2013/14 Results Presentation

2013/14 Results Presentation
16 October 2014
Important Notice
This presentation includes statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking
statements can be identified by the use of forward-looking terminology, including the terms “believe”, “estimates”, “plans”,
“projects”, “anticipates”, “expects”, “intends”, “may”, “will”, or “should” or, in each case, their negative or other variations or
comparable terminology. These forward-looking statements include matters that are not historical facts and include statements
regarding the Company’s intentions, beliefs or current expectations.
Any forward-looking statements in this presentation reflect the Company’s current expectations and projections about future
events. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could cause
actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks,
uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein.
Forward-looking statements contained in this presentation regarding past trends or activities should not be taken as a
representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking
statements, which speak only as of the date of this presentation. No representations or warranties are made as to the accuracy of
such statements, estimates or projections.
Please note that the Directors of the Company are, in making this presentation, not seeking to encourage shareholders to either
buy or sell shares in the Company. Shareholders in any doubt about what action to take are recommended to seek financial
advice from an independent financial advisor authorised by the Financial Services and Markets Act 2000.
2
Agenda
 Highlights
Martyn Gibbs
 Financial Review
Benedict Smith
 Business and strategic update
Martyn Gibbs
3
Martyn Gibbs
CEO
Our mission…
“is to build the most
valuable community of
gamers.”
5
FY13/14 Highlights
 Group revenue growth +31% to £862m (2013: £658m)
 Adjusted EBITDA +117% to £51.3m (2013: £23.6m)
 Net cash of £83.7m
 Good progress on strategic priorities

Over 1m new customers signed up to reward card

Digital progress

Launch of GAME Wallet

GAMETronics progressing well
 Listed on the London Stock Exchange in June
6
Financial
Review
BENEDICT SMITH
GROUP CFO
FINANCIAL HIGHLIGHTS
All figures in £’m (unless stated)
SUMMARY
27 Jul
26 Jul
2014
2013
VAR
%
Group sales
861.8
657.9
31.0
Gross profit
209.7
174.0
20.5
Adjusted EBITDA
51.3
23.6
117.4
 Adjusted EBITDA increased 117%
Adjusted operational cash flow
59.6
38.8
53.6
 IPO was 6 weeks before year-end
2.8
(19.0)
nm
Adjusted EPS (pence)
17.8
5.2
242.3
Net cash / (debt)
83.7
(76.6)
nm
Profit after tax
 Total sales increased by 31%
 21% increase in gross margin

Positive margin rate variance, offset by
negative mix variance
 Exceptional items predominantly related to
IPO costs and charges related to the change
in ownership structure
 Net cash increased to £83.7m at the year end
driven by capital structure and working capital
improvements
8
REVENUE BY CATEGORY
2014
£m
2013
£m
VAR
%
Content
329.7
300.2
9.8
Hardware
265.9
113.4
134.5
Preowned
169.0
171.5
(1.5)
Other
97.2
72.8
33.5
Total
861.8
657.9
31.0
2013 REVENUE MIX
2014 REVENUE MIX
11%
11%
11%
46%
26%
46%
26%
17%
38%
20%
31%
17%
Content
Hardware
Preowned
Other
9
GROSS MARGIN BY CATEGORY
2014
%
2013
%
VAR
%pts
28.3
28.0
0.3
Hardware
8.0
2.6
5.4
Preowned
39.0
36.7
2.3
Other
29.9
32.8
(2.9)
Total
24.3
26.4
(2.1)
Content
GROUP GM% MOVEMENT
SUMMARY
 Underlying improvement in gross
margin across content, hardware and
preowned
1.9
-2.1
-4.0
Underlying
Mix
Total
 Increase in hardware contribution
drove overall 2.1% decline in GM%
 The lower margin in “Other” is itself a
mix effect
10
REGIONAL PERFORMANCE
Sales
2014
£m
2013
£m
VAR
%
Market
%
UK
644.7
455.9
41.4
28
Spain
217.1
202
7.5
9

