Immotion Group plc

("Immotion", the "Company" or the "Group")

2021 audited full year results and Company update

Immotion Group (AIM:IMMO.L), the UK-based immersive entertainment group, is pleased to announce 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:

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:

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:

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 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:

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:

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.

Enquiries:

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

This announcement contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

IMMOTION GROUP PLC                                                                                                            

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

AS AT 31 DECEMBER 2021

IMMOTION GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2021

IMMOTION GROUP PLC                                    

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2021

The financial statements were approved by the Board and authorised for issue on 25 April 2022

Martin Higginson                                                                   David Marks

Chief Executive Officer                                                           Group Finance Director

IMMOTION GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2021

IMMOTION GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021

1   GENERAL INFORMATION

 Immotion Group plc is a public limited company incorporated and domiciled in the United Kingdom. The address of the registered office is Cumberland Court, 80 Mount Street, Nottingham, England, NG1 6HH. The Group is listed on AIM.

The principal activities of the Group during the year were the provision of virtual reality (VR) experiences to partner sites and via its own ImmotionVR sites; the sale of the Let's Explore virtual and augmented reality consumer product; and the sale of UV sanitisation equipment.

These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.

2   ACCOUNTING POLICIES

Principal accounting policies

The Company is a public company incorporated and domiciled in the United Kingdom. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the United Kingdom ("adopted IFRSs") and those parts of the Companies Act 2006 which apply to companies preparing their financial statements under IFRSs. The financial statements are presented to the nearest round thousand (£'000) except when otherwise indicated.

Basis of Consolidation

The Group comprises a holding company and a number of individual subsidiaries and all of                                                                            these have been included in the consolidated financial statements in accordance with the principles of acquisition accounting as laid out by IFRS 3 Business Combinations.

Going concern

At the time of approving the financial statements, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  The going concern basis of accounting has therefore been adopted in preparing the financial statements.

In reaching this conclusion, the Directors have considered the financial position of the Group, together with its forecasts and projections for the next 12 months, taking into account reasonably possible changes in trading performance and capital expenditure requirements.  The Group's forecasts assumed no further significant disruption resulting from COVID-19.  The Directors consider that while such disruption remains a risk, it is not longer considered to be sufficiently likely to an extent that creates a material uncertainty around the Group's ability to continue as a going concern.

The financial statements do not include any adjustments that would result from the going concern basis of preparation being inappropriate.

Business combinations and goodwill

Acquisitions of subsidiaries and business are accounted for using the acquisition method. The assets and liabilities and contingent liabilities of the subsidiaries are measured at their fair value at the date of acquisition. Any excess of acquisition over fair values of the identifiable net assets acquired is recognised as goodwill. Goodwill arising on consolidation is recognised as an asset and reviewed for impairment twice annually. Any impairment is recognised immediately in profit or loss accounts and is not subsequently reversed. Acquisition related costs are recognised in the income statement as incurred.

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received or receivable, excluding discounts, rebates, value added tax and other sales taxes. The following criteria must also be met before revenue is recognised:

Location Based Entertainment

Partner revenue is recognised on the date which the sale to the customer takes place. The Group acts as the principal in the transaction and therefore recognises the revenue charged to the end user in full with the concession partners' shares deducted as a cost of sale.

Home Based Entertainment

Revenue is recognised on sales of the Let's Explore products in the period in which the corresponding order is placed and paid for.

Uvisan and other hardware sales

Revenue from the sale of goods is recognised when all of the following conditions are satisfied:

·    the Group has transferred the significant risks and rewards of ownership to the buyer;

·    the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

·    the amount of revenue can be reliably measured;

·    it is probable that the Group will receive the consideration due under the transaction; and

·    the costs incurred or to be incurred in respect of the transaction can be reliably measured.

Content

Revenue from a contract to provide services is recognised in the period in which the services are provided in accordance with the stage of completion of the contract when all of the following conditions are satisfied:

·    the amount of revenue can be measured reliably;

·    it is probable that the Group will receive the consideration due under the contract;

·    the performance obligations of the contract at the end of the reporting period can be measured reliably;

·    and the costs incurred and the costs to complete the contract can be measured reliably.

Content licensing revenue is recognised on the date on which the related sale of that content by the licensee takes place where agreements do not provide for new or updated content to be supplied.  Where Immotion Group is committed under licensing agreements to producing new content, or material updates, revenue is recognised over the period of the agreement. No element of financing is deemed present as the sales are made with standard credit terms of 30 days which is consistent with market practice. The Group does not expect to have any contracts where the period between the transfer of the promised services or goods to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.

