GAME Digital plc Annual Report and Accounts 2014 G A M E D ig ita

Transcription

GAME Digital plc
Annual Report and Accounts 2014
Highlights
Gross profit (£m)
861.8
Adjusted EBITDA (£m)1
209.7
51.3
174.0
657.9
23.6
2013
2014
Adjusted operational
cash flow (£m)3
59.5
2013
2014
Adjusted EBITDA to
cash flow conversion (%)
2013
33%
Spain retail market share2
2014
Net (debt)/cash (£m)
83.7
165
UK retail market share2
35%
UK stores
321
116
39.0
Spain stores
2013
2014
2013
2014
-76.6
2013
236
Our mission
is to build the
most valuable
community
of gamers
Overview — ifc-3 Strategic report — 4-56 Governance — 57-83 Results — 84-111 Shareholder information — 112-ibc
Group revenue (£m)
2014
Notes:
1. Definedinnote2totheconsolidatedfinancialstatementsonpage94.
2. Source:GfKChart-Track;marketsharebasedonvalueofretailsalesofminthardware,mintsoftware,consoledigitalcontentandgamingaccessories.
3. Definedascashgeneratedbyoperationsafteradjustingfortheimpactoncashflowofexceptionalitemsandcostsrelatingtothechangeinbusinessstructure.
Contents
Overview
ifc Highlights
2
GAME today
Strategic report
4
Our business model
6
Chairman’s statement
8
Q&A with the CEO
12 Our community
22 Our markets
26 Our strategy
38 Our key performance indicators
40 Our resources and relationships
44 Our risks
48 Operating responsibly
52 Our performance
Governance
57 Corporate Governance
Statement
57 Chairman’s introduction
58 Board of Directors
64 Audit and Risk Committee Report
68 Directors’ Remuneration Report
77 Directors’ Report
80 Independent Auditor’s Report
Results
84 Consolidated statement
of comprehensive income
of financial position
of changes in equity
of cash flows
88 Accounting Policies of
the Group
94 Notes to the consolidated
financial statements
108 Company balance sheet
109 Accounting Policies of
the Company
111 Notes to the Company
Shareholder information
112 Glossary of terms
ibc Shareholder information
“Hey, I’m Mike!
I’m here to help you find your way around
this report. I’ll point out all the cool stuff
we have been doing this year, like this
GAME App we developed for our gamers.
Find out how to download it here:
www.game.co.uk/reward,
and scan the images in
this report wherever
you see this icon for
more great content.”
Our goal is to drive profitable growth and create
shareholder value: by giving every person who is part
of the gaming community the opportunity to discover
and access a huge range of physical and digital games
and exclusive gaming content through the channel
of their choice; by delivering a fantastic customer
experience that they can’t find anywhere else; and
by bringing communities together to build excitement
and a shared passion.
GAME Digital plc — Annual Report and Accounts 2014
1
GAME today
We are the leading specialist retailer of video games in the UK
and Spain, representing over a third of each market by value.
Connecting the community of gamers and suppliers, across
all platforms, through all channels, with the most convenient
payment is what drives our business. Our passion is in delivering
the best consumer experiences for each and every customer,
regardless of how, when and where they shop with us.
19m
Where we’ve come from
customer database
April 2012
GAME Wallet launched in June – over
We offer an extensive and differentiated range of gaming and
gaming-related products and services and use a combination
of channels to engage with our customers, including in-store,
online and mobile, as well as through the GAME App.
UK assets bought out of
administration together with Spanish assets
200,000
UK portfolio
rationalised to
optimise sales
and contribution
by store –
closure of lossmaking stores
November 2012
October 2012
Award-winning GAME
App launched in the
UK; record market
share achieved in week ending
28 December 2012
2013
people have registered to date
We are passionate about what we do, we respect each other
and we have fun. We make clever ideas simple. We empower
our teams to be entrepreneurs and to get the job done.
We are gamers.
September
2013
9,000+
community panel members
UK store refurbishment
programme commenced
20m
Successful
renegotiation of UK leases –
85% of UK
leases paying
monthly rent
UK website relaunched
September 2013
November 2013
2014
games consoles sold in 2013/14
Fastest selling
video game title of all time
13,000+
4.7m
256
lock-ins hosted in-store
2
Launch of...
games sold in 2013/14
1.4m
active reward card holders in the last 12 months
June
2013
Cost reduction: UK overheads
reduced by 37% January
2014 versus
January 2012
Who we are
May 2014
Launch of full game
code to content
partnerships with SEGA, Sony and Microsoft
June
2014
GAME
Wallet launched
June 2014
IPO
people attended
3
Our business model
Our mission
To drive profitable growth and create
shareholder value by building the
most valuable community of gamers.
Our values
Respect, simple, fun, clever,
entrepreneurial.
Financial strength and discipline
Our core
activities
Logistics
We distribute physical
and digital products
through our stores
and directly to our
customers’ homes
People and culture
Retailing
We serve millions
of customers every
week through our
store network and
eCommerce platforms
Procurement
We work with hundreds of
suppliers from around the
world across all gaming
platforms to source the
best games and products
Infrastructure
Insight
Marketing
We act as a marketing
channel and proactively
engage with our customers
and communities in a
variety of ways to build
interest in games
Business relationships
Brand
Customer relationships
Technology
Our resources and relationships
Customer relationships
By delivering our customers a differentiated,
specialist proposition which they can’t find
elsewhere, we are able to stand out from our competition, increasing loyalty.
Business relationships
Our scale, leading market positions and insight help us to maintain close and valuable relationships
with our major suppliers, acting as a key partner for successful product launches.
Infrastructure
Our infrastructure is robust, well-invested and built for future physical and digital content growth.
4
Technology
Our digital technology platforms are leading-edge
and our technology development teams are agile and innovative.
People and culture
Our store teams are passionate, knowledgeable and friendly. They set us apart from other retailers.
Insight
Our insight capabilities are world class. We use our insight to help make more informed business
decisions, personalise our offers and give suppliers a unique marketing channel.
Brand
Our brand is highly recognisable and well-known
across a very wide demographic.
We develop technologies, like our GAME App, to better serve
and engage our customers as well as providing them with
access to a differentiated range of services such as trade-in
and preowned – increasing affordability. We use our store
teams and stores, website, social media channels and brand
to market to customers and bring communities together,
helping to promote greater awareness and interest in the
games we sell and bring the best interactive entertainment
experiences to a growing population of gamers.
How we do it
The success of our business model is driven by a number of key
resources and relationships. They empower us to do what we
do. By building on these strengths – delivering a great service
to our customers, maintaining strong supplier relationships,
using insight effectively, efficiently sourcing and distributing
products, developing our teams and engaging with our
communities to share our passion – we will maintain strong
customer relationships and create sustainable value.
You can read more about our resources and relationships
on pages 40 to 42 of this report.
Financial strength and discipline
Our business model and strategy is underpinned by our
financial prudence. Our costs and working capital are well
managed. We have a strong balance sheet, a well-invested
infrastructure and a flexible store portfolio.
Where we do it
321
UK stores
£644.7m
UK sales
236
Spanish stores
£217.1m
Spanish sales
800,000+
Our cause
To provide more ways for gamers
to enjoy more games, more often.
What we do
We interact with millions of customers every week, serving
them through all of our channels. We analyse and interpret the
data we collect to provide detailed insight into what customers
want; we work closely with our supplier partners to ensure we
are able to source the right amounts of the right products and
then distribute those products, whether physical or digital, to
the right places at the right times through all of our channels.
GAME App users
50m+
unique visits to our websites game.co.uk and game.es (FY13/14)
Scan me to find out how we are
building the most valuable
community of gamers.
1m+
social media audience
5
Chairman’s statement
GAME is a lively and exciting company – we expect both
our customers and our colleagues to have fun and enjoy our
products. Hopefully, you as shareholders can share some
of this excitement which is endemic within our industry.
In April 2012 GAME Digital was born out of the ashes of The GAME Group plc. The company was in a difficult position and in need of an urgent and fundamental restructuring. We set about rebuilding a new company which puts right the
problems of the past and is dedicated to building a business
that addresses head-on the issues of the industry in a way that will ensure our long-term future prosperity. In so doing, in the UK we succeeded in maintaining market share, despite
nearly halving the number of stores we traded from. This gave
us the basis of a vibrant, profitable business. We are justifiably
proud of the remarkable turnaround achieved.
In June 2014 GAME floated on the London Stock Exchange with
a premium listing. Just 27 months after its rebirth we have a dynamic, well-capitalised and profitable company that has
a clear long-term strategy for success.
Results
I am pleased to report that we have delivered a strong
performance for the year, with Group revenues up 31% to
£861.8m, operating profit increasing from a loss of £3.3m
to a profit of £24.8m, Adjusted EBITDA up 117% to £51.3m
and a strong net cash position.
We operate in two countries – the UK, which represents
approximately 75% of the Group’s revenues, and Spain,
which represents 25%. In both markets we are the
clear number one player, and have grown market
share over the last 12 months.
Our operating costs before exceptional items
remained well controlled during the year, at 20.5% of revenue (2013: 25.6%) delivering a profit from
continuing operations of £2.8m (2013: loss of
£15.6m). Our disciplined approach to working capital management and capital expenditure led to operational cash flow before exceptional items of £59.5m (2013: £39.0m), and we consequently closed the year with a net cash position of £83.7m. In September 2014 we agreed a new revolving bank
facility in Spain of €32m, in line with the facility of previous years in this region.
People and Board
The success of our Group is down to the hard work of all of the
people who work for us and I would like to thank them all for
their significant contribution during the year.
Our business is run by an experienced and knowledgeable
management team and the contribution made by Martyn Gibbs
and Benedict Smith to drive the pace of transformation has
been significant.
Becoming a listed company has necessitated a number of
changes in the way we work, not the least of which was the
formation of a plc Board with strong independent Directors.
As Chairman, one of my prime responsibilities is to set and
maintain an appropriate Corporate Governance framework
and to ensure we have suitably qualified Non-Executive
Directors to support that remit. We were delighted to be
able to recruit three such Directors, who bring a diverse
variety of experience to the Board.
David Hamid
Chairman
John Jackson brings an exceptional depth of relevant
commercial and financial experience to the Board, having
worked for several leading consumer branded businesses at
the highest level over the course of a career spanning more
than four decades. He is currently Group Chief Executive of
Jamie Oliver Holdings, and before this was Group Retail &
Leisure Director of the Virgin Group, amongst other things.
John is also a qualified chartered accountant and in the earlier
part of his career was Group Finance Director of Bristol-Myers.
Caspar Woolley is a seasoned expert in technology, operations
and logistics. He founded Hailo in 2010, where he is also Chief
Operating Officer. Prior to founding Hailo, Caspar ran the
technology enabled courier company eCourier, was Director
of Card Services and Head of Business Development at John
Lewis and was also Vice President of Operations at Buy.com.
His background in businesses with similar cultures, product
categories and technologies will be invaluable to us.
Lesley Watkins is a highly experienced finance professional
having qualified as a chartered accountant and spent almost
two decades working for City firms including as a Managing
Director for UBS and Deutsche Bank, with a particular focus
on the retail sector. She now combines working as a Finance
Director with non-executive directorships of both quoted and
private equity backed companies.
I am particularly grateful to John, Caspar and Lesley for their
help and support in the process that led up to our listing. We
are now embracing with vigour the governance requirements of
moving from a private equity owned Company to a plc in a public
environment and their help in this process has been invaluable.
We also have the benefit of Franck Tuil on our Board representing
Elliott Advisors, our largest shareholder. Franck has been
instrumental in supporting the Company over the past few years
and his continued contribution is appreciated by the Board.
Strategy
The games industry is dynamic and fast-moving. To succeed we
need to be forward-thinking, agile and above all in contact with
the community of gamers that forms our customer base. With
4.7 million active (traded in the last 12 months) loyalty card
holders, GAME has one of the largest retail loyalty schemes
of its kind across any industry.
“The games industry is
dynamic and fast-moving.
To succeed we need to be
forward-thinking, agile and
above all in contact with the
community of gamers that
forms our customer base.”
We already have a large market share of the retail digital
download market. Together with our partners, we will be
pushing further into this area over the next 12 months.
Meanwhile our diversification strategy around GAMEtronics
and GAME Marketplace is progressing well.
We are a young, lively, well-funded company. We have huge
ambition to be a technology-led company, we get amazing
support from our suppliers and we have, in my opinion,
unparalleled customer service levels in our shops because we
treat our customers as our friends in a community of gamers.
GAME is truly run by gamers, for gamers. It is at the core of
everything we do.
But our biggest weapon is our community of gamers.
Our success lies in their hands – we should never forget that.
We will never take them for granted.
Outlook
In formulating our view on the outlook we have considered
the prevailing risks, some of which are noted on page 44.
The new financial year has started well; the video games
market in both the UK and Spain continues to grow and the
Group continues to grow share across hardware, software
and digital in both its territories.
In Spain, GAME has entered into a letter of intent to take over
a portfolio of stores from GameStop as GameStop exits the
Spanish market. As part of that agreement, GAME will honour
reward vouchers, trade-in credits and pre-order deposits of
former customers of GameStop in Spain, and expects to gain
further market share in Spain over time as a result.
This is our first Annual Report as
a public company and I’m delighted
to welcome you as shareholders.
Overall GAME is well positioned ahead of the important peak
trading period, with exclusives secured on many of the major
pre-Christmas new game releases, a strong balance sheet,
increased supplier credit and financing facilities in place in
both the UK and Spain.
David Hamid
Chairman
The games industry is one that is based on technology and we
continue to focus on and invest in technology to keep us abreast
of the market.
6
7
A Q&A with our Chief Executive Officer, Martyn Gibbs
Dear shareholder,
Martyn Gibbs
Chief Executive Officer
Throughout my time at GAME I have dedicated myself to
some key goals: firstly, to ensure our business delivers the
best possible offer and experience for our customers and
communities every single day, in every contact that we have.
Secondly, to work ever closer with our supplier partners to
give every type of gamer and gifter access to the very best
possible gaming experiences. Finally, to build a business
that attracts talented, creative and experienced individuals
who can innovate and lead the way in a fast-evolving market.
All of this is driven by a single purpose: to lay the foundations
to secure the long-term success of our business.
We have more work to do, but this year has seen us take
several significant steps forward as we continue in our mission
to build the most valuable community of gamers.
Our business is founded on positioning ourselves at the centre
of the customer-supplier relationship and offering a truly
specialist proposition. We are a technology-hungry marketing
channel with multiple interaction points. We exist to share our
passion for games, aid discovery and create loyalty. We focus
on offering the widest range and choice of products available
and putting great teams in place to provide advice, in-depth
knowledge and exceptional service.
We need to provide our customers with exceptional value and
great offers. We also need to provide them with flexible ways to pay to make gaming more affordable and more accessible.
Our leading trade-in programme, which allows customers to
access new games for less, and our recently launched GAME
Wallet service, which has the potential to open up new gaming
experiences for our customers, are good examples. We simply
want to create more ways for gamers to play games more often.
The pace of change in technology is relentless and everyone at GAME thrives on this. It will continue to change the way we live our lives and the way we run our business. Ours is a fast-paced industry and we are working hard and innovating
to ensure that we continue to delight our customers and earn
their loyalty, in turn building upon our market-leading positions in the years ahead.
Thank you for your continued support.
Martyn Gibbs
8
Q: The old GAME business failed. Why won’t it happen again
the next time the cycle turns?
A: While I don’t want to dwell on the past, I think it is essential
to understand what happened to the old business so that we can
make sure the same mistakes are avoided and as a result look
to the future with confidence.
2009-2011 saw an unprecedented series of industry and
economic challenges: the huge rise and subsequent rapid unwind
of sales in Nintendo’s Wii console, a marked acceleration in the
cannibalisation of handheld gaming device sales by smartphones
and tablets, and the absence of any major new console releases
after 2007. All this took place against the backdrop of a global
economy undergoing the most significant consumer recession
in a generation.
Each one of these factors had a significant impact – together
they put overwhelming pressure on a business that had its own
challenges, including a large and inflexible store estate, high
fixed costs, working capital inefficiencies and some unsuccessful
overseas acquisitions. This ultimately meant the business was
simply unable to move at a fast enough pace to adjust to the
significant headwinds it faced.
Today, the Group has been transformed, and though we do not
expect such a ‘perfect storm’ of events to be repeated, with the
restructuring completed, we are well placed to respond to
future challenges we may be faced with.
We monitor all of our stores against a range of financial and
operational metrics to ensure we maintain the right store
footprint and assess each lease renewal, store opening and
closing against a strict set of benchmarks. At our year-end we
had just five loss-making stores in Spain, and none in the UK.
We are focused on maintaining a flexible lease profile across
our estate to ensure we have the ability to adapt our model in
the future should the need arise. Having said that, our current
view is that we do not expect to have a materially higher or
lower number of stores in three years’ time than we do today.
Q: How has the competitive environment and your market
share evolved?
A: The video gaming market has always been highly competitive
and we don’t expect that to change any time soon. We compete
with supermarkets, department stores, electrical retailers,
online retailers and a number of smaller independents for
a share of the retail market.
By staying focused on what we do best and investing in our
proposition we have been able to increase share in our key
markets over the last 12 months in all parts of the market –
in-store, online and in digital – and, in addition, we continue
to see a very strong share on new game releases, aided by
the exclusive products that our suppliers support us with
as the leading specialist in our markets.
Q: How has the business changed since its previous troubles?
Can that much really have changed in a little over two years?
A: It is true that certain aspects of the business haven’t
changed: we still have very strong brand awareness, fantastic
store teams and a loyal customer following.
But on many levels the business that went into administration
is unrecognisable from the one you see today. The business
operates from a rationalised store estate and we have refocused
the Group on our core markets of the UK and Spain where we
are the clear market leader. We’ve streamlined the business,
cut costs significantly and undertaken a series of initiatives
to improve operating and financial performance. We’ve
implemented strict financial disciplines with a clear focus on
margin management and cash; deepened our relationships with
suppliers; expanded our use of customer insight; upgraded our
online and digital infrastructure and refurbished and refitted
every store in the UK. Finally, we have invested in developing
a team of senior managers with a wealth of experience and
a shared vision for the business.
Our marketplace is competitive but
there are many opportunities for us
going forward.