UK market share +4%pts to 33%
Total
861.8
657.9
31.0
24

Spain market share +1%pt to 35%
SUMMARY
 Strong performance across both geographies
 No loss making stores in UK
Adjusted EBITDA
2014
£m
UK
40.6
Spain
10.7
Total
51.3
2013
£m
VAR
%
14.9 172.5
8.7
23.0
 Number of loss making stores in Spain
reduced from 17 to 5
 Letter of Intent signed with GameStop in
Spain to transfer stores and stock
23.6 117.4
11
STATUTORY INCOME STATEMENT
Revenue
Gross Margin
Operating expenses before exceptional costs
Operating (loss) / profit before exceptional costs
Exceptional costs
Operating (loss) / profit
Net interest payable
Profit before tax
Tax
Loss from discontinued operations
Profit after tax
2014
£m
2013
£m
861.8
209.7
176.5
33.2
8.8
24.8
17.5
7.3
4.5
2.8
657.9
174.0
168.5
5.5
8.4
(3.3)
12.1
(15.4)
0.2
(3.4)
(19.0)
SUMMARY
 £16.3m of interest (2013: £12.0m)
relates to (related party) loans and
facilities which were fully
capitalised as part of the
reorganisation ahead of the IPO
 Exceptional costs in FY14 largely
IPO-related; and in FY13 were final
costs of restructuring in the UK
 Tax rate expected to normalise
closer to standard UK / Spanish
corporate tax rates going forwards
12
RECONCILIATION TO ADJUSTED EBITDA
2014
£m
2013
£m
SUMMARY
Operating (loss) / profit
24.8
(3.3)
Depreciation and amortisation
15.1
15.0
 13/14 exceptional costs relate
predominantly to IPO costs (£7.7m)
8.3
8.3
39.9
11.7
Exceptional costs
8.4
8.8
Costs related to change in business structure
2.7
3.1
Costs related to share based payments
0.3
0.1
51.3
23.6
of which Brand amortisation
EBITDA
Adjusted EBITDA

Includes the cost of the Virtual
Loyalty Share Plan – Reward
“shares” to 20,000 customers
 Landlord litigation accounted for
 Costs relating to former private equity
ownership ceased on IPO
 Share based payment charge relates to
LTIP option awards made to senior
managers on IPO - essentially a
deferred IPO bonus
13
OPERATING EXPENSES
2014
£m
2013
£m
VAR
%
 Costs increased 4.7% on
Revenue growth of 31%
Selling & Distribution
Operating costs
Exceptional costs
Operating costs before exceptional items
133.2
128.9
3.3
-
(0.5)
nm
133.2
128.4
3.7
 Total underlying operating
costs as a % of sales reduced
from 25.2% to 20.5%
 Reduction in rent to £35.8m
(2013: £36.8m)
Administration
Operating costs
51.3
48.4
6.0
Exceptional costs
(8.1)
(8.3)
(2.4)
Operating before exceptional items
43.2
40.1
7.7
176.4
168.5
4.7
Total Operating costs before exceptional items
SUMMARY

Rent now 4.2% of revenue
(2013: 5.6%)
 Impact of investment in UK
business and management
team in FY14
14
OPERATING CASH FLOW STATEMENT
2014
£m
2013
£m
47.3
29.7
Impact on cash flow of exceptional items
9.4
6.0
Costs relating to the change in business structure
2.7
3.1
Adjusted operational cash flow
59.4
39.0
 Improved credit terms – and
continuing to improve
Adjusted EBITDA
51.3
23.6
116%
165%
 FY13 benefitted from cash impact of
renegotiated leases and greater
impact of stock release in the UK
from stock built up in FY12
Cash generated by operations
Adjusted EBITDA to cash conversion ratio
SUMMARY
 Continued strong operational cash
conversion
 Timing of exceptional cash flows
15
BALANCE SHEET AND WORKING CAPITAL
Tangible fixed assets
Intangible assets
Inventory
Trade and other receivables
Other assets
Cash (net of borrowings)
Trade and other payables
Other
Net assets
2014
£m
18.1
54.8
57.6
21.2
1.8
83.7
(82.1)
(9.2)
145.9
2013
£m
15.7
62.5
51.5
23.3
5.3
(76.6)
(69.5)
(10.5)
1.7
Inventory
Trade Receivables
Trade payables
Trade Working Capital
57.6
6.1
(32.1)
31.6
51.5
7.7
(18.2)
41.0
SUMMARY
 £83.7m net cash
 No long term debt in the UK, £1.6m in Spain
 €32m facility signed in Spain post year end
 £50m short-term ABL revolving facility in place
with HSBC
 Credit terms continue to improve post IPO
 Net investment in trade working capital reduced by
£9.4m, or 23%, to £31.6m (2013: £41.0m)
 Weeks’ inventory on hand improved from 8.2 weeks
to 7.3 weeks (based on H2 COGS and revenue)
16
NET DEBT / CASH BRIDGE
13.5
47.4
(10.8)
(5.1)
SUMMARY
(2.6)
83.7
117.8
(76.5)
 Capital structure has been transformed
 Cash position better than expected pre-IPO
from

