. The Directors believe the ‘Swimming with Humpbacks’ experience, the first in the Group’s ‘Blue Ocean’ series, will be especially well received by this audience.

 

Concessions

 

The concessions model enables the Group to work with established high-quality leisure operators with proven high footfall leisure destinations. We are pleased to report that our concession partners reported record trading during the recent February half-term holiday, up 68.8% on a like-for-like basis compared with the Christmas holiday week in 2018.

 

We rolled out our first revenue sharing partnership in 2018 and it was a significant achievement to develop a relationship with Merlin Entertainments plc (“Merlin”), one of the largest entertainment companies in the world.  The relationship with Merlin continues to show good progress with eight Legoland Discovery Centre (“LDC”) sites now open (versus two sites at 31 December 2018).  Following successful trials, the two initial LDCs in Boston, USA, and Manchester, UK continue to trade well and the sites opened post period end are also showing very strong performance.

 

The total number of headsets within the Group’s concession estate at the year end was 46, which has now increased significantly to 85, with most of the additional headsets being installed into Merlin’s estate. The Group now has 44 headsets installed at Merlin LDCs with a further 12 scheduled and an additional 6 headsets going into a Legoland hotel in Germany. We have also agreed to install a further 18 headsets into three SEA LIFE centres as an initial trial. Whilst logistics can be a challenge, the Directors are confident of achieving the short-term target of 82 headsets with Merlin, and the on-going potential to roll out more headsets across the SEA LIFE centres post the initial three site trial (there are 52 SEA LIFE centres around the world).

 

In addition to Merlin we are developing a number of other partnerships in the entertainment space including Al Hokair, a major leisure and hotel group in the Middle East.  The first site will open in April 2019 in Abu Dhabi with 12 headsets, with a further site to follow in their flagship mall in Jeddah, Saudi Arabia.  Al Hokair has 90 sites throughout the Middle East.

 

With more entertainment sites in SEA LIFE, LDC, and a number of select Family Entertainment Centres (“FECs”) we are confident that we now have a model in this sector which, when operated with the right partners, should provide a good return on investment, solid recurring revenues and is potentially very scalable.

 

ImmotionVR Centres

 

ImmotionVR is the brand name for the Group’s own Location Based Entertainment VR centres. These are located in high footfall retail and leisure locations and are operated by the Group. Based on the Group’s initial store in Bristol (opened in December 2017) we have begun to develop what the Directors believe is the UK’s first recognised retail brand for immersive entertainment and today, all of our ImmotionVR centres boast five star Trip Advisor reviews. We believe this positions us to be involved in the evolution of retail and leisure experiences, driven by consumers’ increasing desire for experiences and the needs of retail landlords to develop more rounded leisure and entertainment offerings, as online shopping takes an ever-increasing share of retail spend.

 

We have good working relationships in place with intu, Landsec and Hammerson. The Group now operates 11 LBE centres trading under the ImmotionVR brand.

 

ImmotionVR’s flagship centre in Bristol has been fully operational since December 2017, and the Directors are encouraged by the progress made, and lessons learnt, during that time. Highlights include:

–      5 star reviews on Trip Advisor from the public

–      New online booking system and targeted marketing plan introduced in Bristol which, over the past six weeks, has accounted for circa 70% of revenue

–      Revenue and contribution in the year ended 31 December 2018 were £206k and £67k respectively

–      Comparing the February half term week in 2019, against the Christmas holiday week of 2018, we are pleased to report a 24.8% increase in revenue, a significant increase in such a short period of time

 

At our Bristol ImmotionVR centre, we are pleased at the number of returning customers, as well as the impact of our new marketing campaign.  We are further enthused at the uptake of our recent introduction of our new booking system and associated marketing plan. It is our intention to roll both the booking system and marketing plan out to all stores3 over the coming weeks. It is inevitable that it takes time to build up a repeat audience but as we have gained greater experience, we are refining our marketing approach to drive this audience.

 

The changing landscape now being faced by the retail sector has allowed us to seek a more collegiate approach with landlords and no long-term lease commitments. We also try to minimise irrecoverable shop fit-out costs, focusing where we can on moveable settings and, of course, equipment.