We’re here for those who love
games, and for those who love
those who love games.
See page 21 to learn more.
Q: Why do you still need hundreds of stores across the UK
and Spain? How many stores do you expect to have in three
years’ time?
A: It’s simple – we want to be where our customers want us.
We offer customers the choice to shop with us in our stores,
through our website or through our mobile site and GAME App,
but it is our stores which remain the central hub of customer
engagement and a vital part of our omni-channel offer. They
also provide an important marketing platform for the products
of our suppliers.
9
A Q&A with our Chief Executive Officer, Martyn Gibbs continued
In fact, you’re just as likely to see a ‘non-gamer’ looking for
advice and the right version of a game to buy as a gift as you
are a seasoned gamer trading-in an old title for the most recent
major release, or a mum or dad coming into store with their
son or daughter to pick up a new game or ‘Toys to Life’ character.
It’s our job to make sure that whoever you are, we provide you
with a great service and make you want to come back.
We’re making good progress. In the last 24 months we have
increased the number of digital codes we sell from around
500 to over 4,500. Our customers tell us they want us to provide
them with all the content they want, in the format they want it
and allow them to pay for it and access it through our innovative
ways to pay. So that’s what we are doing.
Q: How will the preowned market be impacted as digital
penetration grows over the next few years?
A: Our preowned business is a core part of our value offer and
includes console hardware, video game software, accessories,
and, since the middle of 2013, smartphones, tablets and other
technology products.
We expect the size of the preowned market to grow over
the medium term due to the expansion of both core and
new product categories. In a review carried out by strategic
consultants OC&C in March 2014, the total preowned hardware
and software games market was forecast to increase 38%
from 2013 to 2018, driven by sales of next generation consoles
and games. This is before the addition of our new technology
offering. (As an aside, it is interesting to note that our preowned
software sales are now an important driver of digital sales,
with additional downloadable content available for the majority
of the top titles. Our teams are always on hand to engage with
customers and inform and advise on this content.)
So we expect that our preowned range will continue to play an
important and growing part of our offer to customers, allowing
them to access games, consoles and technology, for less.
Q: You’ve benefited from the launch of the new consoles
this year but what happens when the cycle turns?
A: There’s no doubt the successful launches of the latest
Microsoft and Sony consoles have been good for our business
and we are excited about the continued take-up of those
consoles in the months and years ahead.
Q: How big is the threat of disintermediation by the console
manufacturers and publishers?
A: Talk of digital disintermediation and the death of the video
games retailer has been around for a long time.
We have exhaustively analysed and debated the impact of growing
file sizes, download speeds, internet charges, storage constraints,
latency issues, online payment security risks and digital adoption
rates, as well as the differences between video gaming and other
entertainment formats such as film and music. For us, what
it ultimately comes down to is ensuring we are providing what
our customers want, in the way that they want it.
We see a future where console manufacturers,
games publishers and the specialist retailer are
all able to co-habit and prosper in mutually
beneficial relationships. As the specialist retailer
it is our job to publicise and promote products
to our customers whilst aiding and assisting
in their purchases. Whether that content is
delivered physically on a disk or digitally via
a code is irrelevant to us – we simply want
to bring gaming content to as wide an
audience as possible.
10
If you look at the UK console market, around 14.4 million
PlayStation 3s and Xbox 360s have been sold since their launches
compared with sales of approximately 1.8 million PlayStation 4s
and Xbox Ones to date, so that tells us there is still a long way to
go in this cycle.
It’s also important to note that the demand for the Nintendo Wii
console and handheld gaming devices during the early part of
the last cycle drove a near doubling of the size of the market,
which subsequently unwound in a similarly dramatic fashion.
None of our plans are premised on seeing a return of that
demand, although that does mean any renewed enthusiasm
for Nintendo’s current or future product launches will drive
potential upside for us.
14.4m
PlayStation 3s and Xbox 360s
sold since their launches,
compared to
1.8m
PlayStation 4s and Xbox Ones
“Our partnership with GAME is one of
the best in the world. The real value
GAME brings us is that they build a
community; they have some of the
best, most knowledgeable store staff
who can talk about our products with
passion and intimate knowledge.
They help people understand the full
potential of what Xbox One brings
today and how it will evolve in the
future. Digital is going to become a
bigger and bigger part of that future
and it will also be a bigger and bigger
part of GAME’s business. GAME are
a key partner of ours as we build the
digital future of gaming together.”
Jeremy Dale
Corporate Vice President, Worldwide Sales & Marketing, Microsoft
In order to build value for our shareholders over the long term
we must uphold our strong financial footing whilst implementing
a well-controlled approach to capital allocation, balancing the
need to invest in the Group’s future growth with the discipline
of returning surplus cash to investors.
Q: What excites you most about the business as you
look forward?
A: The strong performance of the past year has placed
the business on a sound financial and strategic footing and
the Board is therefore able to look to the future and plan
with confidence.
Everything we do is driven by customer insight, and I am
excited by our work in this area and the opportunity this gives
us to get better at what we do.
I am also excited by our significant focus on innovation and the
development and use of new technologies. We are investing in
technology across the business to enhance our core offer and
develop our growth initiatives. Our GAME App is regularly used
by hundreds of thousands of customers and I am excited about
the recent GAME Wallet and ‘Scan-It!’ services we have added.
We have significant ambitions for the GAME App to drive higher
registrations, usage and conversion.
Other key initiatives we are focused on include the roll-out
of our preowned smartphone and technology offer under the
GAMEtronics brand, the upcoming launch of GAME Marketplace
and the continued expansion and development of our groundbreaking digital strategy.
You can read more about these initiatives on pages 35 and 36
of this report.
I understand why I get asked about product cycles and the
most important thing to remember is that in any industry
where product cycles are a fact of life it is how you manage
your business and your finances that matters. Cycles are very
manageable if you stay focused on the long term and don’t
overstretch. The old business didn’t do that and it suffered
as a result. We will not make the same mistakes.
Q: Your suppliers have clearly supported you in the past,
but how confident are you that this support will continue
now the restructuring is complete?
A: We work extremely closely with our supplier partners at local
and global levels and our relationships are founded on mutual
benefit, support and understanding. We challenge ourselves
to be our suppliers’ most cost-effective marketing channel and
so their backing is based on the value that we are able to deliver
to them as the leading video games retailer in our markets, with
over 550 specialist stores, insight on over 19 million customers
and over 10 million customer interactions each week. Our
teams are working hard to ensure we deliver even more value
to them this year and in the years ahead.
Q: What are you going to do with your cash?
A: Our capital structure was transformed as a result of the
IPO, moving from a 100% debt financed business in the UK
(our largest market) to a Group with no long-term debt and
a robust net cash position. We are strongly cash generative
with a flexible cost base and a capital light balance sheet.
Maintaining this strong financial position is a core commitment
of the Group and brings important benefits, such as the
increased availability of credit insurance.
Q: What are your key priorities for the business over
the next 12 months?
A: My key priorities remain the same – my energies are
focused on ensuring we execute on our strategy and deliver
for customers. By doing this we will drive both the growth of
our markets and the growth in our share. Underpinning our
strategy are several operational and financial priorities which
will provide the focus for the next 12 months and help ensure
we execute on our plans.
We have set out key performance indicators for our strategy
which will help us measure and communicate our continued
progress. Achieving these measures will lead to sustainable
profits, growth and returns over the medium term.
Q: Can you describe your typical customer?
A: The demographic of our customer base means we have a
higher proportion of cash customers than the average retailer
(including other forms of cash payment such as trade-in or
gift card), with ‘cash’ transactions making up over 50% of all
in-store transactions by value last year. However, with over
16 million reward card customers (of which over 1 million are
new in the last year and over 4.7 million are ‘active’ in the last
12 months) it is fair to say there isn’t a typical GAME customer!
You can read more about how we are implementing and
measuring our strategy on pages 26 to 39 of this report.
Martyn Gibbs
11
Our community
Wherever there are gamers, there will
be gaming communities. We aim to put
ourselves at the heart of those communities.
Supplying a wide
range of exclusive
content
Active community
engagement
Sharing specialist
knowledge
Providing flexible
ways to pay
Offering
convenient
channels
Developing
loyalty
programmes
We do this by:
12
13
Giving Nawaf his
favourite players
Cash might be king but we think cash, reward card points and trade-in
credit together are even better. So we
developed GAME Wallet. It’s a safe and
secure electronic account which allows
customers to store all of their GAME
cash and credit in a single place and
then use it as a way to pay for new
games and cool stuff.
Our customers are what make us tick, so we are always trying to offer them
something a little special – a limited
edition character, extra maps, a seriously
awesome weapon (like a baseball bat
with a 45lb dumbbell on top) – that sort of thing. That’s what ‘Only at GAME’ is all
about. Last year our customers bought
over 1.5 million exclusive versions of our
consoles and games. Now that’s what we call an exclusive!
14
Lining people’s
wallets
15
Dedication’s what
you need
Over 95,000 people attended one of our
321 UK stores for the midnight launch of Grand Theft Auto V, helping it to
smash at least seven Guinness World
Records® including, one for the highest
revenue generated by an entertainment
product in 24 hours, and another for being the fastest entertainment
property to gross over $1bn, three days
after its release.
16
Disgusting promotions
Too busy spending time with your new
games console to prepare any food on Christmas Day? We’re here to help!
Our ‘Christmas Tinner’ campaign won
PR stunt of the year in 2013.
You can read more about our consumer
PR activity at www.gamedigitalplc.com/
media-centre
17
Two-way conversations
Did we mention we love games? It’s why
we put a tank in a shopping centre, why
we host hundreds of local gaming events
in our stores and why we get dressed up in the middle of the night just to make
selling a game more fun. It’s because we are gamers, just like our customers.
When you love games as much as we do, you want to shout about it. Our store
teams are constantly tweeting the
latest news, views and offers to their
communities so that they can get
involved with what we’re up to. And get a great deal along the way too!
Find out how to get involved at instore.game.co.uk
Follow us on Twitter @GAMEdigital or @VideojuegosGAME or find your local
store Twitter feed at www.game.co.uk/
en/info/GAME-social
18
Welcome to our world
19
Our strategic report
20
Our markets
Page 22
Page 40
Our strategy
Page 26
Our risks
Page 44
Our key performance indicators
Page 38
Operating responsibly
Page 48
21
Our markets
The UK and Spanish markets represented around 10% of the
global market in 2013, or approximately £5 billion, across all
gaming platforms.
Major UK and Spanish market dynamics include:
■■
■■
■■
■■
■■
A long-term growth trend in PlayStation and Xbox
content sales
A more cyclical hardware market for PlayStation and Xbox,
currently in a growth phase driven by new launches
The attraction of a more casual customer to the Nintendo Wii,
creating a spike in the market which has now unwound to
a low base
The declining use of handheld consoles as consumers shift
to other forms of handheld gaming devices such as
smartphones and tablets
The continued growth of other forms of ‘non-console’
digital gaming
Console gaming
The mint console gaming market, comprising hardware,
content and accessories, is the dominant form of gaming in the
UK and Spain, with a total estimated value of £2.8bn (2013), and
contributing over two-thirds of the overall gaming market by
value. This contribution rises to approximately 70% when the
preowned market is included.
UK and Spanish mint gaming markets (£bn)
UK console content – Sales by format (£bn)
4.0
2.0
3.5
1.5
3.0
2.5
1.0
2.0
1.5
0.5
1.0
0.5
0.0
0.0
2013
2014F
2015F
Console
2016F
2017F
2018F
2013
Non-console
The console gaming market is dynamic, driven by both console
and technology launches from the console manufacturers Sony,
Microsoft and Nintendo and associated software releases.
Both the UK and Spanish markets have entered a period of
growth following the launch of the Xbox One and the PlayStation
4 in November 2013. To date there have been around 1.8 million
sales of PlayStation 4 and Xbox One consoles. By comparison,
in total it is estimated that there are over 14.4 million PlayStation
3 and Xbox 360 consoles installed in the UK and Spain. Hardware
sales are critical to building the ‘installed base’ of units, and
drive follow-on sales of content and peripherals.
2.5
2.0
1.5
1.0
Conversely, the console handheld market continues to decline
as sales shift to Mobile/Tablets, and totalled just £300m in 2013.
0.5
0.0
2015F
Hardware
Accessories
Source: OC&C Strategy Consultants
2016F
2017F
2018F
Digital
UK and Spanish console gaming market –
Breakdown by type (£bn)
2014F
2015F
Physical
2013
2014F
2016F
2017F
Content
Preowned (all)
2018F
Installed base of selected consoles – UK
Format
Sales (units) Sales (units)
December
December
2014E
2013A
Date of launch
Sony
PlayStation 3
March 2007
5.7
6.1
PlayStation Vita February 2012
0.5
0.6
PlayStation 4
November 2013
0.5
1.5
Xbox 360
November 2005
8.7
9.1
Xbox One
November 2013
0.4
1.1
Wii
December 2006
8.3
8.3
Wii U
November 2012
0.2
0.4
2DS
October 2013
0.2
0.3
3DS/XL
March 2011
1.9
2.1
26.4
29.5
Microsoft
Console content
Video game software sales are dependent on the development
and release of games titles by third-party publishers and
developers as well as the size of the installed hardware base.
The market is to a large extent driven by the launch of major
‘AAA’ software titles such as Call of Duty, FIFA, Assassin’s
Creed and Grand Theft Auto by the global publishers Activision
Blizzard, Electronic Arts, Ubisoft and Take-Two, respectively.
2014 has also seen the launch of two major new franchises:
Watchdogs (Ubisoft) in May; and Destiny (Activision Blizzard)
in September.
Content spend per unit of installed base of hardware is forecast
to be higher in nominal terms for the latest (eighth)-generation
consoles than for the previous generation, due to greater spend
on digital content and rising title prices. Across the UK and Spain,
overall content sales are benefiting from the new generation
releases as well as the growth in digital sales, with a significant
number of new software titles now being launched with digital
content add-ons and expansion packs, as well as the ability to
make in-game ‘micro-transactions’, as discussed below.
Console digital content
Console digital content comprises downloadable content
(DLC), subscriptions and full-game downloads. DLC refers
to additional content for games, for example additional levels,
maps, characters, online functionality and season passes.
Subscriptions refer to access fees for online content, either
purchased at retail or directly at the console platform. Console
digital content sales in the UK are expected to grow from £342m
in 2013 to just over £900m in 2018, representing a compound
annual growth rate of over 20%.
With an estimated retail value of over £50 billion in 2013, up 11%
from 2012 (source: IDG), the global video gaming market is large,
dynamic and becoming increasingly fragmented and complex.
More than ever, gamers are choosing to access and play games
across multiple channels and platforms, including Console,
PC, Mobile/Tablet and Online (e.g. MMO, Social and Casual).
Nintendo
Total
Source: IHS Screen Digest
22
23
Our markets continued
Non-console digital gaming by type (£m)
1,000
2,000
800
1,500
600
1,000
400
500
200
0
0
2013
2014F
2015F
DLC
Subscriptions
2016F
2017F
2018F
2013
Full game downloads
Mobile gaming
Social gaming
PC downloads
With a total installed base of over 26 million, the range of
people who play video games on consoles remains huge and
their demands are changing. Increasingly each audience is
purchasing a wide range of digital products in addition to
boxed products and accessories, driving rapid digital growth.
In 2013 it is estimated that approximately 35% of all console digital
sales in the UK (circa £120m) were transacted through a retailer,
with 65% purchased directly through the console via Xbox Live,
PlayStation Network or Nintendo eShop. It is noteworthy that a
very high proportion of digital content purchased through retail
is paid for using methods other than a credit or debit card (e.g.
cash, gift card, reward points and trade-in credit) – for GAME
in 2014 the figure was approximately 75%.
GAME’s increasing range of digital content, wide array of
ways to access and pay for products and ability to service
and introduce a wide spectrum of customers to digital content
increasingly benefits us, and has helped to drive our share
of the retail market to over 50% in 2013/14.
39%
Our market share of the preowned gaming market
24
2014F
2015F
2016F
2017F
2018F
MMOG/Freemium
Casual gaming
Cloud-based gaming
Source: OC&C Strategy Consultants, (UK and Spain combined)
Preowned
The ability to trade-in and purchase preowned products is a key
part of the gaming ecosystem. The combined UK and Spanish
preowned console, physical software and accessories markets
totalled over £400m in 2013 and the overall market is forecast to
grow over the next year as the expanding installed base of these
products and the proliferation of trade-in and re-sale increases.
It is estimated that, at the end of 2013, the total number of games
consoles in the UK and Spain totalled approximately 77 million
units and 28 million units respectively (comprising all console
types including all Sony PlayStation, Microsoft Xbox, Nintendo
Wii generation consoles and all handhelds).
Our wide preowned range and product guarantees (which are
the same as on our mint product), choice of channel and direct
service help support our high market share of the preowned
gaming market, estimated to be approximately 39% in 2013.
Non-console digital gaming
Non-console digital content includes Mobile, Social and Casual
gaming, MMO (Massively Multiplayer Online) and Freemium games
as well as PC downloads and Cloud-based games. Non-console
digital content sales in the UK and Spain are expected to grow from
£1.4bn in 2013 to £1.9bn in 2018, representing a compound annual
growth rate of 6%, predominantly driven by the rapid increase in
the penetration of smartphones and tablets as well as continued
growth in PC/MMO gaming.
£1.8bn
expected non-console digital content sales in the UK in 2018
GAME currently sells PC downloads and POSA cards, which
provide currency for online and mobile games and applications
(such as Steam, Facebook and Google Play) and for playing
games on PC and mobile platforms, such as World of Warcraft,
League of Legends, Hearthstone and Minecraft.
Sales channels
Just as customers play games across multiple platforms,
so too do they shop. Customers want to be able to shop 24
hours a day, seven days a week, but they also want to have
the choice to be able to shop in-store, online and on the go.
They are looking for information and opinions as well as the
best products and services.
The proportion of sales via the online channel is growing,
driven by increasing broadband penetration and the growth
in smartphone usage as well as growing consumer confidence
in online as a shopping channel.
Specifically, it is estimated that approximately 32% of sales of
mint hardware, accessories and physical software in the UK
were through all online retailers (including game.co.uk) in 2013
and this is expected to increase going forwards. The online
channel in Spain is less developed, accounting for 5% of mint
hardware, accessories and physical content sales in 2013.