IPO & restructuring related c. £11m (of
which £2m reverses)

Early terms improvement c. £5m

Better working capital generation– c. £14m

Prudent forecasting – c. £5m
 Only currency exposure is to EUR on Spanish
business
17
CAPITAL EXPENDITURE
2012/13
SUMMARY
2013/14
 Strategic investment in technology and digital
24%
30%
£4.9m 25%
2012/13
16%
•
33%
11%
£11.4m
64%
Agile, low-cost development
 Capex at 22% of Adjusted EBITDA (2013:
21%) and 1.3% of revenue (2013: 0.7%)
 Likely to remain at c.1.0 - 1.5% of revenue
 Store development in FY14 largely for new
console cycle and GAMETronics
46%
51%
Digital services
Store development
Maintenance
 FY15 focus likely to be GAMETronics,
Marketplace and Digital Services (including instore (e.g. Wi-Fi; digital experience) and App)
18
STORE PORTFOLIO
Stores opened during year
Stores closed during year
Stores
Average sq. footage
Average length to first break / lease expiry
2014 Annual Rent, £m
UK
Spain
Group
11
0
11
(8)
(11)
SUMMARY
 UK movements largely repositioning

All stores profitable
(19)
 Spain: closed 11 loss-making stores
 Flexible lease profile: avg. 2.5yrs to first
break option
321
236
557
1,209
808
1,036
2.9
1.9
2.5
35.8
 Taking on 45 Spanish GameStop stores

assists transfer of trade and orderly
market over Peak

all stores profitable

average period to first break <1yr
19
Business
Update
MARTYN GIBBS
CEO
MARKET GROWTH AND OPPORTUNITY
Installed Base (Jul-14), units (m)
Total Y/Y Mint Market growth, %
14.4
49
28
4.1
1.8
0.5
9
XB360 & PS3
XB1 & PS4
Source: IHS Screen Digest, GFK-ChartTrack, IDG
Market Growth
14
GAME
Source: GFK-ChartTrack (Based on value of retail sales of console hardware, console
software, console digital and accessories)
21
GAME MARKET SHARE
33%
35%
Market Share FY14
Market Share FY14
45%
45%
40%
636
682
663
625
45%
610
260
35%
35%
30%
332193323
25%
25%
35%
263 264
237
321
260
237
254
239
193
263
264
254
247
236
231
25%
15%
2007 2008 2009 2010 2011
2012
2013
2014
2007 2008 2009 2010 2011 2012 2013 2014
15%
2007 2008 2009 2010 2011 2012 2013 2014
Number of stores
% share
Source: GFK-ChartTrack (Based on value of retail sales of console hardware, console software, console digital and accessories). Period as at GAME Digital YE
22
GAME DIGITAL
19 million
Total insight base
23
BUILDING THE MOST VALUABLE COMMUNITY OF GAMERS
24
GAMERS DESTINATION: SUPPLIER SUPPORT
 ‘Only at GAME’ exclusives on hardware and software
 Software exclusives on 83 titles
 Exclusive hardware offers, including