Leases

The Group assesses whether a contract is or contains a lease, at inception of a contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. In the latter cases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise fixed lease payments (including in-substance fixed payments), less any lease incentives.

The lease liability is included in liabilities in the Statement of Financial Position.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the payments made.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

The right-of-use assets are included in the tangible fixed assets in the Statement of Financial Position.

The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment losses where applicable.

Foreign currency

The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in pound sterling, which is the functional currency of the Group, and the presentational currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the Group company's functional currency (foreign currencies) are recorded at rates of exchange prevailing on the dates of the transactions. At the reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of the gain or loss is also recognised directly in equity.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income and expense in the period of the disposal of the operation. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rates.

Tangible assets

Property, plant and equipment are stated at cost net of accumulated depreciation and provision for impairment. Depreciation is provided on all property plant and equipment, at rates calculated to write off the cost less estimated residual value, of each asset on a straight-line basis over its expected useful life.

The residual value is the estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful economic life.

The method of depreciation for each class of depreciable asset is:

Leasehold property                               - Over term of lease

Fixtures, fittings and equipment            - 33%-50% straight line

IFRS 16 right of use assets                   - Over term of lease

Intangible assets

Intangible assets include goodwill arising on the acquisition of subsidiaries and represents the difference between the fair value of the consideration payable and the fair value of the net assets that have been acquired. The residual element of goodwill is not being amortised but is subject to twice-annual impairment review.

Also included within intangible assets are various assets separately identified in business combinations (such as customer lists) to which the Directors have ascribed a commercial value and a useful economic life. The ascribed value of these intangible assets has been amortised on a straight-line basis over their estimated useful economic lives, which is considered to be 3 years.

Internally-generated intangible assets

An internally-generated intangible asset arising from the Group's development activities is capitalised and held as an intangible asset in the statement of financial position when the costs relate to a clearly defined project; the costs are separately identifiable; the outcome of such a project has been assessed with reasonable certainty as to its technical feasibility and its ultimate commercial viability; the aggregate of the defined costs plus all future expected costs in bringing the product to market is exceeded by the future expected sales revenue; and adequate resources are expected to exist to enable the project to be completed. Internally generated intangible assets are amortised over their estimated useful lives, being 3 years from completion of development. Other development expenditure is recognised as an expense in the income statement in the period in which it is incurred.

Impairment of assets

Impairment tests on goodwill are undertaken twice-annually. The recoverable value of goodwill is estimated on the basis of value in use, defined as the present value of the cash generating units with which the goodwill is associated. When value in use is less than the book value, an impairment is recorded and is irreversible.

Other non-financial assets are subject to impairment tests whenever circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its estimated recoverable value (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable value of an individual asset, the impairment test is carried out on the asset's cash-generating unit. The carrying value of property, plant and equipment is assessed in order to determine if there is an indication of impairment. Any impairment is charged to the statement of comprehensive income. Impairment charges are included under administrative expenses within the consolidated statement of comprehensive income. 

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Financial instruments

The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument.

The Group recognises lifetime expected credit losses for trade receivables and amounts due on contracts with customers when appropriate. The expected credit losses on these financial assets are estimated based on the Group's historical credit loss experience, adjusted for facts that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecasted conditions at the reporting date, including time value of money where appropriate. Lifetime expected credit losses are losses which will result from all possible default events over the expected life of a financial instrument.

Contract assets

Contract assets are recognised when the Group has satisfied a performance obligation but cannot recognise a receivable until other obligations are satisfied. Contract assets represent a right to payment that is conditional on further performance while receivables represent an unconditional right to payment.

Contract liabilities

Contract liabilities comprise payments in advance of revenue recognition and revenue deferred due to contract performance obligations not being completed. They are classified as current liabilities if the contract performance obligations are due to be completed within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Contract liabilities are recognised initially at fair value and subsequently at amortised cost.

Trade and other receivables

Trade and other receivables are measured at initial recognition at fair value, and subsequently measured at amortised cost using the effective interest method. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due. The amount of any provision is recognised in profit or loss.

Cash and cash equivalents

Cash and cash equivalents are recognised as financial assets. They comprise cash held by the Group and short-term bank deposits with an original maturity date of three months or less.

Trade payables

Trade payables are initially recognised as financial liabilities measured at fair value, and subsequent to initial recognition are measured at amortised cost.