Competitive outlook
Our industry is highly competitive. We compete with supermarkets,
department stores, electrical retailers, online retailers and a
number of smaller independents for a share of the retail market,
as well as with digital distributors for a share of the overall digital
content market. We also compete with providers of different forms
of consumer entertainment, including browser, mobile and social
gaming providers and distributors.
We compete on a multitude of factors including customer service,
product variety and range, price and value, trade-in, innovation
and technology, availability of products and content, delivery
methods and speed of fulfilment, promotional activities, brand
recognition and affinity, convenience and store locations,
customer insight, community events, and customer support.
Customers want to be able to shop 24
hours a day, seven days a week, in-store,
online and on the go.
UK console digital content – Sales by type (£m)
They are looking for information and
opinions as well as products and services.
32%
of sales of mint hardware, accessories and physical software in the UK were through all online retailers
25
Our strategy
Our strategy is to drive profitable growth and create
shareholder value by building on the Group’s position as the
leading specialist retailer of video games in the UK and Spain.
We aim to achieve this by providing a compelling offer to our
customers whilst growing our digital sales and new business
initiatives. We are focused on developing our world-class insight
capabilities to improve and increase customer engagement with
the aim of strengthening GAME’s position at the centre of the
supplier-customer relationship and delivering on our mission
to build the most valuable community of gamers.
Our six areas of strategic focus are underpinned by our people
and culture which set us apart from other retailers of video
games. They are core to our strategy and the way we operate
our business, and they define the way we relate to customers,
colleagues and stakeholders.
1.Be the #1 destination for gamers
Page 27
4.Develop our insight capabilities
Page 33
2.Excel in all digital areas
Page 29
5.Drive new business
Page 34
3.Build community engagement
Page 31
6.Maintain financial discipline
Page 36
By delivering on our strategy we will optimise our growth opportunities across each of our four
key business areas:
1. Content
Physical and digital gaming content
3. Preowned
Gaming and technology preowned products
2. Hardware
Console hardware
4. Other Products and Services
New and existing products and services such
as ‘Toys to Life’ characters, movies, warranties,
disc-care, consumer credit and others
On the following pages we discuss each building
block of our strategy in more detail.
Our passion is in delivering the best consumer experiences
for each and every customer, no matter how, when or where
they want to shop and interact with us.
To deliver on our goal and to compete effectively we must
constantly explore ways in which we can continue to improve
all parts of our offer for customers: range – value – service –
convenience and customer experience. We discuss each of
these in turn, below.
Wide and differentiated range
Our people, culture and values:
Respect, simple, fun, clever, entrepreneurial
26
1. Be the #1
destination
for gamers
Our offer:
1. Access to physical and digital content for all platforms
2. Exclusive content and merchandise – ‘Only at GAME’
3. Excellent availability – there when you want it
4. Huge choice – everything a gamer could possibly wish
for… and more
As a specialist, our customers expect us to be able to offer them
a wide and differentiated range of products and offers across
all gaming platforms and by consistently delivering this we
have been able to build credibility and position ourselves as
a ‘one-stop shop’ for gamers.
Our team’s understanding of what our customers want,
combined with the close partnerships we have with the console
manufacturers and publishers of games, helps to ensure that
we have the right products at the right time across all of our
channels for all of the major console formats. It also helps us
to secure exclusive products. Our ‘Only at GAME’ proposition is
an important differentiator and helps to drive customer loyalty
– with customers who purchased exclusive products spending
almost three times more than customers who didn’t last year.
In 2013, GAME received exclusive content for 95% of the top
20 video game console titles (by value) in the UK. More recently,
the strong relationships we hold with both existing and new
suppliers have also helped us to rapidly grow our range of
both console and non-console digital content (see pages
23 to 25 for more detail).
Our preowned product offering, our most profitable segment,
is extensive and growing and now includes smartphones and
technology products under the GAMEtronics brand.
We also have a range of over 80 own-label products, where we
make a higher percentage gross margin, and are expanding our
accessories and entertainment offering, including those suitable
for our younger customers under the ‘GAME Junior’ sub-brand
(such as the ‘Toys to Life’ category (Activision Skylanders, Disney
Infinity and Nintendo amiibo figures), Minecraft and Lego),
collectables, clothing and other merchandise and DVDs.
Our online architecture also enables us to provide our
‘Endless Range’ in-store service, allowing customers to order
from an extended range of gaming products for home delivery
or to collect in-store, as well as providing a delivery service
for out-of-stock items. We are also in the beta testing stages
of GAME Marketplace, which will enable us to sell tens of
thousands of third-party products, further extending our online
and in-store range and offer (see page 36 for more detail).
Great value
Customers demand the best value and so we consistently look
for ways in which we can deliver more to our customers for less
under our ‘Get gaming for less’ campaigns. We have a number
of ways of delivering great value for money to our customers,
wherever they shop with us.
This is how we plan to improve
our business and respond to future
threats and opportunities.
Trade-in and preowned
Our trade-in and preowned offer is a growing and fundamental
part of our value proposition. In 2013/14 over 13 million items
were traded-in across the Group for a total value of over £100m.
We provide our customers with the opportunity to trade in their
used games for cash, or, for even more value, for credit, and to
buy preowned games for a lower price than new games through
all of our channels. It means we can guarantee customers the best
value – even when compared to supermarkets or online retailers.
13m
items were traded-in for a total value of over £100m in 2013/4
27
Our strategy continued
Exceptional customer service
We are active in every channel and so our objective is to offer
our customers the same high-quality service wherever they
need us.
We are working on plans to offer real-time, targeted messages
and offers when customers visit our stores, to increase
personalisation and reward loyalty.
eCommerce and mCommerce
In 2013/14 we had over 50 million unique visits to our websites
in the UK and Spain, and furthermore in the UK, where we
support a mobile commerce site, 45% of online sessions
involving the GAME website were through mobile phones.
We recruit and train people with a passion for games and an
aptitude for retail, who are dedicated to giving our customers
the highest levels of service and advice. With such a broad
range of products, requiring varying levels of technical
know-how, we pride ourselves on guiding consumers to
the products, deals and choices that best suit their needs.
We continue to invest in our online platforms to improve
usability, functionality and integration with other channels.
Our website is currently undergoing further upgrades to
improve the homepage, aid navigation and assist discovery
and the checkout experience. This is in preparation for the
launch of our major online initiative GAME Marketplace, which
will launch in early 2015. The platform allows us to generate
a single view of customer behaviour across our stores and
websites, helping us to improve our services further.
It’s always been popular with gamers because it allows them
to save money, to play more games, and to keep up with the
new flow of titles and consoles that are released.
We work in collaboration with many of our supplier partners
to bring about bespoke training for all our teams to ensure
they are able to provide the best advice. For example, our teams
are enrolled with Microsoft’s Expert Zone and PlayStation’s
Ambassador Zone. These programmes are ongoing, interactive
and reward our teams as they increase their knowledge levels.
GAME App
In 2012, we launched our mobile GAME App in the UK to engage
customers more fully on an ongoing basis. To date, the GAME
App has been downloaded over 1 million times, with over
800,000 unique registered users. In 2014 we launched
a GAME App in Spain, too.
We have been able to maintain our position as the leading
preowned retailer across both our markets by delivering
compelling trade-in deals, offering the best prices on preowned
product and providing immediacy and trust to our customers
through our store networks and product guarantees.
Our teams are always on hand to give good advice, inform, aid
discovery and deliver exceptional service to our customers. In
an independent survey conducted by SMG in January 2014, our
store teams were ranked first for staff knowledge and first for
staff friendliness against a panel of other specialist retailers.
Deliver great offers and promotions
Through supplier supported deals we have unique bundle
deals, ‘deal of the day’ and ‘deal of the week’ promotions, online
only promotions and other price campaigns on new products
throughout the year. We work closely with our suppliers to
negotiate exclusive first to market deals, enabling GAME to be
the first retailer to offer promotional pricing on key AAA titles.
We also supply online promotional codes on a wide range
of products to our social media audience through Facebook
and Twitter.
Convenience and the customer experience
Customers increasingly want to shop across a range of
channels – in-store and online, at home and on the go. Helping
our customers to shop with us where, when and how they want,
across all channels, is a key driver of loyalty. Indeed, customers
who shop with us across more than one channel spend 2.5 times
more on average than single-channel customers.
Designed to be ‘GAME in your pocket’, it is a strategic platform
on which to build new functionality in future years and is a key
contributor to improved customer service, engagement and
loyalty. The GAME App allows users to collect and review their
reward points, trade-in and gift card credit; scan previously
purchased games to discover the real-time trade-in value; access
gaming news, personalised accolades, promotions and digital
currency (for use in Xbox Live, PlayStation Network and Nintendo
eShop); and provide quick links to both our mCommerce store
and a mobile gaming store for smartphone gamers.
This ongoing value message is further strengthened by our
key sales events around major holidays and events such as
Black Friday, Cyber Monday, Christmas and Easter.
We are investing across all of our channels to provide a more
seamless customer journey, increasing convenience and
enriching our customers’ experiences with us.
Stores
In the UK, all of our stores have been refitted during the year
in order to increase the emphasis on gameplay and the sale
of digital content in-store. We provide playing areas for Xbox
One and PlayStation 4 where customers can try out games and
interact with new products before making a purchase. We have
also expanded the space we dedicate to digital content, with
touch screens to assist discovery.
2013/14
Highlights
■■
■■
■■
#1
ranking stores
The games industry is evolving as a result of the increasing
adoption of digital content and we are determined to lead that
change. Digital will be a key part of our future, so investing
in our digital infrastructure and partnering with suppliers
to grow our range, promote customer education and drive
digital sales is a strategic priority.
We have made significant progress in improving our digital
proposition over the last 12 months, with over 1.3 million
customers purchasing digital content from us. But we have
more to do. The delivery of new initiatives to enhance the
showcasing and promotion of digital content is made possible
by our agile technology development team, which is in turn
supported by a network of developer partners with whom
we have strong relationships.
Our digital strategy is focused on:
1. Leveraging our digital infrastructure and
developing technology services to increase digital
access for customers
2. Expanding our range of console and non-console
digital content
3. Building a leading digital retail offer and experience
across all channels
We regularly update the GAME App to add functionality and
services based on feedback from employees and customers,
and have recently launched two major new services which will
significantly enhance the GAME App’s influence and proposition:
GAME Wallet and ‘Scan-It!’ (see page 35 for information about
GAME Wallet).
■■
Ranked 82% for
knowledge, 83% for friendliness
2. Excel in all
digital areas
Store refurbishment
including Xbox One
and PlayStation 4 bays
16% increase in UK website
traffic year-on-year
GAME Wallet launch
Total number of GAME App
users surpasses 800,000
Key activities
for 2014/15
■■
■■
■■
■■
Reward points
Our value proposition is further supported by our Reward Card
loyalty programmes in the UK and Spain. In the UK we offer points
equivalent to 2% on every purchase and 1% on trade-in. In Spain
the rates are 2.5% on both mint and preowned purchases. Reward
points can be redeemed in-store and online for full or part
payment of purchases.
Roll-out of
GAMEtronics bays
Launch of GAME
Marketplace
Further development
of in-store digital
Exploring new ways
to order and receive
Infrastructure
We have developed a robust and scalable digital architecture
to support and enhance the delivery of digital content. In the UK
and Spain, we are integrated with our key suppliers, including
Microsoft, Nintendo, Sony, Steam and 18 others, for the sale
of digital products, including combinations of currency,
subscriptions and content.
Source: SMG Survey, January 2014
28
29
3. Build community
engagement
Over the coming months we will be rolling out more interactive
digital infrastructure within the stores. This will provide a more
integrated cross-platform gaming ecosystem, and so make it
easier for customers to discover and purchase digital content
through us. This includes Wi-Fi coverage throughout our UK
store base to enable customers to discover and interact with
digital content in stores – whether through their mobile phone
or directly on-screen.
We aim to put ourselves at the heart of our gaming communities.
We interact with our customers and communities millions of
times every week and are constantly looking at ways to deepen
the relationships we have built. Loyal customers shop with us
more, and use more of our services. Our most active customers
spend more than twice as much as our average customer.
Range
Console
The growth of online gaming through Microsoft Xbox Live,
PlayStation Network and the Nintendo eShop has led to
increased consumer demand for console digital content
such as downloadable content (DLC), full game downloads,
digital subscriptions and digital platform currency.
We are committed to delivering our gaming communities:
1. Timely, relevant and generous reward benefits
2. Access to our unique and interactive gaming events
3. Rich content and offers delivered through multiple
touch points
We are working closely with all of our suppliers to expand
our offering of console digital content for sale across all of
our channels. For example, in June 2014 we launched a range
of full game downloads for SEGA on PlayStation Network, in
July 2014 we launched a range of PlayStation Vita full game
downloads and in September 2014 we were the first retailer
in the UK to stock full game download titles and downloadable
content for Microsoft’s Xbox One.
Our stores are currently our largest channel for the sale of digital
content and, notably, approximately 75% of all purchases of digital
content in-store are paid for with cash, trade-in credit or gift
cards. By enabling customers to trade-in physical games or use
their GAME Wallet currency we are able to increase the ability of
cash customers to access digital content. This helps us to grow
the digital market through retail and is one reason why our market
share of retail digital content sales is high, at over 50%.
Non-console
We are committed to offering our customers access to
every digital gaming segment across both console and nonconsole digital content. Non-console includes mobile, social
and casual gaming, Freemium games, PC downloads and
Cloud-based games.
Another is our store staff, who are well trained in all aspects
of our digital offer and play an important role in educating our
customers and helping them to discover digital content.
Although we already operate in these markets (predominantly
by selling POSA cards, which provide currency for online and
mobile games and applications, such as iTunes, and for playing
games on Facebook and other web-based casual platforms)
we are exploring a number of new initiatives in this area where
we believe there are opportunities to increase our market
penetration and growth. For example, we will soon be launching
the trial of a new mobile gaming store on Android-based phones.
Channel
Our customers are able to access digital content through the
channel of their choice.
2013/14
Highlights
July 2012
■■
■■
Over 2,000 new digital
SKUs added
First UK retailer to offer
Xbox One and PlayStation
Vita full game digital
downloads
Total digital receipts
up 10% to £73.5m
30
4,406
2,380
July 2013
1m+
Facebook, Twitter and YouTube audience
Key activities
for 2014/15
■■
■■
■■
■■
519
We actively engage with our communities via social media and
event-based activities at both a local and national level. In the UK
we have an audience of over 1 million on Facebook, Twitter and
YouTube and between January and April 2014 on average each
week we recorded approximately 8 million media impressions;
sent out 415,000 targeted e-mails and 400,000 App pushes;
recorded over 1.4 million visitors to both our stores and
websites and distributed 1.1 million newsletters.
We are re-engineering the way we promote and sell digital
content online to improve our online sales of digital content
and, in addition, the new functionality of our App has been
designed to support digital content discovery and facilitate
digital purchases in-store, online and through mobile.
■■
Number of digital SKUs sold
Our community engagement is underpinned by the Reward
Scheme in the UK and the Loyalty Card programme in Spain.
These programmes reward our customers with a generous
loyalty scheme which is interactive, immediate and delivers
tangible benefits over a very short period of time. They
collectively comprise more than 16 million members of
which approximately 4.7 million are active customers (being
customers who have purchased or traded-in at least one
item through the Group over the last 12 months).
■■
We are investing in our proprietary technology platform,
Codebank, which is able to house millions of distinct digital
codes and provides an attractive route to market for our
partners to sell digital codes in the retail channel. Codebank’s
innovative ability to support digital pre-orders, digital bundles
and multiple digital promotional codes is unique and resulted
in it being nominated for industry awards in the UK in 2014.
Continued expansion of
digital download range,
particularly full games,
on PC and console
Integration of GAME Wallet
into all customer channels
and third-party games
Launch of mobile
gaming platform for
Android devices
Development of specialist
gaming services for
the GAME App
Further development
of non-console digital
product range
July 2014
31
8m
1.1m
415,000
unique website visits per week
weekly newsletters
4. Develop our
insight capabilities
weekly media impressions
As our industry becomes more complex the ability to
personalise customer interaction and education is becoming
increasingly important for consumers. To be able to do
this effectively we need to understand and accommodate
individual customer behaviour at a more granular level.
targeted e-mails per week
We collect, analyse and interpret customer data to better
understand what customers want. We use the insight gained
to empower our business decisions, improve our customer
offer and benefit our suppliers. This helps to increase loyalty
and deepen relationships with our business partners.
400,000+ 1.4m+
App pushes per week
weekly store visits
Our database of 19 million customers across the UK and
Spain, which was brought in-house in 2012, is overseen by
a dedicated team who are responsible for the development
of our insight platform.
We operate a ‘Stores Twitter Programme’, which allows our
store teams to directly interact with their communities with
locally relevant content. Every store has its own individual
Twitter profile from which it ‘tweets’ its own offers, promotions
and news. We have recently launched a similar programme
for Facebook.
We host regular store-based events, including early access
‘lock-ins’, launch parties, local gaming tournaments,
fundraising events and midnight openings.
Our lock-ins are popular with our communities, giving gamers
early access to games and consoles before the official release
date, helping to drive pre-orders. In 2013/14, we launched 20
lock-in programmes across our UK stores. For example, in
November we partnered with Microsoft to launch a lock-in
event across 62 stores to promote the Xbox One console prior
to its launch, which drew over 3,000 attendees.
We stage midnight openings for major product releases,
allowing customers to purchase new products at the earliest
juncture. In September 2013, over 95,000 people attended our
stores for the midnight launch of Grand Theft Auto V, the largest
event of its kind in our history.
At the time of the IPO we launched a Virtual Loyalty Share Plan,
giving £2 million of Virtual Loyalty ‘Shares’ to 20,000 of the most
loyal customers in the UK. The ‘Shares’ convert into Reward
points at various times in the year, at the customer’s choice,
at a value which reflects the movement in value of the Group’s
shares. We believe this is a world first, and rewards those
customers whose loyalty has helped drive the success of
the business.
We are exploring new ways in which we can further enhance
the engagement we have with our gaming communities to make
our customer loyalty count. For example, we are developing an
enhanced reward programme for our most valuable customers,
called GAME VIP, which will ensure we reward and retain our
most important customers.