COD XBOX One and White PS4
 First to market deals on AAA releases
 Strong marketing support
1,500,000
3.5x
Number of exclusive units
sold in FY14
Value of ‘exclusive’ vs. ‘nonexclusive’ customers (2014)
Note: An ‘exclusive’ customer is one who has purchased at least one exclusive SKU in the last 12 months
25
GAMERS DESTINATION: TRADE-IN AND PREOWNED
 Core to value proposition
 Preowned GM participation 32% in
FY14
5% 
38%
Y/Y Growth in preowned
Gross Profit
GAMETronics as % of
preowned hardware sales
 Significantly expanding GAMETronics
offer in FY15
 Over 1,200 products and growing
 Roll-out to all stores underway
 More training for store teams
 Significant marketing planned to
raise awareness
26
EXPANDING OUR OFFER FOR KIDS: GAME JUNIOR
 Significant focus for 2014
 ‘Toys to life’ category growing rapidly
 Expect store and online ranges to
increase substantially in 2014
 Launching GAME Junior awareness
and education programme
27
DRIVING DIGITAL GROWTH
 Range – console and non-console
 Worldwide and UK 1sts on code to content
Digital customers in FY14
 Attach – in-store and online
 New ways to pay – GAME Wallet
10% 
 New markets – mobile
# of Digital customers (m)
2.4
# of Digital products
4,406
3.0
1.3 million
2,380
Y/Y Digital Receipt Growth
2,100 
Digital products added in FY14
2013
2014
2013
2014
28
DRIVING DIGITAL GROWTH
TV (console)
Desktop
Mobile / Tablet
 Platform credit
 Platform credit
 iTunes / Google Play credit
 Subscriptions
 'AAA' full game downloads
 Full game downloads (e.g.
Minecraft)
 Additional downloadable content
 Mobile app with range of
specialist gaming services
 Free 2 Play discovery and
associated in-game credit
 Android based mobile gaming
platform (launching 2014/15)
 Additional downloadable content
29
COMMUNITY ENGAGEMENT





Enhanced reward
Lock-ins
Midnight launches
Exhibitions
Social media
Driving customer
lifetime value
256
1,000,000+
Lock-ins hosted in FY14
Social media audience
30
COMMUNITY ENGAGEMENT: CHANNEL DEVELOPMENT
2.5x
Multi-channel customer value vs.
single channel customer
 Investing to:
 Improve integration
 Increase online,
mobile and app
functionality
 Enhance the
customer
experience
 Grow insight
APP
STORES
ONLINE
MOBILE
31
COMMUNITY ENGAGEMENT: CHANNEL DEVELOPMENT
Stores
eCommerce
 XB1 / PS4 bays
 FIFA / COD
screens
 In-store Wi-Fi
 Store
environment
 New website
design
 Game Wallet
integration
mCommerce and app
 Game Wallet
 Scan it!
 Mobile games store
 Marketplace
integration
32
COMMUNITY ENGAGEMENT: GAME Wallet & Scan it!
 Launched June 2014
 Unique eWallet combining
 Soft launch 1 Oct

2,000+ SKUs available
 Personalised experience

top-up cash

reward points

‘Your price’