 

Having gained a huge amount of knowledge in the past year, and using proof of concept data from existing sites, the Group will look to selectively open further ImmotionVR centres in key cities.  We believe larger LBE centres will become an integral part of the shopping mall of the future.  Accordingly, we are in dialogue with owners of a number of larger sites where there may be an opportunity to be part of a larger LBE destination, encompassing a range of immersive experiences (including VR), particularly those with a competitive or social aspect, as well as food and beverage offerings. We will update the market as these discussions evolve.

 

Immotion Group’s estate of ImmotionVR centres was comprised of 112 installed headsets at 31 December 2018 and is currently 129 across 11 sites in the UK and USA.

 

Hardware Sales 

We have been working with our newly appointed distributors to develop our sales strategy. Whilst there is a lot of interest in the VR market, the demand is more for ‘operator-light’, or coin-operated VR machines, with a small footprint and quality experiences will drive sales into the long tail of FEC’s. To this end we have developed a standalone ‘free-roaming’ VR booth able to offer a wide range of VR experiences. We will begin trials of this machine in the next few weeks.

 

We have also, on the back of working with larger strategic partners, decided to offer a more tailored solution. The Group is able to produce VR content and source motion platforms in line with their brand guidelines, thus giving it the ability to develop larger scale ‘turnkey’ solutions. The Directors believe this combined sales strategy allows the Company to deliver both volume sales, as well as a more refined higher-margin business model.

 

Post Period End Activity and Outlook

 

Having put in place solid foundations, including a comprehensive range of VR experiences, a number of major concession partners, and a growing number of collegiate relationships with major retail landlords, the Group is well poised to start building a strong annuity revenue business.

 

Our content creation and licensing team is focused on the monetisation of what it has created. Having delivered what the Directors believe to be some of the best VR experiences in the market today we see great potential in this channel.

 

New concession partner sites have opened since the year end in LDCs in Detroit, Chicago, Kansas City, Toronto, New York, and Phoenix. The initial results are very encouraging. We expect to see our first concession in SEA LIFE centres opening in April 2019 in Germany, with two expected to follow in Melbourne and Sydney, Australia.

 

Our first major concession site in the Middle East will open with Al Hokair.  This is expected to commence trading in April 2019 in Abu Dhabi.  Al Hokair has in excess of 90 sites across the region. We are currently in discussions with Al Hokair about the next site, in Jeddah, Saudi Arabia, which we expect will be a larger site, with a greater choice of immersive entertainment offerings.

 

Our ImmotionVR centres continue to grow in revenue and popularity. Whilst LBE is a relatively new market, the Directors believe that we have chosen the right market for our focus and with sector revenues forecast to hit $12 billion by 2023, we want to ensure we position ourselves to be a leading player in this sector. 

 

We have appointed distributors and installers for both the Middle East and UK markets and will be working closely with them to optimise our sales offering.

 

Having made the significant investment throughout 2018 in content creation, equipment sourcing, and establishing concession relationships, the Group is now looking to significantly reduce its cost base and reduce cash outflow from operations. As we move into 2019, we will begin to capitalise on the heavy investment of 2018 to propel the Group to the next stage of its development.  I look forward to providing more regular news and updates as we continue to execute on the successes we have achieved to date.

 

Financial Review

 

Total revenue for the period was £2.85m, of which £1.95m came from continuing operations (including £1.33m from VR related activity) and £0.91m from discontinued operations.

 

We ceased historic client activity in Japan during the year by transferring that business for nominal value to its Managing Director.  In H2, we effectively completed all legacy client work in the UK and consider that activity discontinued.

 

Overall, the underlying EBITDA loss was £2.22m, as a result of the investment in VR content production (and cessation of historic client work in the UK) and putting in place the central management and sales teams and infrastructure necessary to grow the Group’s new core activities.  In short, the Group is now focused on achieving significant growth in scale of revenue to drive towards break even.  The Board is also very conscious of the Group’s rapidly expanded fixed costs of operation and has begun to take steps post the end of the period to review and reduce these as appropriate.  The Board continues to look for further savings, particularly in property occupancy costs.

 

Overall cash outflow in the year was £0.58m.  Of the total, the cash outflow (before exceptional and IPO related items) from operations was £2.30m and the heavy investment in content, infrastructure and hardware for our Concession activities resulted in combined capital expenditure of £2.99m.