2013/14
Highlights
■■
■■
■■
In April 2014, we were recognised for our work in community
engagement at the MCV Awards 2014 where we received both
the Specialist Retailer of the Year and Community Engagement
of the Year awards.
■■
■■
32
1 million new reward
card customers
350,000 new registered
GAME App users
UK Facebook, Twitter
and YouTube audience
surpasses 1 million
Launched Virtual Loyalty
Share Plan
Hosted over 250 store
lock-ins
Enriched data analysis
informs everything
we do
More effective
business
planning and KPI
monitoring
Key activities
for 2014/15
■■
■■
■■
■■
■■
Launch of GAME VIP
to reward our most
valued customers
Expansion of our
in-store and community
events programme
Increasing engagement
across new social channels
Launch of Facebook
store programme
Development of
community services
for the GAME App
More effective
customer
communications
and engagement
Improved
customer
profiling and
segmentation
Insight
Supplier
partnerships and
commercial
opportunity
We consistently
generate insight
to empower our
business decisions,
improve our
customer offer and
benefit our suppliers.
1.4m+
Promotional
engine supported
by increased
level of insight
Improved
channel
management
33
We use this insight to:
■■
■■
■■
■■
select products and purchase quantities, manage inventory
and implement targeted trade and brand marketing;
personalise engagement and target offers, with the aim
of increasing customer loyalty and engagement;
support suppliers with their product launches and product
marketing, helping to maximise awareness and sales of their
products; and
optimise training of our in-store teams, improving service
levels and performance.
We are investing in people, training and robust infrastructure
and tools to underpin and develop our insight capabilities and
this investment has seen a significant improvement in the way
information is analysed and used.
In January 2014 we launched a community panel which now has
over 9,000 active members from the gaming community, which
we use to conduct bespoke research commissioned by our
suppliers to answer their questions, as well as our own.
2013/14
Highlights
■■
■■
■■
■■
Insight team increased
from 6 to 10 dedicated
members
Launched first automated
CRM campaign (Xbox One
and PlayStation 4)
Launched community
panel with 9,000 members
Increased activity with
supplier partners
Key activities
for 2014/15
■■
■■
■■
Launching smart offers
in-store
Launching enhanced CRM
automation programme
with dynamic content
Increasing co-ordinated
research and CRM activity
with supplier partners
9,000+
community panel members
34
5. Drive new
business
Developing new business initiatives and investing in growth
opportunities is part of our long-term strategy.
As part of our commitment to deliver for gamers, we are
exploring ways to expand the range of products and services we
offer. Our strategy for long-term growth is focused on growing
the size of the gaming community and unlocking value by offering
that community compelling reasons to shop with us directly,
or by accessing products and services through our channels.
We focus on opportunities where we can best leverage our
existing assets, such as our engaged gaming communities,
our agile technology teams, our omni-channel platforms,
our insight and our business relationships. All underpinned
by the GAME brand.
We have recently launched two major initiatives, GAMEtronics
and GAME Wallet, and are in the final stages of developing
GAME Marketplace. In addition we are scoping a number of
further initiatives which we believe will enhance our proposition
for our customers, such as providing consumer credit in the
UK (as we now do in Spain) and launching a new mobile gaming
platform for Android phones.
GAMEtronics
In June 2013 we launched a trial of our ‘GAMEtronics’ concept,
enabling customers to trade-in and purchase preowned
smartphones, tablets and other technology products through
a selected number of our UK stores.
Following the successful trial we are now rolling out dedicated
space into every store in the UK under the brand ‘GAMEtronics’.
A similar service is also being rolled out in Spain.
Our store networks and expertise in the trade-in and re-sale
model mean we are well positioned to offer and promote this
new service to our customers and, in addition, the product
guarantees we offer on preowned products (two years in the
UK, one year in Spain) are valued by customers. We are
planning to launch an online version of this service in 2015.
The preowned tablets and smartphones market was estimated
to be a £300m market in the UK in 2013, which is approximately
the same size as the preowned video game market in the UK
(source: OC&C).
GAME Wallet
In June 2014, we launched the latest technology upgrade
to our App, incorporating the GAME Wallet payment solution,
developed by our in-house technology team.
GAME Wallet is a convenient and secure way for customers to
bring together the value of all of their reward points, gift cards,
trade-in credit and top-up cash into a single electronic account,
which they can then use as a payment method. Customers can
top-up their balance in-store (with cash, debit and credit cards
and trade-in credit).
GAME Wallet makes it easy for customers to view their balances
and provides a safe and easy payment solution for in-store
(currently) and online (soon) purchases. This is particularly
useful for customers who do not wish to, or who cannot, use
a debit or credit card.
We are exploring ways in which we can expand the functionality
and usage of GAME Wallet. For example, incorporating GAME
Wallet into suppliers’ networks, games or websites to enable our
customers to purchase digital subscriptions and other in-game
digital content, such as add-ons, micro-transactions and other
downloadable content from third parties, opening up new digital
gaming platforms and experiences to our customers.
GAME Wallet launched in June – over
200,000
people have registered to date
We analyse transactional data, App data, web metrics, social
and community data, CRM data, and are working with all of the
major publishers to broaden and deepen our understanding of
our customers, providing us with valuable insight into purchase
patterns, payment preferences and gaming behaviour.
£300m
Estimated value of the preowned tablets and smartphones
market in 2013
35
Financial prudence underpins our strategy and the way
we operate our business.
Cost control
We actively monitor and manage costs across the business in
order to improve profitability, cut waste and improve efficiencies.
We have introduced refined pricing matrices to determine
and closely monitor the price paid for customers’ traded-in
products and resale prices which helped drive a 2.2% increase
in our preowned gross margin in 2014.
GAME Marketplace
GAME Marketplace, scheduled for launch in FY14/15, is a
strategic initiative to open an online marketplace in the UK
using GAME’s eCommerce and mCommerce platforms,
enabling peer-to-peer selling between vendors and customers.
When launched, GAME Marketplace will enable customers
to purchase tens of thousands of products directly from
third-party sellers both in-store and through our UK
website, opening up a new and extensive range of gaming
and gaming-related products to our customers.
It means our customers will never be short of choice, ideas
and inspiration.
2013/14
Highlights
■■
■■
■■
Launch of GAMEtronics
in-store, in UK and Spain
Launch of GAME Wallet
in UK and Spain
Development of GAME
Marketplace platform
Key activities
for 2014/15
■■
■■
■■
■■
Launch of GAME
Marketplace
Launch of GAMEtronics
online
Integration of GAME Wallet
into all customer channels
and third-party games
Further development
of our GAME App and
digital services
We carefully manage our staff costs, adjusting staffing
levels weekly to maintain service levels during periods of
higher demand. In addition, approximately half of our other
operating costs are variable with volume, such as marketing
and distribution costs, further increasing the flexibility of the
cost base. Following the rationalisation of the store estate
in 2012, our rental costs have been significantly reduced and
represented 4.2% of revenues in 2014, down from 5.6% in 2013.
Our total costs (excluding exceptionals) to sales ratio was
20.5% in 2014 (2013: 25.6%).
We will continue to seek opportunities to reduce our cost base
and increase efficiencies, where feasible.
Active management of the store portfolio
Our store base has been transformed. In the last three years,
a total of 366 stores in the UK and 35 stores in Spain have
closed, and 50 new stores in the UK and eight stores in Spain
have opened. We had no loss-making stores in the UK as at the
year ended 26 July 2014, and the number of loss-making stores
in Spain was reduced from 17 to 5.
UK
Spain
Group
Store numbers
321
236
557
Total store sq ft
388,000
189,000
577,000
1,209
801
1,036
Average store sq ft
1,036
577,000
Cash management, cash conversion and capital allocation
We monitor working capital closely. We typically seek
to purchase products from our suppliers on credit terms
to manage our working capital position, and while we have
benefited from only minimal credit insurance in the last two
years, following the IPO we are starting to see the return
of credit insurance which has helped improve our working
capital position.
The balance sheet has been transformed and we have no
long-term borrowings and no defined benefit pension schemes.
We are committed to maintaining a strong capital position and
pursuing a rigorous approach to the use of capital – balancing
investment in growth initiatives with consistent, progressive
returns to shareholders.
Group average sq ft per store
Our gift cards, deposits and trade-ins for credit provide us
with additional working capital which assists us in seeking
to compete effectively on price.
We have a scalable business model that is well-positioned
to support growth at low marginal costs and drive high levels
of free cash flow conversion.
Group total sq ft
2013/14
Highlights
■■
■■
■■
■■
■■
The leases have an average break clause of 2.9 years in the UK
and 1.9 years in Spain, providing us with the ability to manage
our store number and usage. In the UK, over 85% of the leases
are on monthly rent.
Millions of people visit our stores every week – they are the
hub of our community engagement and a vital part of our
omni-channel offer. Our stores provide us with the flexibility
and scalability to take advantage of growth opportunities that
may emerge in the future, as well as the ability to refocus our
store base without long-term fixed costs. We will continue to
review the portfolio to ensure we have the right stores in the
right locations, and that our lease profile gives us optionality.
Key activities
for 2014/15
Preowned margin
improvement
Good operating cost control
Rent reduction
Strong cash generation
and cash conversion
Transformed capital
structure
■■
■■
■■
Continued dialogue with
credit insurers to achieve
normalised credit terms
Focus on costs and cash
Considered development
of store portfolio
6. Maintain
financial discipline
321
UK stores
36
37
Our Key performance indicators
Non-financial key performance indicators
Share of the mint UK video games retail market (%)2
Share of the mint Spanish video games retail market (%)2
Link to strategy:
1.Be the #1 destination
for gamers
Link to strategy:
1.Be the #1 destination
for gamers
33
29
35
33
We target six financial and six non-financial metrics to measure
progress in implementing our strategy.
2013
209.7
Gross profit margin (%)
OpEx to sales (%)1
Digital receipts (£m)
26.4
25.6
Link to strategy:
2. Excel in all digital areas
24.3
174.0
2013
2014
Active reward card members (m)
73.5
67.0
20.5
2014
2013
2.Source: GfK Chart-Track; market share based on value of retail sales of mint hardware, mint software, console digital content and gaming accessories.
Financial key performance indicators
Gross profit (£m)
2014
2013
2014
2013
2014
2013
Link to strategy:
3.Build community
engagement
4.Develop our insight
capabilities
5. Drive new business
4.8
2014
4.7
2013
2014
1. Excludes exceptional costs.
Adjusted EBITDA (£m)
Adjusted EBITDA margin (%)
51.3
Adjusted EBITDA to cash flow
conversion (%)
165
6.0
116
3.6
38
Link to strategy:
3.Build community
engagement
4.Develop our insight
capabilities
5. Drive new business
Average lease length (years)
Link to strategy:
6.Maintain financial
discipline
749
2.5
393
23.6
2013
Registered GAME App users (000s)
This is how we measure
whether we are succeeding.
2014
2013
2014
2013
2014
2013
2014
2014
39
Our customer relationships
Our customers and gaming communities sit at the heart of
everything we do. They drive our business forward and provide
the valuable insight and behavioural information which allows us
to continually improve our offer, further reinforcing our relationship
with them and our business partners in a virtuous circle.
We work with our suppliers months, even years, ahead of product
launches to maximise their success. This also helps us to secure
fantastic promotions and deals for customers, constantly
improving our specialist proposition so that we can deliver the
very best offer across the full spectrum of gaming communities
that we serve, and so grow the size of our markets.
“Activision Blizzard has a long and
successful history of working with
GAME Digital in the UK.
Building customer relationships
Build customer
and community
relationships
Improve
offer
Our business relationships
In order to provide our customers with a wide and differentiated
range of products, offers and experiences, it is vital that we
maintain long-term and successful relationships with all of
our key hardware, software and digital suppliers. We are proud
of the strong relationships we have built.
We enjoy a strong business
relationship which spans retail
distribution and co-marketing
programmes supporting our
blockbuster Call of Duty, Skylanders
and Destiny franchises.
Grow
insight
So how do we make sure we consistently delight them?
By leveraging our position as the leading specialist to deliver
the best possible customer proposition – the best products,
the best service, the best value and the best experiences.
As a result, customer satisfaction levels are high. In a survey
conducted by SMG in January 2014, 82% of our customers were
likely to recommend us.
GAME Digital has been a key partner
in assisting in the delivery of our
strategy to constantly bring the
best interactive entertainment
experiences to
UK gamers.”
Roy Stackhouse
General Manager UK & Ireland, Activision Blizzard
Because of the huge effort we invest in building our customer
relationships, our suppliers are happy to work with us to create
exclusive editions and offers to enhance our proposition. On
top of this, GAME’s ability to drive pre-orders and attach rates
also allows us to secure valuable priority stock allocations
from partners, who trust us to deliver the best experience
for the consumer.
We work closely with new suppliers, supporting their entry
into retail, and in particular non-console digital suppliers,
as we help them to build a profile with our customers.
We rely on the trust and reputation between ourselves and
all our supplier partners to develop our business relationships
and maximise sales for both parties.
Our infrastructure and technology
Distribution centres and eCommerce
We need to ensure that the products we sell are delivered
efficiently to the right place at the right time. Our customers
want to buy new games as soon as they are released through
the channel of their choice, with the majority of sales of
a software title made in the first few weeks of its launch.
Immediate availability and timely replenishment are therefore
critical to our credibility.
We have purpose-built, dedicated distribution facilities in the
UK and Spain to ensure that products reach customers at the
right time. Our distribution facilities support our stores, as
well as our eCommerce businesses, with delivery direct to
customers’ homes. Customers know that our stores are fully
stocked and prepared for every new launch. There has been no
better example of GAME’s world-class distribution capabilities
than our 100% availability for the near simultaneous launches
of the Xbox One and the PlayStation 4 consoles in November
2013, when the Group shipped over 155,000 units over the
two-week period.
Our global eCommerce platform ‘WebSphere’, developed by IBM,
has allowed us to bring our store and eCommerce proposition
closer together and enhance our online functionality. In 2013/14
we had around 45 million unique visitors to our UK website, an
increase of 16%. We will continue to invest in our eCommerce
and mCommerce operations in 2014/15 in order to further
improve our sites for customers.
Digital distribution
Our customers want to be able to choose the format of the
content they buy from us, and so our ability to distribute both
physical and digital content across all of our channels is a
critical part of our proposition. We have developed proprietary
technology that is compatible with several major suppliers,
software publishers and games developers, enabling us
to sell digital content both in-store and online.
In the UK, we are integrated with Microsoft, Nintendo, Sony,
Steam and 18 other suppliers for the sale of digital products,
including combinations of currency, subscriptions and content.
Our close relationships with suppliers should enable us to
further integrate our IT systems in the future, making it even
easier for our customers to access digital content.
Technology
The increased penetration of smartphone and tablet usage and
Wi-Fi availability is driving a fundamental change in consumer
behaviour and we are determined to lead that change. In the UK,
for example, over half of purchases are influenced by digital
channels, 63% of shoppers use their smartphone in-store and
43% of customers use a mobile phone to compare prices or
look up customer reviews while shopping in-store.
Our development and use of technology is rapidly increasing
as we constantly seek to incubate new ideas and innovate to
improve the ways in which we engage and communicate with
our customers and communities across all of our channels. We
are using technology to increase the frequency, personalisation
and relevance of the contact we have, with the ultimate aim
of improving the customer experience. Whether that is by
increasing the personalisation of promotions by implementing
smart-offers in-store, enriching the content and functionality
of our mobile App, opening up new methods of digital payment
and gaming experiences through our GAME Wallet service,
providing new ways in which to discover and access digital
content through ‘Scan-It!’ or providing personalised pricing
to each and every customer.
Our business is supported by a number of key resources and
relationships: our customers and communities; our business
partners; our infrastructure and technology; our teams; our
insight and our brand.
45m
unique visitors to our UK website
82%
of our customers were likely to recommend us
40
63%
of shoppers use their smartphone in-store
41
Our resources and relationships continued
“Our people
make GAME the
business it is.
We make clever
ideas simple.
We respect each
other and we
have fun.”
GAME was ranked top for staff friendliness in a customer satisfaction survey
19m
Our insight database is vast, encompassing over 19 million customers across the UK and Spain
Our people and culture
Our people make GAME the business it is. We make clever ideas
simple. We respect each other and we have fun.
Our stores are run by friendly, enthusiastic and knowledgeable
teams who are passionate about the games they are there to
sell. They inform and advise customers and are deeply engaged
with their communities.
So perhaps it’s no surprise that in a survey conducted by SMG
in January 2014 comparing GAME to other specialist retailers,
GAME was ranked top for staff knowledge (82%) and top for
staff friendliness (83%).
In recognition of this, we awarded all employees in the UK
free shares in the Company, in an HMRC-approved Share
Investment Plan.
We’re developing good leaders and managers across all areas
of the business – both in stores and centrally. There is a wealth
of talented, creative and experienced individuals that can
innovate and lead the way in a fast-evolving market. We give
them the tools, training and support they need, and empower
them to be entrepreneurs and to get the job done.
And, most importantly, we listen to our people and engage
with them to improve what we do and how we do it.
42
Our insight
We listen to customers in a number of ways, including through
face-to-face contact in-store, surveys conducted through our
online community service panel, through our social media
channels, and through the valuable insight we gain from our
Reward Card programmes. Acting on this feedback is critical
to our success.
Our insight database is vast, encompassing over 19 million
customers. Our innovative use of this insight enables us to
create, personalise and improve shopping experiences based
on a deep understanding of our customers’ buying patterns and
preferences. It also allows us to work with our suppliers to
support their product launches and business planning. This is
why our insight is such a valuable resource and why developing
our capabilities is a fundamental driver of our business and
a key strategic priority.
Please see pages 33 and 34 for more information on how we are
developing our insight capabilities.
Our brand touches all parts of our
business so growing both the awareness
and strength of the brand is vital to
our success.
Our brand
Our brand touches all parts of our business so growing
both the awareness and strength of the brand is vital to
our success.
We also promote our brand through a range of channels
including TV and radio campaigns, press and magazine
advertising, online marketing, targeted direct email marketing
and newsletters. Our ‘Christmas Tinner’ PR campaign won
PR stunt of the year and our social media programmes have
driven over 650,000 likes on Facebook and over 400,000 Twitter
followers in the UK alone (includes our stores and centrally).