Bank borrowings

Interest bearing bank loans, overdrafts and other loans are recognised as financial liabilities and recorded at fair value, net of direct issue costs. Finance costs are accounted for on an amortised cost basis in the income statement using the effective interest rate.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deduction of all its liabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

Share based payments

Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the statement of comprehensive income on a straight-line basis over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of options expected to vest at each statement of financial position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where share options are cancelled due to employees leaving the Group's employment before they have vested, cumulative share based payment expenses recognised in respect of those employees are reversed through the statement of comprehensive income.

Where share options are replaced the fair value of the replaced options at the date of grant continues to be recognised through the statement of comprehensive income in addition to a charge equating to the incremental value of the new options granted.

Pensions

The pension schemes operated by the Group are defined contribution schemes. The pension cost charge represents the contributions payable by the Group.

Taxation and deferred taxation

Corporation tax payable is provided on taxable profits at prevailing rates.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising on:

·    the initial recognition of goodwill; and

·    the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit.

Recognition of deferred tax assets is restricted to those instances where it is probable that future taxable profit will be available against which the asset can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

·     the same taxable Group company; or

·    different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Government grants

The Group recognises government grants when it has reasonable assurance that it will comply with the relevant conditions and the grant will be received.

Grants related to income are recognised in the profit and loss account in line with the recognition of the expenses that the grants are intended to compensate. Such grants are presented as income and are not deducted from the related expenditure.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Directors, who are responsible for allocating resources and assessing performance of the operating segments.

A business segment is a group of assets and operations, engaged in providing products or services that are subject to risks and returns that are different from those of other operating segments.

A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. The Executive Directors assess the performance of the operating segments based on the measures of revenue, profit before taxation (PBT) and profit after taxation (PAT). Central overheads are not allocated to business segments.

3     CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

In the application of the Group's accounting policies, which are described in note 2, the Directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on experience and other factors considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the critical judgments and estimations that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Critical accounting judgments

Revenue recognition

Location Based Entertainment revenue is accounted for on the basis that the Group acts as the principal in the transactions between partners and customers. Gross sales of services by partners to end customers are reported to the Group regularly and are included within the Group's turnover without any deductions.

Revenue from the sale of Let's Explore packages is recognised on receipt of payment, which is a condition for an order to be accepted. At each accounting date provision is made for refunds to be made for orders received and paid for, prior to the accounting date. This provision is based on past experience of the level of refund applications received.

The revenue for the sale of Uvisan products and other hardware is recognised once the benefits and control of these items are no longer with the Group and are instead with the customer. Management exercise judgment to consider when the risks have been transferred to the customer.

Recoverability criteria for capitalisation of development expenditure

The Group recognises costs incurred on development projects as an intangible asset which satisfies the requirements of IAS 38. The calculation of the costs incurred includes the percentage of time spent by certain employees on the development project. The decision whether to capitalise and how to determine the period of economic benefit of a development project requires an assessment of the commercial viability of the project and the prospect of selling the project to new or existing customers. An assessment is made as to the future economic benefits of the project and whether an impairment is needed.

Impairment of goodwill

Impairment of the valuation of the goodwill relating to the acquisition of subsidiaries is considered twice annually for indicators of impairment to ensure that the asset is not overstated within the financial statements. The twice annual impairment assessment in respect of goodwill requires estimates of the value in use (or fair value less costs to sell) of subsidiaries to which goodwill has been allocated. As a result, estimates of future cash flows are required, together with an appropriate discount factor for the purpose of determining the present value of those cash flows.

R&D tax credits

Uncertainties exist in relation to the interpretation of complex tax legislation, changes in tax laws and the amount and timing of future taxable income. This could necessitate future adjustments to taxable income and expenses already recorded.

At the year-end date, tax liabilities and assets reflect management's judgments in respect of the application of the tax regulations, in particular the R&D tax regulations and management's estimate of the future amounts that will be settled.

In assessing the year-end tax balance, the Group has made a provisional assessment as to the likely amount of development expenditure that will be eligible under HMRC's R&D tax credit schemes.

Critical accounting estimates

Amortisation of intangible assets

The periods of amortisation adopted to write down capitalised intangible assets and capitalised staff costs requires judgments to be made in respect of estimating the useful lives of the intangible assets to determine an appropriate amortisation rate. Capitalised development costs are being amortised on a straight-line basis over the period when economic benefits are expected to be received, which has been estimated at 3 years.

Depreciation

The useful economic lives of tangible fixed assets are based on management's judgment and experience. When management identifies that actual useful economic lives differ materially from the estimates used to calculate deprecation, that charge is added retrospectively. Due to the significance of tangible fixed assets to the Group, variances between actual and estimated useful economic lives could impact on the operating results both positively and negatively.