trade-in / gift card credit

Product recommendations
 Makes buying digital content
simple and easy

Content discovery
 unlocks cash customers
 Drives increased Insight
 New marketing channel
 Safe and secure way for
parents to allow children to
access online content
33
DRIVING NEW BUSINESS: ENHANCED SERVICES
 Increased next gen training
 Xbox ExpertZone
 PS4 Ambassadors
 Evaluating ways to enhance online and in store delivery options
 Launch of new customer service structure and training tools
 Consumer insurance
 Consumer credit
34
DEVELOPING INSIGHT
 Creating single customer view
 Launching fully automated with dynamic
content
 Trialing ‘Smart offers’ in store
 Driving app usage – Scan it!
 Community panel
 Engaging supplier partners
16 million
800,000+
600,000+
Reward card customers
Registered app users
Weekly targeted e-mails
35
CURRENT TRADING AND OUTLOOK
 Market in UK and Spain continues to grow
 Continue to benefit from increasing supplier support
 Working capital facilities in place
 Exclusives secured
 Stores and staff are ready for Peak
 The biggest months are the months ahead…
36
SUMMARY
Core
offer
Expand
range
Enhance
services
Increase
engagement
‘Only at GAME’
Preowned tech
Wallet
Reward
Digital content
Marketplace
Scan it!
Events
Preowned
Movies
Consumer Credit
Social
Junior
Mobile games
Warranties
Research
 Strong FY13/14 performance
 Market dynamics supportive
 Improving offer across all channels
 Strategic priorities on track
 Investing for growth
 Strong financial position
37
MARKET DYNAMICS
2,067
2,072
Xbox and PlayStation Hardware Sales, £m
1,991
1,758
1,589
1,403
1,281
1,439
1,403
1,234
1,298
1,064
540
674
565
173
825 762
680 632
373 324 435
Nintendo and Handheld Sales (Hardware and Software), £m
508
813
602
356
Non-console Digital Sales, £m
Handheld
Source: OC&C, UK market mint market
1,869
1,773
1,377
1,287
960
813
668
463
288
46
15
8
0
40
38
0
55
73
0
636
46
411
245
77 30 90 104 84 867 1,1661,2731,180 919
611 546 413 150 129 102
496 533 479 555 501
303 278 219 76
139
1,156
972
78
1,685
1,263
1,591
722
982 1,020 977
615
1,489
946
1,007
1,131
1,001
841
645
484
Xbox and PlayStation Content Sales, £m
Wii
39
(3)
NEW RELEASE CALENDAR
Q1
Aug 14
Aug 14
Aug 14
Aug 14
Aug 14
Aug 14
Aug 14
Sep 14
Sep 14
Sep 14
Sep 14
Sep 14
Oct 14
Oct 14
Oct 14
Oct 14
Oct 14
Oct 14
Oct 14
The Last of Us Remastered
Street Fighter IV ULTRA
Risen 3 Titan Lords
Diablo III: Reaper of Souls – Ultimate Evil Edition
Plants Vs Zombies Garden Warfare
Madden NFL 15
Metro Redux
The Sims 4
Destiny
NHL 15
Infinity 2.0 Marvel
FIFA 15
Forza Horizon 2
Middle Earth: Shadows of Mordor
Super Smash Brothers
Aliens: Isolation
DRIVECLUB
Skylanders Trap Team
Sunset Overdrive
Q2
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Nov 14
Dec 14
Jan 15
Call of Duty: Advanced Warfare
The Crew
PES 2015
World of Warcraft: Warlords of Draenor
Assassins Creed: Unity
Halo: The Master Chief Collection
GTAV (next gen)
Assassins Creed: Rogue
Lego Batman 3: Beyond Gotham
Far Cry 4
WWE: 2K15
Little Big Planet 3
Project CARS
Sonic Boom: Rise of Lyric
Sonic Boom: Shattered Crystal
DragonAge: Inquisition
Pokémon Omega Ruby/Alpha Sapphire
Lara Croft and the Temple of Osiris
Dying Light
2015…
Feb 15
Feb 15
Feb 15
Jul 15
TBC
TBC
TBC
TBC
TBC
TBC
TBC
TBC
TBC
TBC
TBC
TBC
TBC
TBC
The Witcher 3: Wild Hunt
EVOLVE
The Order: 1886
Battleborn
Battlefield: Hardline
Metal Gear Solid V: The Phantom Pain
Tom Clancy's The Division
Star Wars Battlefront
Rise of the Tomb Raider
Uncharted 4 - A Thief's End
Batman Arkham Knight
Tom Clancy's Rainbow Six: Siege
Bloodborne
Let it Die
Dead Island 2
Mortal Kombat X
Mirrors Edge
Elder Scrolls Online
40
Business Transformation post 2012

Focused on profitable UK and Spanish businesses

Store portfolio reduced from 874(1) to 556(2) stores

Lower rents and more favorable payment profile across the UK estate
Focus on margin management and cash




Overheads substantially reduced
High margin pre-owned category re-built
Re-engineered UK working capital management
New non-stock supplier contracts entered into
Deepened supplier relationships



Increasing digital integration
Exclusive content secured on major releases
Support provided for UK store digitisation
Investment in online and digital infrastructure



Robust, scalable IT architecture implemented
App, eComm, mComm and stores integrated in the UK
UK website upgraded and re-launched

Valuable insight across over 19 million customers(3)

Improving the CRM infrastructure

Monetised insight database with suppliers
Re-sized estate
Expanded use of customer insight
1)
2)
January 2012
July 2014
Notes:
(1)
UK and Spanish store base as at 28 January 2012 (UK: 310, Spain: 264).
(2)
UK and Spanish store base as at 26 July 2014 (UK: 321, Spain: 239).
(3)
Insight data base for UK and Spain combined, 26AJuly 2014
41