This all drives significant consumer awareness – according
to an independent survey undertaken in January 2014 by SPA
brand tracker, the GAME brand had 91% total brand awareness
amongst gamers and gifters.
Our specialist proposition differentiates us and helps us to
stand out from our competition, but it is the consistent delivery
of an exceptional experience for our customers across all of
our channels and touch points which drives trust and affinity
for the brand. By constantly delivering for our customers and
communities across all aspects of our offer – range, value, quality,
service, convenience and engagement – we will achieve this.
#1
Our brand is also recognised and trusted by our supplier
partners and it is this trust and confidence in the brand which
allows us to develop strong partnerships to our mutual benefit.
43
Our risks
Risk
and mitigated where possible. Certain risks, such as acts
of terrorism, changes in Government regulation, pandemics,
and macroeconomic issues remain outside of GAME’s full
control however.
Detail and
implication
Controls and
mitigating factors
Business and industry risks
Implementation
and development
of the business
strategy to address
changing markets
If the Group adopts the wrong business
strategy or does not implement its
strategies effectively, the business
may suffer.
Both the retail and video games
industries are changing as a result of new
technologies and the growing adoption of
digital content. An unclear or unsuccessful
strategy to address these trends could
impact the growth of our market share,
impacting sales and profitability.
Risk
Detail and
implication
Brand and customer risks
The Board regularly reviews the Group’s strategy
to understand how sales and profit budgets can
be achieved or bettered and operations improved.
Failure to compete
effectively
This process involves the setting of annual budgets
and longer-term financial objectives to identify
ways in which to increase shareholder value.
Failure to compete on areas including
range, price, quality and service could
lead to a reduction in customer loyalty
with existing customers and an inability
to attract new customers, negatively
impacting our market share, sales
and profitability.
Critical to these processes are the consideration
of wider industry specific trends that affect the
Group’s businesses and the competitive position
of its customer offer.
In addition, new entrants to the market
and the changing dynamics of the
marketplace could adversely impact
our sales.
Risks relate to an incorrect or unclear
financial strategy and the failure to
achieve financial plans.
There are risks that our financial plans
will not be achieved, or, if achieving them,
that the business will be stretched in the
short term at the expense of investment
in our long-term strategy.
Weak performance could put pressure
on profits and cash flows.
Performance
Failure by parts of the business to perform
effectively may result in the Group
underperforming against plans and the
competition, impacting sales and profits.
Our position as a leading specialist provides us
with several advantages and enables us to have
a broad appeal on range, price and service,
whilst our omni-channel capabilities, in which
we continue to invest and innovate, allow us to
compete across multiple channels and markets.
For example, our differentiated range includes
many exclusive products that our customers
cannot get anywhere else, whilst our established
positions in the preowned and trade-in markets
provide value to our customers.
We utilise our significant insight, reward and CRM
capabilities to continuously monitor the perception
of customers towards us to ensure our proposition
and service are well received by customers.
We continue to maximise the impact of our brand
through a variety of targeted marketing initiatives.
The Group needs to understand and
properly manage strategic risk in order
to deliver long-term growth for the
benefit of its stakeholders.
Financial strategy
Controls and
mitigating factors
Our management and trading committees
regularly review markets, trading opportunities
and competitor activities to ensure our offer
remains relevant and compelling.
Financial strategy risks and performance are
regularly reviewed by the Board.
We have set out clear expectations to the market
around our financial disciplines: adherence to
capital discipline; focus on balancing growth with
returns; and being focused on both margins
and cash.
Highly detailed operational plans and budgets
are developed throughout the Group to help
drive delivery. A scorecard system helps to
monitor delivery.
Store estate
The majority of the Group’s sales currently
occur in-store.
Stakeholder engagement programmes are
conducted so that expectations are clear.
Successful management of the store
estate is dependent upon maintaining
the right sites and appropriate lease
terms as well as the development of the
trading space within the network to drive
increased footfall and sales.
The Board, management and various operational
committees meet regularly to review performance
against targets and assess ongoing risks to the
achievement of those targets.
If the Group fails to maintain an appropriate
number of stores in the right locations,
or fails to properly maintain and develop
those stores, it may lead to a reduction
in customer activity, leading to a reduction
in market share and sales.
Performance against budgets and KPIs is
monitored continuously and reported regularly
to the Board.
Conversely, retaining too many stores
may lead to inefficiencies, impacting the
profitability of the Group.
The performance of the store estate is regularly
monitored and store profitability metrics are
regularly reported.
The risks and uncertainties set out below are those
considered to have the potential to materially impact GAME’s
business, financial results and prospects. This list is not
intended to be exhaustive. We review our risk management
process on a regular basis to ensure that risks are identified
Management and various operational committees
meet regularly to review the estate and ongoing
risks to achieving performance targets.
We continue to invest in our stores where financial
returns are met in order to enhance our in-store
offer and in particular our digital proposition.
Clear budgets, goals and objectives are set for each
business function, with a high proportion of reward
based on the achievement of stretching targets.
44
45
Our risks continued
Detail and
implication
Controls and
mitigating factors
Brand and customer risks continued
Reputation
Failure to protect the Group’s reputation
and brand could lead to a loss of trust
and confidence and a decline in customer
base, and also affect our ability to recruit
and retain good people.
Risk
The Group has built up customer loyalty over many
years and GAME is a well-known and trusted brand.
Technology
We take our responsibilities to our customers
very seriously and provide our employees with
all of the tools they need to sell age-rated games
appropriately. The Group works with Government,
industry partners and customers to develop and
implement appropriate legislation with regard
to age-related content.
Resources risks
The Group is dependent on a relatively
small number of key suppliers for the
majority of its sales and the Group
relies on its ability to maintain strong
business relationships with each of
these supplier partners.
Failure to maintain good relationships with
suppliers may impact our ability to provide
good service to our mutual customers.
People
Failure to attract, retain, develop and
motivate the right people with the right
skills at all levels across the business
will cause the business to suffer.
In particular, the success of the Group
relies on the continued service of its
senior management and technical
personnel and on its ability to continue
to attract and retain highly qualified
employees within leadership roles
within the organisation.
46
Controls and
mitigating factors
Resources risks continued
The Group continually focuses on building and
maintaining strong relationships with its suppliers.
Regular reviews are carried out with key suppliers
to ensure all aspects of the relationship are
operating optimally and to explore improving
the ways we work together, to improve the service
we provide to our mutual customers.
Our insight team is increasingly seen by suppliers
as a unique and valuable source of intelligence,
further cementing our importance to them.
The Group is dependent upon the
continued availability and integrity
of its IT systems.
The Group expects that its systems will
require continuous enhancement and
investment to prevent obsolescence
and maintain responsiveness.
Insufficient investment in, or ineffective
implementation of, controls over our
online presence could increase the
likelihood of a successful cyber-attack.
The Group has put in place measures to ensure
it fully complies with all requirements of the Data
Protection Act 1998 and takes all reasonable steps
to ensure the accuracy, security and confidentiality
of such information is maintained at all times.
Relationships with
key suppliers
Detail and
implication
Our websites,
mobile sites
or App lose
customer appeal
Our website, mobile site and App
are becoming increasingly important
in attracting new customers and
encouraging existing customers
to shop with us.
Our IT strategy is led by our CTO, reviewed by the
Board and designed to ensure that our IT systems
remain effective and that any investments in IT
improve our business efficiency and the way our
customers interact with us.
Systems penetration testing, business continuity
plans and back-up facilities are in place and
are tested regularly for integrity to ensure that
business interruptions are minimised and data
is protected from corruption or unauthorised
access or use.
Processes are in place to monitor and address
any significant IT security incidents and we
continue to invest in IT to respond to the growing
range of IT-related threats and risks.
Specialist teams continually review the
configuration, content and functionality of the
website/mobile site to ensure they provide a
positive customer shopping experience across
all devices.
Service levels are monitored to ensure that the
website is both resilient and secure at all times.
Continuity and
crisis management
Failure to recover from a major incident
or catastrophic event could disrupt the
Group’s ability to trade.
All parts of our business, in every territory, have
put together business continuity plans based on
the Group’s risk register. The plans are regularly
reviewed to ensure they are appropriate, effective
and up to date.
Risk
The Group’s reward and development
programmes are regularly reviewed to ensure
that they keep pace with our business needs and
remain competitive. Our HR teams work closely
with the Remuneration Committee to ensure best
practice across the Group.
The Remuneration Committee identifies senior
personnel, reviews remuneration at least annually
and formulates packages to retain and motivate
these employees. In addition, the Board considers
the development of senior managers to ensure
adequate career development opportunities for
key personnel, with orderly succession and
promotion to important management positions.
47
Operating responsibly
We are at the beginning of our CSR journey and are focused
on developing a comprehensive, integrated and enduring
CSR strategy that touches every part of the Group, building
on the foundations we have put in place to reduce our impact
on the environment, ensuring we act as a responsible and fair
employer and supporting the national and local community
projects that our staff are involved in.
People
Our people are critical to the success of the business so we
spend time ensuring they are provided with everything they
need to develop and thrive in their roles – the right tools and
training, the right working environment and the right rewards.
All of this is based on our commitment to respect, openness,
honesty and social inclusion in the workplace.
Equal opportunities
Equality and diversity are paramount to the positive working
environment we strive to provide. We are committed to treating
each employee equally and all of our employment decisions,
policies and practices are, of course, made without reference
to an individual’s gender, race, colour, religion, creed, sexual
preference or national origin.
We also ensure the provision of equal opportunities to
applications for employment made by disabled persons
who are able to perform the duties and functions required
as part of their employment, as well as making the necessary
arrangements to support the continued employment of
employees who have become disabled during their service
with the Company.
We do not tolerate any acts of sexual, racial, or any other form
of discrimination for any reason at any level of the organisation.
Health and Safety
We are committed to ensuring a safe and healthy working
environment for our employees. Health and safety is a
standing agenda item at Board meetings and reported
on a monthly basis.
We provide instructions, training, supervision and information
to enable employees to perform their work safely. We comply
with all health and safety laws and take all possible steps to
ensure that everyone in our stores, distribution centres and
places of work is safe. We monitor and record our health and
safety performance so that we can continually improve upon it.
Total staff
– UK and Spain
Male
Female
Board
3,099
1,133
Male
Female
Total staff by age
– UK and Spain
6
1
25 and under
26-49
50 and over
1,725
2,450
57
Career development and training
We recognise the importance of a well-trained and driven
workforce and want our staff to reach their full potential. We
have put in place dedicated programmes in both the UK and
Spain to help support skills development and career progression.
We have recently launched a new bespoke retail training
programme in the UK called ‘My Career at GAME’, which has
been designed to help coach employees on the skills and
behaviours required to excel in retail. The training is delivered
through workshops and in-store activity-based learning. The
programme recognises that the knowledge and enthusiasm of
our employees is one of our greatest assets and that their own
love of games can bring the products to life for the customer.
We believe this type of training genuinely adds to job satisfaction
and enhances our employees’ customer focus, which improves
the whole shopping experience.
A management training module has also been incorporated
into the programme, which gives both internal and external
appointments the training they need to successfully run a GAME
store and lead their teams. A similar programme is run in Spain
for the Spanish teams.
Rewards and benefits
We want our employees to share in the success of the
Group and we offer a variety of financial rewards and other
employment benefits across the business. We operate a range
of incentives and management bonuses that focus employees
on the achievement of key individual and Group objectives.
We operate a Performance Share Plan to aid retention and
align the objectives of our senior managers with those of our
shareholders and we offer a tax efficient sharesave scheme
to all of our permanent employees to allow them to benefit
from the Group’s success.
Finally, during the IPO process our investors and senior team
wanted to recognise the incredible effort and dedication of GAME’s
employees. Accordingly £1m worth of free shares, funded by Elliott
Advisors, were allocated to employees of the business. Employees
will be able to access these shares after three years.
Employee communication
Communication is a two-way process and so, while we keep
our employees up to date with regular business briefings,
internal conferences, management roadshows and written
communications across the entire Group, we positively
encourage feedback from our people. Through our ‘Gaming
Matters’ initiative in the UK and a similar programme in Spain,
we support an active dialogue with employees across the Group,
encouraging them to raise any issues or concerns and to come
up with ideas that will enhance our working environment and
operating performance.
The past year has also been an important one for product
training due to the launch of the new Xbox and PlayStation
consoles. Over 900 employees attended a series of training
roadshows held in partnership with Microsoft and Sony, and
over 85% of employees are now active on Microsoft’s eLearning
platform and 84% on Sony’s equivalent site. These training
partnerships are valued by employees, ensuring they have
the expertise to provide the best advice to our customers.
We are committed to ensuring a safe
and healthy working environment for
our employees. Health and safety is a
standing agenda item at Board meetings
and reported on a monthly basis.
Management
Directors
and officers
– UK and Spain
Male
Female
We are continuing to develop our health and safety systems
and culture throughout the Group by introducing centralised
reporting on accidents and risk assessments, putting in place
health and safety action plans and standardising training, and
increasing awareness and communication around health and
safety through policy, safety representatives and training.
£1m
worth of free shares, funded by Elliott Advisors, were allocated
to employees of the business on its IPO
We have a duty to maintain the trust of our colleagues,
customers, owners, suppliers and other stakeholders by
ensuring that we act with integrity at all times. Corporate
and Social Responsibility is a core part of that commitment.
We recognise that by acting in a responsible and considerate
way with everyone who comes into contact with us, we will
positively impact both the societies we operate in and the
gaming communities that lie at the heart of our business,
supporting the long-term value of the Company.
6
3
Management Directors
and officers comprise
management Directors
and officers reporting
directly to the Executive
Directors.
Senior management, all of whom are male, is defined as the two Executive Directors and the Managing Director of Game Stores Iberia.
48
49
Operating responsibly continued
We continue to work with industry bodies such as the
Entertainment and Leisure Software Publishers Association
(ELSPA), the Video Standards Council (VSC) and the
Entertainment Retailers Association (ERA) to advise and
share best practice across the industry. We also continue
to ensure that our internal training programmes are vigorous
and our measures in place to sell games responsibly are
robust, well understood and rigorously tested.
Ethical trading and human rights
GAME is committed to the protection of the environment
as well as the personal rights of individuals. When sourcing
quality products for our business, we endeavour to partner
with suppliers that share our core principles. We look to ensure
that our suppliers maintain satisfactory working conditions
and comply with all legal requirements and labour, health and
safety, human rights and environmental protection standards
of those countries in which their businesses operate.
Social media
As a company that embraces technology, GAME encourages
employees to learn about and participate in the online world
and gaming communities. As reflected in our Social Media
Policy, we support GAME employees in the appropriate and
safe use of Social Media, Content and Community Platforms
and Gaming Networks. This ensures we set out GAME’s
expectations and standards of conduct.
Data protection
GAME complies with all statutory requirements of the Data
Protection Act 1998 by registering all personal data held
for its customers and employees and ensuring that all
reasonable steps are taken to ensure the accuracy, security
and confidentiality of such information. In addition, GAME’s
principles contained within our Data Protection Policy are
encouraged, through our supplier relationships, to ensure
that adequate protections are in place when personal data
is transferred, particularly outside the United Kingdom.
National and local community projects
We aim to have a positive impact on the local communities
in which we are based and are proud to support our staff and
even our customers in their individual fundraising efforts for
their charitable causes.
Last year we raised funds, donated gaming items and provided
support to over 300 individual charities across a wide range of
community projects at both a local and national level. The range
of activities supported covered every conceivable area – from
cake sales, to ice bucket challenges, to marathons and treks
between GAME stores.
Over the coming year our teams will be focused on establishing
a clearly defined community investment programme that
fully leverages our community of gamers, our wider local
communities and the Group’s strengths to maximise the
positive difference we can achieve in our community.
We operate a free electrical waste ‘take back’ system for
customers, allowing them to dispose of their old redundant
consoles and peripherals when they purchase a replacement
item. The recycling rate in stores was 51% in 2013/14.
In addition, we offer a repair and refurbishment service to
customers in both the UK and Spain, encouraging our customers
to look at alternatives to discarding old or damaged games
and consoles.
660+
tonnes of paper and cardboard recycled across our stores, Distribution Centre and Head Office since 1 October 2013
51%
We promote waste reduction and recycling wherever possible
across the business in our day-to-day activities. In our Head
Office we actively encourage and provide facilities for recycling
mobile phones, cans, batteries, lamps and plastics. Since
1 October 2013 (when we began recording and monitoring
our activity), over 80% of our total UK waste output has been
recycled, including over 660 tonnes of paper and cardboard
across our stores, Distribution Centre and Head Office.
We are committed to driving increased energy efficiency across
the business and are currently undertaking an energy initiative
and air conditioning replacement project to drive CO2 reductions.
Our carbon footprint currently includes Greenhouse Gas
(GHG) emissions generated from our properties (predominantly
through electricity usage) and waste disposal. The GHGemitting activities used in the distribution of our products
have been outsourced to third-party transport and logistics
companies. The Group began formally recording Greenhouse
Gas emissions data during the second half of 2013/14 and
therefore does not have enough verifiable data to provide
an emissions report for 2013/14.
The Strategic report has been approved by the Board of Directors
on 15 October 2014.
Signed on behalf on the Board
recycling rate in stores in 2013/14
Martyn Gibbs
15 October 2014
Last year we raised funds,
donated gaming items and
provided support to over
300 individual charities across
a wide range of community
projects at both a local
and national level.
50
Environment
As a retailer of electrical goods we are committed to complying
with all applicable laws and regulations relating to WEEE to ensure
that we fulfil our environmental responsibilities at all times.
We offer a repair and
refurbishment service to
customers in both the UK
and Spain, encouraging
our customers to look at
alternatives to discarding
old or damaged games
and consoles.
Community
Protecting our younger customers
Our policy is to create a safe and secure shopping environment for
all of our customers. We take our responsibilities to our younger
customers very seriously and provide our employees with all of
the tools they need to sell age-rated games appropriately.