 

Net cash inflow from equity and debt funding (net of repayments) was £6.37m and £0.03m respectively, making a total inflow from financing activities of £6.40m in the period.

 

Growth in tangible fixed assets of £2.07m pre-dominantly reflected the investment in hardware for our ImmotionVR centres, as well as our concession operations.

 

Growth in intangible assets reflect the goodwill related to the three acquisitions made to create the Group as well as the investment in our proprietary content and software creation.

 

Net assets at period end were £6.20m and net current assets were £0.92m. 

 

Underlying loss per share2 was 1.71p.  Total loss per share was 2.42p.

 

Sir Robin Miller, Chairman of Immotion Group, said:

 

“Immotion Group is quickly becoming a major player in the exciting world of Virtual Reality. Since flotation, the Group has secured partnerships with some serious entertainment businesses, including Merlin, the largest entertainment business in the world after Disney.

 

“The approach of creating cutting edge VR content, and blending this with cost effective motion platforms, has given the Group the ability to deliver a suite of immersive experiences at an affordable end price. The price paid by the end consumer is a vital ingredient in the long-term success of any business. Being able to achieve this, and deliver a sustainable margin is a credit to the team.

 

“We are thrilled at the recent content licensing deals, along with the sales performance of both our concession partners, and our ImmotionVR centres. We continue to hone our sales strategy and are excited at the upcoming launch of our ‘attendant free’ VR booth.

 

“We are very encouraged by the opportunities in front of us and we firmly believe that 2019 will be an exciting year for Immotion Group. We are very much focused on the delivery of revenue and profit and will continue to learn and adapt as the Group grows.”

 

Martin Higginson, CEO of Immotion Group, said:

 

“I am pleased with the progress made to date. 2018 was very much a year of investment. In order to establish ourselves as a serious player, we needed to create a range of VR experiences as well as source a range of VR platforms on which these experiences could operate. There are many players, including some of the largest companies in the world, operating in the VR space and whilst Immotion Group is a relatively new entrant in this landscape, it has quickly established itself as a serious contender.

 

“Our ability to produce amazing VR experiences has given us the ability to secure partnership relationships with a number of leading entertainment companies, including Merlin. This is a credit to our respective teams. Understanding the end customer’s needs has seen the development of our Blue Ocean series of VR content, including ‘Swimming with Humpbacks’. This has allowed us to extend our relationship with Merlin through their SEA LIFE centres, as well as giving us the opportunity to deliver a new ancillary revenue generator to aquariums, zoos and museums.

 

“An encouraging start to trading with both our own ImmotionVR centres and our concession partners has given us confidence in the potential of the concessions model as well as the appetite to look selectively for new sites.

 

“As one of the few VR companies actually generating revenues, we are genuinely enthused at the growth we are achieving. Our team continue to deliver amazing results, whether it’s creating new experiences, signing up new partners or opening new stores, they are a credit to the Group and themselves. I thank them for their continued hard work and belief in our goals.”

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014

Footnotes:

1 Underlying EBITDA is stated before exceptional costs relating to the IPO in July 2018, other one-off items and costs relating to share based payments.

2 Underlying loss before tax and loss per share are stated before exceptional costs relating to the IPO in July 2018, other one-off items, costs relating to share based payments and the impairment of intangible assets relating to discontinued operations.

3 Whilst the Group will operate a booking system in the ‘pop up’ ImmotionVR centres, these are seldom used due to the walk by nature of the store.

Enquiries:

For further information please visit www.immotiongroup.co.uk, or contact:

 

 

Immotion Group

Martin Higginson

Tel: +44 (0) 161 235 8505

WH Ireland Limited 

(Nomad and Joint Broker)

Adrian Hadden

Jessica Cave

 

Tel: +44 (0) 207 220 1666

Shard Capital Partners LLP 

(Joint Broker)

Damon Heath

Erik Woolgar

Tel: +44 (0) 20 7186 9900

Leander Capital Partners

(Joint Broker)

 

Alex Davies

Tel: +44 (0) 207 195 1458

 

Newgate Communications (Financial PR)

Elisabeth Cowell

Robin Tozer

Tom Carnegie

 

Tel: +44 (0) 20 3757 688

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