Share based payments expense

Non-market performance and service conditions are included in the assumptions about the number of options that are expected to vest. At the end of each reporting period the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to the original estimates, if any, in the consolidated statement of comprehensive income, with a corresponding adjustment to equity. This requires a judgment as to how many options will meet the future vesting criteria as well as the judgments required in estimating the fair value of the options. Where options are cancelled, followed by the grant of new options at or close to the time of the cancellations, a key judgment, based on the reasons for the cancellations and the new issues, is made as to the extent to which the new options granted are modifications of, or replacements for, the cancelled options, or new options.

IFRS 16 discount rates

The Group estimates an appropriate discount rate based on an incremental rate of borrowing for the calculation of the IFRS 16 right-of-use assets. This requires judgment as to an appropriate discount rate.

4     SEGMENTAL INFORMATION

A segmental analysis of revenue and expenditure for the year ended 31 December 2021 is below. Immotion Group Plc changed its internal reporting during the year ended 31 December 2021 and the segmental analysis has been prepared on a different basis to 2020. The 2020 comparative analysis has been amended in line with the segments adopted in 2021.

LBE = Location Based Entertainment

HBE = Home Based Entertainment

UV = Uvisan

HO = Head Office 

*Administrative expenses exclude depreciation, amortisation, impairment, profit on disposal, one-off costs and income and share based payments.

All operations are continuing.

A segmental analysis of revenue and expenditure for the year ended 31 December 2020 is below:

LBE = Location Based Entertainment

HBE = Home Based Entertainment

UV = Uvisan

HO = Head Office 

*Administrative expenses exclude depreciation, amortisation, impairment, loss on disposal, restructuring costs and share based payments.

The segmental analysis above reflects the parameters applied by the Board when considering the Group's monthly management accounts.

The table below splits revenue, assets and capital expenditure by location:

Earnings/(loss) per ordinary share has been calculated using the weighted average number of shares in issue during the relevant financial periods. IAS 33 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease earnings per share or increase the loss per share. Per IAS 33 the diluted EPS cannot show an improvement on the basic EPS. As that would be the result in this case the potential ordinary shares have been disregarded in the calculation of diluted EPS. 

Adjusted loss is the loss after taxation, adjusted for share based payments, impairment charges and one-off costs and income. Adjusted loss is a non-GAAP measure.

The net book value of assets held under finance leases or hire purchase contracts, included above, is £126k (2020: £306k) relating to VR Hardware and property leases. The depreciation charge on these assets was £175k (2020: £406k).

The net book value of owned and leased assets included in property, plant and equipment in the Statement of Financial Position is as follows:

Information about the leased assets is summarised below:

The depreciation charge in respect of the leased assets is as follows:

Other intangible assets comprise website development and trademark costs.

Amortisation is charged on development costs and other intangible assets over periods ranging between 2 and 3 years.  Development costs have between two and three years' remaining average useful lives.

The Group is obliged to test goodwill annually for impairment, or more frequently if there are indications that goodwill and indefinite life intangibles might be impaired, due to the goodwill deemed to have an indefinite useful life. In order to perform this test, management is required to compare the carrying value of the relevant cash generating unit ("CGU") including the goodwill with its recoverable amount. The recoverable amount of the CGU is determined from a value in use calculation. It is considered that any reasonably possible changes in the key assumptions would not result in an impairment of the present carrying value of the goodwill.

Immotion Studios Limited, C.2K Entertainment Inc. and Immotion Limited were acquired and continue to operate in relation to the Location Based Entertainment segment.  The Location Based Entertainment segment has been assessed as a single CGU when conducting impairment reviews.

Location Based Entertainment

The recoverable amount of the Location Based Entertainment segment has been determined from a review of the current and anticipated performance. In preparing these projections, a discount rate of 10% (based on the Group's weighted average cost of capital) has been applied to forecast earnings for 2022 and 2023 and subjected to sensitivity analysis. The discount rate was based on the Company's cost of capital as estimated by management.

Shares issued during the year ended 31 December 2021:

Cash received does not include costs relating to share issues. In the year to 31 December 2021, costs of £15k were incurred relating to share issues and these costs were charged against share premium.

As outlined in the Chairman's Statement, the Board have taken the decision to divest the Group's non-core Home Based Entertainment and Uvisan divisions. The terms and timing of the disposals are yet to be confirmed and as such the Board cannot be certain that the plan won't be significantly changed or withdrawn. This decision is considered to be a non-adjusting post balance sheet event as it was made subsequent to 31 December 2021.