51
Our performance
Revenue
UK
Spain
Total
300
329.7
300.2
2014
£m
2013
£m
Growth
%
644.7
217.1
861.8
455.9
202.0
657.9
41.4%
7.5%
31.0%
Market
growth1
%
Adjusted EBITDA
2013
£m
Growth
%
UK
Spain
Total
40.6
10.7
51.3
14.9
8.7
23.6
172.5%
23.0%
117.4%
The growth in the year was led by the UK business, which saw
revenue growth of 41.4% and Adjusted EBITDA growth of 172.5%,
and increased its overall value share in the retail market by
over 4% to 33%. GAME gained market share in all categories
(comprising mint hardware, software and accessories) across
the year in the UK. The UK has a larger video games market than
Spain, and the high level of penetration of both Microsoft’s and
Sony’s platforms helped fuel strong demand for the new gaming
consoles and drove growth across the UK market. The number
of stores in the UK at 26 July 2014 was 321 (2013: 318).
In Spain the video games market grew by 9% and GAME gained
market share across all categories, increasing overall share
by over 1% to 35%. On a constant currency basis (based on
revenue growth in Euros year-on-year), revenue in the Spanish
business grew 8% with 4% fewer stores (236 stores at 26 July
2014 compared with 247 at 27 July 2013). The business’s 7.5%
revenue growth and 23.0% growth in Adjusted EBITDA was
a strong result.
134.5%
increase in hardware sales growth
50
265.9
40
36.7
250
200
150
171.5
169.0
113.4
97.2
72.8
0
2013
28%
9%
2014
£m
Gross margin (%)
Group revenue in 2014
50
Note:
1.Source: GfK Chart-Track. Market comprises retail sales of mint hardware,
boxed content, console digital content and gaming accessories.
52
350
100
Segmental results
£861.8m
Revenue (£m)
Content
Preowned
30
30.1
28.3
28.0
20
8.0
10
2.6
0
2014
2013
Hardware
Other
Revenue
Group revenue increased 31% to £861.8m (2013: £657.9m).
Content
Hardware
Preowned
Other
Revenue
Revenue from other products increased 33% primarily due to
the launch of the new ‘Toys to Life’ category – involving figurines
which interact with console games (Skylanders and Infinity)
and are predominantly targeted at a younger demographic.
Revenue also increased thanks to the introduction of new
categories such as films and new smartphones and tablets,
and the increase in sales volumes of accessories.
39.0
32.8
2014
£m
2013
£m
Growth
%
329.7
265.9
169.0
97.2
861.8
300.2
113.4
171.5
72.8
657.9
9.8%
134.5%
-1.5%
33.5%
31.0%
Some 75% of the growth in revenue in the year was driven
by hardware sales growth as a result of the release at the end
of November 2013 of the new generation of games consoles,
Microsoft’s Xbox One and Sony’s PlayStation 4. Through its
strong relationship with Microsoft and Sony, GAME secured
high levels of availability of the new consoles and grew market
share across both territories.
Content revenue, which includes both boxed and digital game
content, grew by 10%. Sales of content for the new Xbox One
and PlayStation 4 formats more than offset the decline in
content sales from older formats, while sales of Grand Theft
Auto V (the fastest selling entertainment product of all time,
when it released in September 2013) drove further content
growth. Within this, digital receipts also increased by 10%
year-on-year.
Revenue from preowned products decreased by 1.5%. This
decrease was due to a lower average trade-in price paid for
preowned products due to the large trade-in volumes which
arose from the launch of Grand Theft Auto V and of the new
consoles, which afforded the Group the ability to sell the
traded-in products at a lower price. Included within this
category is the recently introduced GAMEtronics range of
preowned smartphones and tablets which reached 38% of
preowned hardware sales in the UK (2013: 14%). From the
end of 2013 the preowned smartphone and tablets category
was rolled out into the Spanish business.
The basis of estimation of gift card and deposit redemption
was changed during the first half of 2014 from a 100% deferral
of revenue to a percentage based on historical redemptions. This
is due to the availability of additional information pertaining
to the actual redemption rate. This resulted in a £2.4m decrease
in the liability, with a corresponding adjustment to revenue
compared to the previous estimation procedure.
Gross profit
Gross profit increased by 20% to £209.7m (2013: £174.0m).
The gross margin percentage for 2014 was 24.3%, 2.1 percentage
points lower than 2013. Underlying gross margin improved by
1.9 percentage points across all categories, but this was offset
by an adverse movement in the mix in 2014, worth 4.0 percentage
points. This was driven by an increase of lower margin mint
hardware sales in the mix to 31% in 2014 from 17% of the mix in
2013 and a reduction of preowned sales in the mix, as expected
around a major hardware platform launch.
Content
Hardware
Preowned
Other
Total
2014
%
2013
%
Change
%pts
28.3%
8.0%
39.0%
30.1%
24.3%
28.0%
2.6%
36.7%
32.8%
26.4%
0.3
5.4
2.3
-2.7
-2.1
Content
Preowned
2014
Hardware
Other
Content margin increased 0.3 percentage points to 28.3%.
An increase in margin from new Xbox One and PlayStation 4
content was offset to a degree by lower margin older-format
mint content.
Hardware margin increased as a result of the release of new
consoles which were highly sought after and were initially
constrained in supply.
Preowned margin rates increased as a result of continuously
improving the management of preowned pricing and supply chain.
Within the Other category, the margin decrease was driven
by a mix shift following the successful introduction of a new
range of lower-margin mint technology products, such as
smartphones and tablets, in the Group’s Spanish business.
2013 revenue mix
2014 revenue mix
£209.7m
Group results
The year ending 26 July 2014 was a year of market and structural
transformation for the Group. The launch of new gaming consoles
and key gaming franchises provided market stimulus and the
platform for the Group to grow market share, revenue (+31%)
and gross profit (+20%). Operating profit increased from a loss
of £3.3m to a profit of £24.8m, and Adjusted EBITDA increased by
117%. In addition, the corporate restructuring which culminated
in the successful IPO of the Group saw the bringing together
of the GAME businesses in the UK and Spain and the removal
of debt from the Group, strengthening the Group balance sheet.
Gross margin in 2014
Content
Hardware
Preowned
Other
46%
17%
26%
11%
Content
Hardware
Preowned
Other
38%
31%
20%
11%
53
Our performance continued
Selling and distribution expenses
Administrative expenses
Operating expenses
Continuing
2014
£m
133.4
43.1
176.5
Exceptional
£m
Total
2014
£m
Continuing
2013
£m
–
8.4
8.4
133.4
51.5
184.9
128.4
40.1
168.5
Selling and distribution expenses consist of costs relating
to stores, distribution centres and eCommerce operations
and marketing expenses net of income from supplier funded
advertising arrangements and marketing activities. Selling
and distribution costs before exceptional items increased
by £5.0m, or 3.9%, supporting the increase in sales volumes
which drove the 31% revenue increase. The ratio of selling and
distribution costs to revenue improved by 4.0 percentage points
to 15.5% of revenue. Offsetting the increased variable store costs
was a reduction in rent and a higher level of marketing income
received in the year in support of the new console launches.
Rent declined £1.0m year-on-year to £35.8m (2013: £36.8m),
representing 4.2% of revenue (2013: 5.6%). All the Group’s
stores in the UK are profitable, while in Spain there were five
loss-making stores (defined as stores trading at least 12
months at the date of measurement) at 26 July 2014, down
from 17 in 2013, representing less than 1% of the year-end
Group portfolio of 557 stores (2013: 3% of 565 stores). The
Group prudently seeks to maintain a relatively short lease
profile, with the average remaining lease period to first break
option across the portfolio of 2.5 years at 26 July 2014.
Administrative expenses consist of payroll and other employment
costs relating to management and administrative functions,
other head office costs, depreciation and amortisation costs
and exceptional costs/(gains). Administrative expenses before
exceptional items increased by £3.0m or 7.5%, reflecting the
investment in teams and senior management in the Group’s
UK operations.
Included within administrative expenses are the cost of
IPO-related share-based bonus costs of £0.3m in the year
and costs relating to the change in ownership structure of
£2.7m (2013: £3.1m) relating to advisory, investment monitoring
fees and other holding company costs which the Group incurred
in return for certain services received prior to the IPO under
the former private companies’ ownership and governance
structure. The agreements relating to the provision of these
services have been terminated and the former holding
company arrangements and costs no longer apply.
Exceptional
£m
Total
2013
£m
Change in
continuing
costs
£m
0.5
8.3
8.8
128.9
48.4
177.3
5.0
3.0
8.0
Exceptional items
Exceptional items totalled £8.4m (2013: £8.8m), of which the
vast majority (£7.7m) relates to costs incurred in relation to the
IPO. These include the costs of preparing to become a listed
company, cash payments under employee bonus arrangements
and the cost of the Virtual Loyalty Share Plan offered to 20,000
of the Group’s most loyal customers in the UK.
In 2013, exceptional items were incurred relating to the
restructuring and establishment costs of the Group’s UK
operations. These included the cost of settling certain
acquired liabilities arising from litigation involving a number
of institutional landlords in relation to the payment of certain
outstanding rent and other sums in place at the date of the
acquisition of the Group’s UK operations.
Adjusted EBITDA
Revenue
Gross profit
Adjusted operating
costs excluding
depreciation and
amortisation
Adjusted EBITDA
Adjusted EBITDA
margin, %
2014
£m
2013
£m
Change
£m
861.8
209.7
657.9
174.0
203.9
35.7
(158.4)
51.3
(150.4)
23.6
(8.0)
27.7
6.0%
3.6%
2.4%pts
The Adjusted EBITDA margin increased by 2.4 percentage
points to 6.0%.
£51.3m
54
The Group’s Spanish operations incurred net financing costs
of £0.3m (2013: £0.2m) on third-party loan, overdraft and bank
guarantee facilities.
Profit before tax
Profit before tax for the year amounted to £7.3m (2013: loss
of £15.4m). This is after taking account of the exceptional items
and costs relating to change in ownership structure described
above and the high level of interest and finance costs associated
with the debt which has been removed or refinanced as a
consequence of the IPO.
Taxation
The effective tax rate (defined as the accounting tax charge
divided by the accounting profits before tax) was 62% (2013: 1%).
The high level of IPO-related and other non-deductible costs in
the year lead to a non-standard effective rate for the year.
Earnings per share
Adjusted EBITDA (a non-IFRS measure defined by the Group
as profit/loss before tax, depreciation, amortisation, net finance
costs, exceptional costs, costs incurred in relation to the
change of business structure, and IPO-related share-based
payment charges) more than doubled to £51.3m (2013: £23.6m).
The increase in Group revenue of 31% was achieved with an
increase in adjusted operating costs of only 5.3%, leading to
a high level of conversion of sales growth to EBITDA growth.
Adjusted EBITDA in 2014
Financing costs
Net financing costs totalled £17.6m (2013: £12.2m) of which
£16.3m (2013: £12.0m) related to interest and fees payable to
related parties for loans and facilities which were fully capitalised
or cancelled as part of the reorganisation, implemented ahead
of the IPO. Finance costs relating to the establishment of a new
short-term stock finance facility at the time of the IPO amounted
to £0.8m.
Adjusted EPS
2014
2013
17.8p
5.2p
The Group delivered adjusted earnings per share of 17.8p
(2013: 5.2p) based on 170 million shares (to aid comparison
between the two years). In order to give a better view of underlying
earnings, adjustments to earnings per share have been made
to remove the post-tax effect of brand amortisation, exceptional
costs, the cost of IPO-related share-based compensation,
costs relating to the change in business structure and interest
on the Senior Loan Notes and Management Loan Notes which
were capitalised as part of the reorganisation implemented
ahead of the IPO.
Cash resources and cash flow
2014
£m
2013
£m
Cash generated by operations
47.4
Impact on cash flow of exceptional items
9.4
Costs relating to the change in
business structure
2.7
Adjusted operational cash flow
59.5
Adjusted EBITDA to cash conversion ratio 116%
29.9
6.0
£83.7m
Group net cash at year-end
At year-end the Group had net cash of £83.7m (2013: net debt
of £76.6m).
Net cash
2014
£m
2013
£m
Cash
Debt
Net cash/(debt)
85.3
(1.6)
83.7
42.9
(119.5)
(76.6)
Upon IPO, the loan notes of the Group’s UK operations
were capitalised and its short-term stock finance facility was
refinanced through a new short-term asset-based revolving loan
facility of up to £50m with HSBC Invoice Finance (UK) Limited
which accrues interest at a rate of 3.75% per annum above the
base rate of the Bank of England from time to time on drawn
balances and 1.3% per annum for undrawn commitments.
Subsequent to the end of the financial year, the Group’s
Spanish subsidiary signed new short-term financing facilities
with Spanish banks BBVA and Banco Santander in an aggregate
of €32m. The cost to the Group of these facilities is an
arrangement fee of between 0.15% and 0.18%; a commitment
fee of 0.10% per annum and interest on drawn funds of between
3.0% and 3.6% per annum above Euribor 90.
The combination of these facilities and the level of Group cash
positions leaves the Group in a very strong position as it enters
the period of peak trading and peak working capital requirement.
As previously communicated, no dividend will be declared for
the year ending 26 July 2014. Going forward the Board intends
to adopt a progressive dividend policy which reflects the cash
flow generation and long-term earnings potential of the Group,
whilst retaining sufficient capital to fund investment to grow
the business.
Operating expenses
3.1
39.0
165%
Adjusted operational cash flow (defined as cash generated
by operations after adjusting for the impact on cash flow of
exceptional items and costs relating to the change in business
structure) totalled £59.5m (2013: £39.0m), representing an
Adjusted EBITDA to cash conversion ratio of 116% (2013: 165%).
55
Corporate Governance Statement
Chairman’s introduction
Working capital
Net investment in trade working capital reduced by £9.4m,
or 23%, to £31.6m (2013: £41.0m).
On 11 June 2014 the Company successfully listed on the
London Stock Exchange, making this our first Corporate
Governance Statement as a public listed company. In just over
two years, GAME has grown as a substantial player in retail
and as a result of the Initial Public Offering (‘IPO’) process we
have established new governance structures and protocols,
which will strengthen our ability to provide shareholder value.
As Chairman, I am responsible for the management of
the Board and its operation, which in turn seeks to provide
complementary entrepreneurial leadership to support the
Group strategy whilst promoting internal governance. In May
2014, the addition of John Jackson, Caspar Woolley, Lesley
Watkins and Franck Tuil as Non-Executive Directors served
to increase the efficiency and diversity of skills on the Board.
At GAME we recognise that attaining high standards of
Corporate Governance is crucial in running an effective
business in an evolving digital market. Maintaining business
proficiency is key to ensuring customer satisfaction,
resulting in financial success.
I am confident in GAME’s ability to execute business strategies
and drive our goal to ultimately secure the long-term success
of the Company, with the assistance of monitored controls and
open communication. We will strive to achieve high standards
of internal Corporate Governance, whilst evolving our business
practices and adhering to core values. The Company has
therefore made the conscious decision to follow guidance set out
for the FTSE 350 index in the UK Corporate Governance Code.
Trade working capital
Inventory
Trade receivables
Trade creditors
2014
£m
2013
£m
57.6
6.1
(32.1)
31.6
51.5
7.7
(18.2)
41.0
The Group is carrying higher stock balances at the end of
the financial year than at the end of the prior financial year
as the level of Group revenue is higher than the prior year
and so requires more inventory on a constant weeks’ forward
cover basis.
Following the IPO, and the removal of all debt from the UK
business, leading credit insurance companies and commercial
credit rating agencies have been updated on the Group’s new
capital structure and current trading. As a consequence the
Group has seen increases in the amount of available supplier
credit and this has contributed in part to the Group’s cash
generation in the year. It is the Group’s policy to maintain a
regular dialogue with credit insurance and rating agencies.
Weeks’ inventories on hand (defined as year-end inventory
divided by cost of sales per week for the last 26 weeks) reduced
by 11% from 8.2 weeks to 7.3 weeks, improving working capital
and cash generation.
Capital expenditure
Group capital expenditure amounted to £11.4m in 2014
(2013: £4.9m), representing 22% of Adjusted EBITDA
(2013: 21%) and 1.3% of revenue (2013: 0.7%).
Capital expenditure was incurred in the year on investment in
UK stores in advance of the launch of Xbox One and PlayStation
4, improvements to the eCommerce site game.co.uk,
infrastructure to support the customer insight programme
and various investments in digital infrastructure, including the
GAME App, GAME Wallet, GAME Marketplace and Codebank.
Future capital expenditure requirements are expected to include IT
upgrade initiatives, further refurbishment of the existing estate (for
example, to support the roll-out of GAMEtronics) as well as the
investments in eCommerce, digital infrastructure (both in-store
and in the GAME App) and other strategic growth initiatives.
56
Weeks’ inventory
(weeks)
Capital
expenditure (£m)
10
12
11.4
10
7.3
8
8.2
7.3
8
6
6
4
4
2
2
0
4.9
2.5
4.1
2.4
0
2013
2014
2013
2014
Intangible
Tangible
Current trading and outlook
The new financial year has started well; the video games
market in both the UK and Spain continues to grow and the
Group continues to grow share across hardware, software
and digital in both its territories.
In Spain, GAME has entered into a letter of intent to take over
a portfolio of stores from GameStop as GameStop exits the
Spanish market. As part of that agreement, GAME will honour
reward vouchers, trade-in credits and pre-order deposits of
former customers of GameStop in Spain, and expects to gain
further market share in Spain over time as a result.
Overall, GAME is well positioned ahead of the important peak
trading period, with exclusives secured on many of the major
pre-Christmas new game releases, a strong balance sheet,
increased supplier credit and financing facilities in place
in both the UK and Spain.
Overall, GAME is well positioned ahead
of the important peak trading period, with
exclusives secured on many of the major
pre-Christmas new game releases, a
strong balance sheet, increased supplier
credit and financing facilities in place
in both the UK and Spain.
David Hamid
Chairman
“At GAME we recognise
that attaining high standards
of Corporate Governance
is crucial in running an
effective business in an
evolving digital market.”
Our performance continued
David Hamid
Chairman
57
Corporate Governance Statement continued
Martyn Gibbs
Chief Executive
Officer
Benedict Smith
Chief Financial
Officer
John Jacksona,b,c
Senior Independent
Director
Lesley Watkinsa,b,c
Non-Executive
Director
Caspar Woolleya,b
Non-Executive
Director
Franck Tuil
Non-Executive
Director
David Hamid was appointed
to the Board on 14 May 2014,
having been Chairman of
Game Retail Limited as a
representative of OpCapita
LLP from April 2012.
Martyn Gibbs was appointed
having been Chief Executive
Officer of Game Retail Limited
since April 2012. Martyn has
24 years of experience in the
retail sector and 19 years of
experience within the video
games industry.
Benedict Smith was appointed
having been Chief Financial
Officer of Game Retail Limited
since January 2013.
John Jackson joined the Board
on 16 May 2014. John is the
Group Chief Executive of Jamie
Oliver Holdings Limited, a
position he has held since July
2007. He is also non-executive
director for Wilkinson
Hardware Stores Limited
and non-executive Chairman
for the Rick Stein Group.
Lesley Watkins joined the
Board on 16 May 2014. She
is currently Finance Director
of Calculus Capital Limited,
a private equity fund
management business, which
she joined in November 2002.
Caspar Woolley joined the
Board on 16 May 2014. Caspar
founded technology business
Hailo in 2010, where he is also
Chief Operating Officer.
Franck Tuil joined the Board
as the representative of
the major shareholder on
16 May 2014.
David has 30 years of
experience in consumer
electronics and over 25 years
of experience in the retail
sector. He is currently
Chairman of Ideal Shopping
Direct Limited and Music for
Youth. David is also Deputy
Chairman of M.video OAO
and an Operating Partner of
OpCapita LLP. David previously
held roles as a non-executive
director of M.video OAO,
Chairman of Nationwide
Autocentres Limited, Chief
Executive Officer of Halfords
Group plc, Chief Operating
Officer of Dixons Stores Group,
Managing Director of PC World
and Marketing Manager of
Sony UK.
David is Chairman of the
Nomination Committee.
58
Martyn’s previous roles
include Managing Director
of The GAME Group plc for
the UK, Eire, Scandinavia
and the Czech Republic from
2010 to 2011, Customer and
Brand Director of The GAME
Group plc from 2009 to
2010, Managing Director of
Gamestation from 2007 to
2009, Commercial Director
of Gamestation from 2003 to
2007, Head of Games of HMV
for UK and Eire from 2000
to 2003 and various store
management, central
operations, marketing and
buying roles at WHSmith
from 1989 to 2000.
Benedict’s previous roles
include Chief Financial Officer
of Comet Group Limited from
September 2012 to November
2012, Group Finance Director of
Harrods Holdings Limited from
2006 to 2012, Chief Financial
Officer of Spirit Group Holdings
Limited from 2003 to 2006,
Portfolio Finance Director of
Texas Pacific Group from 2000
to 2003, Senior Manager at
PricewaterhouseCoopers
from 1994 to 2000 and Manager
at PricewaterhouseCoopers
from 1990 to 1994. Benedict
is a member of the Institute
of Chartered Accountants
in England and Wales.
Notes:
a.Member of the
Audit and Risk
Committee
b.Member of the
Remuneration
Committee
c.Member of the
Nomination
Committee
John’s previous roles
include Group Retail &
Leisure Director of Virgin
Group Limited from 1998 to
2007, Group Chief Executive
of Semara plc from 1994 to
1998, Managing Director of
The Body Shop International
plc from 1988 to 1993,
Managing Director of
Chesebrough-Pond’s Limited
from 1982 to 1986, Managing
Director of Bristol-Myers
Pharmaceuticals Limited
from 1979 to 1982 and
Group Finance Director
of Bristol-Myers Limited
from 1972 to 1979.
Lesley is also a non-executive
director and chair of the audit
risk and compliance committee
at Panmure Gordon & Co plc,
which she joined in 2011, and
has been a non-executive
director of Metropolitan Safe
Custody Limited since 2013.
From 2009 to 2014, she was a
non-executive council member
of the Competition Commission
and chair of its audit and
risk assurance committee.
Lesley is a qualified chartered
accountant and worked for 18
years in corporate broking and
corporate finance for a number
of City firms, including as a
Managing Director, Global
Investment Banking at UBS
and Deutsche Bank.
Prior to that he ran the
technology enabled courier
company e-Courier. Previous
roles include Vice President,
Fleet at Avis Europe plc from
2006 to 2008, Director, Card
Services and Head of Business
Development at the John
Lewis Partnership from
2002 to 2006, Vice President
Operations at internet start-up
Buy.com from 2000 to 2002
and various roles at PepsiCo,
including Operations Director,
Russia, from 1992 to 1999.
David Hamidc
Chairman
Franck is a Portfolio
Manager at Elliott Advisors
(UK) Limited, the UK arm
of Elliott Associates L.P.
He joined the firm in 2001
and focuses on special
situations, both from an
equity and debt perspective,
listed and unlisted. He
previously worked at Morgan
Stanley in its mergers and
acquisitions department.
He is a graduate of École
Polytechnique in France and
a Chartered Financial Analyst.
John is the Senior Independent
Director and Chairman of the
Audit and Risk Committee and
the Remuneration Committee.
59
Code
Provision
A.3.1
A.4.2
B.6.1
Description
The Code recommends that a UK listed
company’s Chairman be independent
on appointment.
Explanation of non-compliance
On appointment, the Chairman David Hamid did not meet the independence
criteria referred to in A.3.1 of the Code, due to his previous appointment
as Chairman to the UK subsidiary and his relationship with the business
prior to the IPO. The Board considers that whilst the Chairman was not
technically independent on appointment, his judgement and experience
mean that he makes a significant contribution in the role of Chairman
which should ensure good Corporate Governance.
The Code recommends that the Chairman meet
with the Non-Executive Directors bi-annually in
the absence of Executive Directors and for the
Senior Independent Director to meet with
Non-Executive Directors in the absence of
Executive Directors and the Chairman.
Post IPO, the Chairman has held one such meeting and going forward
plans to hold bi-annual meetings with the independent Non-Executive
Directors. The Senior Independent Director has not had sufficient time
to meet with the other independent Non-Executive Directors to appraise
the Chairman’s performance. The Company intends to comply with the
recommendations of the Code over the next financial period.
The Code recommends that the Board should
report on the Board evaluation and that of
its committees.
The Company is unable to make a statement on how performance
evaluation has been conducted as both the Board and its committees are
newly formed and sufficient time has not passed to conduct a meaningful
Board evaluation process. Performance evaluation will be a focus for the
Board and its committees during the next financial period.
Appointment of Non-Executive Director and observer by the
major shareholder
On 6 June 2014 the Company, the Major Shareholder and Baker
Partners LP entered into a relationship agreement which
regulates the ongoing relationship between the Company and
the Major Shareholder (the ‘Relationship Agreement’). For
so long as the Major Shareholder and its associates, together
with any person with whom they are acting in concert, hold
in aggregate, either directly or indirectly an interest in 10% or
more in the aggregate voting rights in the Company, the Major
Shareholder will be entitled from time to time to nominate one
person to be a Non-Executive Director on the Board and one
observer. Franck Tuil is the appointed representative of the
Major Shareholder and a Non-Executive Director. Franck is also
an employee of Elliott Advisors (UK) Limited, the sub-adviser
to the investment services provider to the funds which have a
majority interest in the Major Shareholder. Franck’s appointment
letter requires him to act in the best interest of the Company
notwithstanding his connection with the Major Shareholder.
Franck is not considered to be independent for the purposes
of the Code. The appointed observer is entitled to receive notice
of Board meetings, including all Board papers and to attend
and speak at Board meetings, but is not entitled to vote.
Board responsibilities and procedures
The Board is responsible for overseeing the Group, and is therefore
ultimately responsible for the success and performance of the
business. The Board’s responsibilities as set out in its schedule
of matters reserved for the Board include:
■■
■■
■■
The Listing Rules require a statement of how the ‘Main Principles’
set out in the Code have been applied. This information is set out on
our corporate website at www.gamedigitalplc.com. The required
detail in line with the specific provisions of the Code is set out in
this Corporate Governance Statement.
Model Code
The Board will abide by the Model Code and will be responsible
for taking all proper and reasonable steps to ensure compliance
with the Model Code.
Relations with shareholders
The Board recognises the importance of creating a clear flow of
communication with all of the Company stakeholders including
shareholders, particularly with regard to business developments
and financial results. The Board aims to communicate on
a regular basis and at present the Company utilises news
releases, investor presentations and Company publications
and will expand communication channels where necessary.
Regular updates are given to the Board by the Investor Relations
Director, who also provides an immediate point of contact for
the Non-Executive Directors to develop an understanding of
the views of major shareholders about GAME.
The Annual General Meeting will provide shareholders with
an opportunity to meet and pose any questions to the Chairman
or Committee Chairs during and after the meeting.
In line with the Code, the Board has appointed John Jackson
as Senior Independent Director (‘SID’). John is available to
shareholders throughout the year if they have concerns that:
contact through the normal channels of the Chairman or other
Executive Directors have failed to resolve; or for which such
channels of communication are inappropriate.
60
Leadership
■■
■■
Board structure
The Code recommends that the board of directors of a UK public
company includes an appropriate combination of Executive
and Non-Executive Directors, with independent Non-Executive
Directors comprising at least half the board (excluding the
Chairman). The Board comprises a Non-Executive Chairman,
two Executive Directors, three independent Non-Executive
Directors and one other Non-Executive Director. The Company
regards John Jackson, Lesley Watkins and Caspar Woolley as
independent Non-Executive Directors for the purposes of the
Code and in the best interests of shareholders.
Decision-making and conflicts of interest
No individual or group of individuals dominates the Board’s
decision-making process. In accordance with the Company’s
articles of association, procedures are in place for the
disclosure by Directors, in advance, of any situational conflicts
and for the consideration and authorisation of these conflicts
by the Board. As at the date of this report, none of the Directors
have any potential conflict of interest between their duties to the
Company and their private interests and/or duties owed to third
parties, save that Franck Tuil represents Duodi Investments
S.à r.l. (the ‘Major Shareholder’), which has been recognised
and approved by the Board as a potential general conflict.
■■
consideration of funding and capital structure;
developing and approving major strategies and policies;
assessing systems of internal control including risk;
approving the annual operating plan, the Annual Report and
financial statements, and major acquisitions and disposals;
ensuring high standards of corporate governance; and
approving Board and Board committee composition and
changes to executive and senior management.
The types of decisions deferred to management revolve around
the day-to-day running of the business, execution of strategy
and approved capital expenditure projects with the financial
delegated authorities in place, as a control mechanism.
Board committees
As envisaged by the Code, the Board has established three
committees of the Board: an Audit and Risk Committee,
a Nomination Committee and a Remuneration Committee.
Each committee has formally delegated duties and
responsibilities set out in its written terms of reference.
If the need should arise, the Board may establish additional
committees, to consider specific issues, as appropriate.
In line with each of the Committees’ terms of reference, only
members of the relevant Committee have the right to attend
and vote at its meetings. Committee meetings are also attended
by the Company Secretary, who also acts as the secretary to
each of the Committees. When appropriate, non-members on
the Board including the Executive Directors can be invited to
attend all or any part of any Committee meeting.
The matters reserved for the Board and the terms of reference
of each of the Board Committees are available on the
Company’s corporate website at www.gamedigitalplc.com.
Health and Safety Committee
A health and safety update is included as part of the Chief
Executive’s report, on a monthly basis, so relevant matters
can be brought to the attention of the Board. The Group also
has a Health and Safety Committee in the UK, although this
is not a formally adopted sub-committee of the Board. This
committee meets quarterly to ensure that health and safety
are managed effectively and proactively. Duties of the Health
and Safety Committee include reviewing the health and safety
policy; compliance with applicable health and safety directives
and legislation; health and safety statistics, including incident
rates and near misses; and health and safety audit findings.
As the Spanish subsidiary is smaller in size, health and safety
is managed through existing reporting lines that feed up
through the Chief Executive Officer to the Board.
Effectiveness
Division of responsibilities
For the Board to remain effective, the Code requires a clear
division of responsibilities between the Chairman and the
Chief Executive Officer. These positions are held by David Hamid
as Chairman and Martyn Gibbs as Chief Executive Officer. The
division of responsibilities between the Chairman and the Chief
Executive Officer is set out as a statement and available to view
on the Company’s corporate website at www.gamedigitalplc.com.
The Chairman reports to the Board and is the guardian of the
Board’s decision-making processes. He is responsible for the
effective running of the Board, and provides information on the
Company’s financial performance as well as corporate issues
requiring attention for discussion by the Board.
The Chief Executive Officer, assisted by senior management,
is responsible for proposing and developing the Company’s
strategy and commercial objectives for consideration by the
Board, and for implementing the decisions of the Board into
the day-to-day functions of the business.
Board evaluation
As outlined in our compliance statement above, in light of
the close proximity between the completion of the Company’s
IPO and the financial year-end, a formal and rigorous Board
evaluation process has not been undertaken. It is envisaged
that an internal review will take place in the coming year and
a formal Board evaluation will be conducted at an appropriate
stage in the Board’s development, but nevertheless within three
years in line with the Code. Similarly, it is intended that the
Chairman will continue to meet with the independent NonExecutive Directors in the absence of the Executive Directors
bi-annually and that the Senior Independent Director will meet
with the independent Non-Executive Directors annually in the
absence of the Chairman to appraise his performance.
Compliance with the UK Corporate Governance Code (2012)
The UK Corporate Governance Code (2012) (the ‘Code’) which is publicly available to view at www.frc.org.uk, sets out standards
of practice in relation to board leadership and effectiveness, accountability, remuneration and relations with shareholders. The
Company was incorporated on 14 May 2014 and admitted for unconditional trading to the London Stock Exchange on 11 June 2014
(‘Admission’), therefore prior to this date, the Code did not apply to the Company. As at the date of this Annual Report, the Company
complies with the Code except as set out in the table below:
Development and advice
The Directors of all Group companies, as well as the Board,
also have access to the advice and services of the Company
Secretary. Independent external legal and professional advice
can also be taken when necessary to do so. Furthermore, each
committee of the Board has access to sufficient and tailored
resources to carry out its duties. A personalised induction and
subsequent training is provided to new members of the Board
and its Committees.
Details of each of the Board-appointed committees and their
activities during the year are set out in the separate Committee
Reports on pages 62, 64 to 67 and 68 to 76, which are incorporated
into the Corporate Governance Statement by reference.
61
The terms of reference of the Nomination Committee cover such
issues as: committee membership; frequency of meetings (as
mentioned above); quorum requirements; and the right to attend
meetings. In line with its terms of reference, the Nomination
Committee has responsibility for, among other things:
■■
■■
The number of meetings of the Board and the attendance
by the Directors during the period between Admission and the
end of July 2014 is set out in the following table:
Name
David
Hamid
Martyn
Gibbs
Benedict
Smith
John
Jackson
Caspar
Woolley
Lesley
Watkins
Franck
Tuil
Board Audit and Risk
Committee
meetings*
Remuneration
Committee
Nomination
Committee
2/2
n/a
n/a
1/1
2/2
n/a
n/a
n/a
2/2
n/a
n/a
n/a
2/2
2/2
1/1
1/1
2/2
2/2
1/1
n/a
2/2
1/2
0/1
0/1
2/2
n/a
n/a
n/a
Note:
*Meetings attended/total number of meetings. Only attendance of formal
members of the meetings is included.
External directorships
With reference to the external commitments of the Chairman,
these are set out in his Biography on page 58 and there has
been no change to these commitments during the financial
year. The Board is comfortable with the level of external
directorships of its independent Non-Executive Directors
on the basis that it sees their current appointments as
benefiting the experience and expertise with which they serve
on the Board. None of the Executive Directors hold external
directorships, save for one dormant company of which
Martyn Gibbs is a Director and receives no fee.
Report of the Nomination Committee
The Code recommends that a majority of the members of the
Nomination Committee should be independent Non-Executive
Directors. The Nomination Committee was formed and approved
by the Board in preparation for IPO and comprises Lesley
Watkins, John Jackson and David Hamid as Chairman. Lesley
and John are independent Non-Executive Directors and the
Company therefore complies with the recommendations of the
Code regarding the composition of the Nomination Committee.
The Nomination Committee will meet formally at least once
each year to consider whether or not Directors should be put
forward for re-appointment at the next Annual General Meeting
and at such other times as the Chairman of the Nomination
Committee determines, or as may be requested by any member
of the Nomination Committee. Within the 2013/14 reporting
year, the Committee held its inaugural meeting at which it was
agreed that all the Directors had thus far been effective in their
roles and should be put forward for appointment at the Annual
General Meeting. Attendance at the meeting is set out in the
Corporate Governance Statement on this page.
62
■■
making recommendations to the Board in respect
of appointments to the Board and to the committees
of the Board;
keeping the structure, size and composition of the Board
under regular review; and
making recommendations to the Board with regard
to any changes necessary.
In order to make informed recommendations to the Board
regarding appointments, the Nomination Committee will form
a selection of defined criteria based on the skills, knowledge
and experience required for a specific role. With the assistance
of an external agency, applicants will then be assessed based
on these criteria, and recommendations to the Board will be
made in light of a thorough review and evaluation of the
individual. Where necessary (including for the appointment of
Non-Executive Directors) the Nomination Committee will make
available formal written terms of appointment to the individual.
The diversity of the Board will also be considered by the
Nomination Committee, including gender and age, which
are analysed on a Company-wide scale within the Operating
responsibly section of the Strategic report on page 48.
Individual appointments within the Group and to the Board are
based on individual merit and skill. Whilst the Company accepts
the benefits of diversity, appointments are not prescriptive
to gender, or any other subjective criteria. Taking account of
appointments considered by the Nomination Committee and
within the control of the Board (with the exclusion of the one
Director nominated by the Major Shareholder), the female
percentage ratio of the Board amounts to 17%, with one
independent Non-Executive Director being female.
In preparation for the IPO and prior to the appointment of
a Nomination Committee, the Board undertook a thorough
process, with the assistance of external search consultancy
Korn Ferry, to identify appropriate Non-Executive Directors
with the correct balance of skill, knowledge and experience
to be relevant to the Group and to drive the Company forward.
Korn Ferry has no other connection with the Company. The
one Non-Executive Director position, where neither an external
search agency nor open advertising were used, related to the
appointment of Franck Tuil as a nominated Non-Executive
Director by the Major Shareholder. His appointment was in
accordance with the Relationship Agreement as described
on page 61 of the Corporate Governance Statement.
As previously noted, no effectiveness review has been
conducted; however, the Board will look to put a formal
programme to review effectiveness in place and carry
out an internal review of effectiveness in the coming year.
Accountability
■■
■■
Internal controls
The Board remains ultimately accountable for a clear number of
areas that are contained in its ‘Matters Reserved for the Board’.
The Board as a whole will discuss, challenge and give approval
on the financial statements. Details of the internal controls of
the Company (including a description of the main features of its
internal control and risk management arrangements in relation
to the financial reporting process) and the manner in which the
Board and its committees assess the effectiveness of these
controls are set out as part of the Audit and Risk Committee
Report on pages 66 to 67. In relation to the Board’s responsibility
to approve the financial statements the Board sets out its
Directors’ Responsibility Statement at the end of this section.
■■
■■
In preparing the Company financial statements, the Directors
are required to:
■■
The Board also retains its responsibility to approve the annual
budget. Monitoring of the annual budget, following approval, is
carried out through regular updates against budget circulated
as part of the Chief Financial Officer’s report to the Board. In
addition, the Board will review all significant capital expenditure
requests separately, after a general approval for the quantum of
the capital expenditure budget has been granted. Measures such
as these maintain adequate levels of control and scrutiny over
the budget and capital expenditure at Board level.
The Board recognises that its committees are only empowered
to make recommendations to the Board for their approval, unless
a specific authorisation to approve certain matters is granted.
To facilitate information flows, a verbal update is given by the
Chairman of the relevant committee in the subsequent Board
meeting following a committee meeting.
Preserving shareholder value
An explanation of the basis on which the Company generated
and seeks to preserve shareholder value over the long term and
the strategy for delivering the objectives for the Group is set out
in the Strategic report on pages 4 to 56 which is incorporated by
reference into the Corporate Governance Statement.
The Going Concern Statement is set out in the Directors’ Report
on page 78 and by reference is incorporated as part of the
Corporate Governance Statement.
The Company has, during the period under review, complied
with the independence provisions included in the Relationship
Agreement and, so far as the Company is aware, both the Major
Shareholder and Baker Partners LP have also complied with
the independence provisions included in the Relationship
Agreement during the period under review.
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and Article 4 of the
IAS Regulation and have also chosen to prepare the parent
company financial statements in accordance with United
Kingdom Generally Accepted Accounts Practice (United Kingdom
Accounting Standards and applicable law). Under company law
the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company
for that period. In preparing the Group financial statements,
International Accounting Standard 1 requires that Directors:
properly select and apply accounting policies;
present information, including accounting policies,
in a manner that provides relevant, reliable, comparable
and understandable information;
provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s financial position
and financial performance; and
make an assessment of the Company’s ability to continue
as a going concern.
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select suitable accounting policies and then apply
them consistently;
make judgements and accounting estimates that are
reasonable and prudent;
state whether applicable UK Accounting Standards have
been followed, subject to any material departures disclosed
and explained in the financial statements; and
prepare the financial statements on the going concern basis
unless it is inappropriate to presume the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
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the financial statements, prepared in accordance with
the relevant financial framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Group;
the Strategic report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description
of the principal risks and uncertainties that they face; and
the Annual Report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Company’s performance, business model and strategy.
Meetings and attendance
The Board intends to meet approximately ten times a year
and may meet at other times as required or otherwise at the
request of one or more of the Directors. Where urgent decisions
are required on matters specifically reserved for the Board
between meetings, there is a process in place to facilitate
discussion and decision-making. The Directors regularly
communicate and exchange information irrespective of the
timing of meetings.
This responsibility statement was approved by the Board of
Directors on 15 October 2014 and is signed on its behalf by:
David Hamid Chairman 15 October 2014
Martyn Gibbs
15 October 2014
63
Audit and Risk Committee Report
Dear shareholder,
I am delighted to present the first report of the Audit and Risk
Committee (the ‘Committee’) in respect of the year 2013/14
and in consideration of the future work of the Committee.
As part of the preparation work for the IPO, the Committee
was formed and approved by the Board and comprises Caspar
Woolley, Lesley Watkins and myself as Chairman. As a collective,
we have considerable experience working with a diverse range
of companies and are independent Non-Executive Directors
of the Company.
The Committee recognises that integrity and independence are
important when performing its primary responsibilities including:
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reviewing the Company’s financial reports and statements;
ensuring that the Annual Report is fair, balanced
and understandable;
considering judgemental issues in the preparation
of the financial statements;
monitoring and assessing the Company’s internal and
external audit functions and risk management systems; and
reviewing operational internal controls, whistleblowing and
fraud prevention.
Governance
The Committee has written terms of reference which
have been published on the GAME corporate website at
www.gamedigitalplc.com and are summarised within this report.
In addition, the Committee intends to formalise an annual plan
in 2014/15 to address the key areas for review, the reports from
which will highlight to the Board any required developments
in its risk management systems.
Assessment of audit functions
As a part of its review, in 2013/14 the Committee looked to ensure
the objectivity and independence of the Company’s external
auditor Deloitte LLP (‘Deloitte’). The Committee holds private
meetings with Deloitte to allow opportunity for open dialogue and
feedback without the presence of management. This allows the
Committee to ensure that management are acting appropriately
in response to significant risks, that no audit procedures were
hindered by management, and that there were no compromises
to auditor independence during the audit process. Taking into
consideration the work performed as reporting accountants,
we were satisfied with Deloitte’s depth of understanding
of the business and the Group’s financial information.
Given the significant changes that have taken place within
the Group recently, and the dynamic and rapidly evolving
competitive landscape in the video games industry and
community, the Committee believes that the breadth of
experience required to review and improve risk and control
procedures will best be sourced from outside the Group. To that
end PricewaterhouseCoopers LLP (‘PricewaterhouseCoopers’)
were appointed, following a competitive tender, to lead the
Group’s internal audit programme. The Committee believes
that PricewaterhouseCoopers have the specialist skills to
address the issues facing the Group, including retail industry,
digital, tax and local expertise. In addition, the need for an
external review has been put further under the spotlight by
the FRC’s proposed changes to the UK Corporate Governance
Code which will be effective for accounting periods beginning
on or after 1 October 2014.
64
Policy review
Whilst the Board has jurisdiction in reviewing GAME’s Risk
Register, the Committee has considered the effectiveness
of recently approved policies, including Whistleblowing and
Anti-Bribery, and is content with the Company’s current efforts
in ensuring Company-wide compliance in these areas.
To further monitor and limit fraud risks, we will be reviewing
a policy concerning Anti-Money Laundering for adoption
by the Company.
The future work of the Committee
For 2014/15, I anticipate that the Committee’s focus will be driven
by changing regulations and the Company’s adjustment to the
unfamiliar landscape of operating as a public listed company.
I look forward to a successful year of action for our new Committee
as we face further challenges and rewards following IPO.
John Jackson
Chairman of the Audit and Risk Committee
Role of the Audit and Risk Committee
The role of the Audit and Risk Committee is delegated by the
Board and set out in its written terms of reference and covers
such issues as: committee responsibilities; membership;
frequency of meetings; quorum requirements; and the right
to attend meetings. The Committee’s responsibilities relate
to external audit, financial reporting, internal audit, internal
controls and risk management. Monitoring the integrity of the
Group’s financial statements, and the involvement of the Group’s
auditors in that process, is one of the prominent tasks that is
undertaken. In this regard, the Committee focuses on compliance
with accounting policies and ensuring that effective systems
of internal financial control and reporting are maintained. The
ultimate responsibility for reviewing and approving the Annual
Report and Accounts and the half-yearly reports remains with
the Board, although the Committee will seek to report to the
Board on its review on the findings of the audit.
The Committee will also: review and monitor the independence
of the external auditor, taking account of the extent of non-audit
work they have undertaken; advise on the appointment of
external auditors; and review the effectiveness of the Group’s
internal audit activities, internal controls and risk management
systems. Furthermore, the Committee seeks to ensure that
employees have a clear route through the process set out in
the Group Whistleblowing Policy to raise any concerns.
Membership and meetings of the Audit and Risk Committee
The Code recommends that listed companies have an Audit
Committee comprising at least three members, all of whom
should be independent Non-Executive Directors and one of
whom should have recent and relevant financial experience.
The Committee became effective from 23 May 2014, in
preparation for listing on the London Stock Exchange. With
the approval of the Board, it changed its name to the Audit and
Risk Committee, at its inaugural meeting, with the intention that
the new title better captures the full scope of the Committee’s
responsibilities. The Committee comprises three independent
Non-Executive Directors, being John Jackson as Chair, Lesley
Watkins and Caspar Woolley. The Chairman of the Board
is not a member of the Committee.
John Jackson is considered by the Board to have recent
and relevant financial experience, by virtue of his background
in similar positions for other companies. John is a qualified
accountant and a Fellow of the Chartered Institute of Certified
Accountants and also serves as Chairman on the Audit Committee
for Wilkinson Hardware Stores Limited. Lesley Watkins is
also a Fellow of the Institute of Chartered Accountants with
financial experience. The Company therefore complies with the
recommendations of the Code regarding the composition of the
Audit and Risk Committee. No members of the Audit and Risk
Committee have links with the Company’s external auditor.
Committee meetings will normally take place at least three
times a year and in line with the audit cycle. In addition, the
Committee will meet at such other times as the Board or the
Committee Chairman requires, or at the request of the external
auditor. Meetings will commonly be attended by the CFO,
Chairman of the Board and Company Secretary, who acts as
the secretary to the Committee. When appropriate, the internal
or external auditors, CEO and other individuals can be invited
to attend all or any part of any meeting of the Committee.
The impact of the IPO
including the Group
reorganisation which took
place as part of the IPO and
the correct identification
of and accounting for costs
associated with the IPO,
including costs arising
from certain share-based
transactions (see Basis
of preparation note
and notes 4 and 22 to the
financial statements).
The Committee Chairman has also held private meetings
with PricewaterhouseCoopers and Deloitte.
Two Committee meetings were held during the period from
Admission to the end of July. Attendance at the meeting is
set out in the Corporate Governance Statement on page 62.
Activities of the Audit and Risk Committee during the year
In the remainder of the year after the formation of the Committee,
certain policies were reviewed together with the auditors’ plan.
The work of the Audit and Risk Committee in 2013/14 was
principally focused on the adoption of policies, the appointment of
internal and external auditors and a programme of familiarisation
with the Company’s business and Executive Directors.
Significant issues considered by the Audit and Risk Committee
Following discussions with both management and the external
auditor, the Committee determined that the areas of greatest
and most significant complexity or judgement that could give
rise to misstatement of the Group’s financial statements related
to the following:
The Corporate structure in place prior to the IPO on 6 June 2014 was very different from the structure of the Group
on IPO, reflecting the needs of the shareholder base pre-IPO. The Group engaged appropriate legal, accounting and
tax advisors to develop a steps plan to facilitate and execute a new Group structure commensurate with its new
status on the premium list of the London Stock Exchange. We have worked closely with our advisors to ensure the
accounting entries necessary to reflect the restructuring have been executed correctly.
Subsequent to the IPO the Committee has considered at length the appropriate presentation of the first results
as a public limited company listed on the London Stock Exchange. The key areas of technical consideration were
the application of the principles of merger accounting to the Group, the technical requirement to account for one
company from the old Group structure which was disposed of prior to the IPO, and the technical requirements
of accounting for shares in the Company contributed directly by the selling shareholder to the Employee Benefit
Trust and to back the Virtual Loyalty Share Plan.
Care has been given to ensuring that the incremental costs of the IPO have been identified, scrutinised, described
and accounted for correctly, including their allocation between share premium and exceptional costs in the
income statement. The calculation of the brand assets in the UK and Spain which arose on the acquisition of those
businesses required the inclusion of judgemental inputs such as the royalty rate and the determination of a useful
economic life for the assets. These judgements had a material impact on the opening reserves of the statement of
financial position and were reviewed with management and external auditor.
The Committee has worked closely with our external auditor to ensure we are compliant with the increased reporting
requirements and disclosures commensurate with delivering our first accounts as a public listed company under IFRS.
The carrying value of
provisions for Gift Cards,
Reward Points and
Customer Deposits.
The Group operates loyalty card programmes that allow purchasers to accumulate points on purchases, get exclusive
offers and other special benefits. The Group recognises the fair value of points awarded to customers in line with IFRIC
13 (Customer Loyalty Programmes) as a separately identifiable component of a sales transaction. In determining the
fair value, the Group considers, among other things, the amount of the discounts and incentives that would otherwise
be offered to customers who have not earned points from an initial sale and the proportion of points that are not
expected to be redeemed by customers. Changes in the ultimate redemption rate have the effect of either increasing
or decreasing the current period provision by an amount estimated to cover the cost of all points previously earned
but not yet redeemed by loyalty programme members as of the end of the reporting period.
Statement from the Chairman of the Audit and Risk Committee
The Group recognises revenue from Gift Cards and gift vouchers upon the redemption of the Gift Card or gift
voucher. Monies received represent deferred revenue prior to redemption and are disclosed within accruals.
The valuation of the accrual is adjusted to release amounts relating to outstanding Gift Card balances unlikely
to be redeemed, calculated based on historical redemption rates, which are released against revenue.
The Committee has reviewed the carrying value of the provisions for Gift Cards, Reward Points and Customer
Deposits and the carrying values and taken into account the results of the external audit. The Committee
concurred with management’s judgement on this issue.
The carrying value of
inventories (see note 15 to
the financial statements).
In valuing inventory, management makes assumptions regarding the necessity of reserves required to value
obsolete or over-valued items at the lower of cost or market value. Quantities on hand, recent sales, potential
price protections and returns to vendors are among the factors considered when making these assumptions.
Assessing whether
contractual performance
conditions of supplier funding
agreements (including
marketing income and
rebate discounts) have been
met and discounts or income
recognised appropriately.
Given the potential material value and the complexity of the supplier contracts and funding arrangements, the
Committee discussed with management the procedures followed to assess the occurrence and cut-off of rebates
and marketing income, the judgements made in assessing whether the terms of the agreements had been met
and the extent to which cash had been realised under these agreements by the end of the financial year. The
Committee was satisfied with the controls and measures in place.
The Committee reviewed the inventory balances and the related provisions against carrying values. Having
considered the appropriateness of such provisions and taking into account the results of the external audit,
the Committee concurred with management’s judgement on this issue.
65
Audit and Risk Committee Report continued
Following review of these issues and the Annual Report
as a whole, the Committee recommends to the Board that
the Annual Report is fair, balanced and understandable.
Misstatements
Misstatements are reported to the Audit and Risk Committee
in the event of discovery by both our auditor and management.
For the period of 2014, both parties reported that they were not
aware of any material misstatements made to achieve a particular
presentation. In addition, the Audit and Risk Committee was
satisfied that the auditor fulfilled its responsibilities with
sufficient care and professional scepticism.
After reviewing the presentations and reports from
management and consulting where necessary with the auditors,
the Committee was assured that the Group financial statements
appropriately address crucial judgements and key estimates in
respect of both the amounts reported and relevant disclosures.
The Committee was also satisfied that the principal assumptions
used for determining the value of assets and liabilities had
been appropriately scrutinised and challenged and were
sufficiently robust.
Internal audit
The remit of internal audit is to undertake financial, operational
and strategic audits across the Group using a risk-based
methodology. Due to the close proximity of their appointment
as internal auditor to the year-end, PricewaterhouseCoopers
have concentrated their efforts on consulting with the Chairman
of the Audit and Risk Committee and the CFO in designing a
2014/15 Audit Plan. The first year reviews will focus in the main
on the current financial control environment to ensure that it is
robust and operating effectively. PricewaterhouseCoopers will
report to the Committee on the quality of financial controls across
the Group. Following this, increasing focus will be placed on value
enhancement to maximise the value internal audit provides to
the Group’s stakeholders. PricewaterhouseCoopers, in its
capacity as internal auditor, reports to the Chair of the Audit
and Risk Committee.
Management is responsible for reviewing internal audit reports,
with any significant findings and recommendations to be
discussed at the Audit and Risk Committee meetings, at which
progress made against the internal audit plan will also be
regularly reviewed.
External audit
The external auditor is appointed by shareholders to provide
an opinion on the financial statements and certain other
disclosures prepared by the Directors. Deloitte has acted
as the external auditor to the Company since incorporation
and has audited the accounts of Game Retail Limited since
April 2012. The Audit and Risk Committee oversees the external
auditor, including approving the annual work plan, and giving
its opinion on the audit fee for approval by the Board.
The Audit and Risk Committee is responsible for recommending
to the Board the appointment, re-appointment and removal of
the external auditor, as well as its remuneration and terms of
its engagement. In doing so, the Audit and Risk Committee has
granted the CFO the right to approve work which a third party
requires to be carried out by the Company’s auditors without
reference to the Audit and Risk Committee.
66
As part of its duties, the Audit and Risk Committee reviewed
the performance of Deloitte and reviewed their effectiveness
as external auditor based on a selection of criteria including
independence and objectivity. As a result of the close proximity
in timing between the establishment of the Audit and Risk
Committee and the year-end date, the new committee gathered
feedback through discussion with relevant stakeholders based
primarily on the audit and work carried out by Deloitte for the
IPO. The following factors were also considered:
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the level to which expectations of the audit plan were met;
the clarity of communication relating to changes to the
plan (for example, resulting from perceived audit risks);
the levels of competence displayed in the handling
of key accounting and audit judgements;
the quality of communication relating to key accounting
and audit judgements;
the qualifications, expertise and resources of the external
auditor (taking into consideration their internal quality
procedures and controls);
management’s perspective on the role of Deloitte during
the audit and IPO process; and
any contractual arrangements (for example, within
borrowing arrangements) that restrict its choice of auditor.
After taking into account all of the above factors, the
Committee concluded that the external auditor was effective.
Furthermore, the Committee was pleased with the quality
of the work produced and therefore recommends Deloitte’s
re-appointment for shareholder approval at the forthcoming
Annual General Meeting.
During 2013/14, the total fees paid to Deloitte for non-audit
services were exceptionally high, amounting to £2.3m (the
audit fee for 2013/14 was £0.3m), of which £1.8m was for
reporting accountant services work carried out by Deloitte
relating to the IPO. However, the Committee is satisfied that
this exceptional level will not continue and that the non-audit
work undertaken did not detract from the objectivity and
independence of our external auditor.
Deloitte was selected for the role of Reporting Accountant for
the IPO on the basis that it was able to apply knowledge gained
from its position as auditor of the Group’s largest subsidiary.
The Committee notes that the appointment of the audit firm
to undertake the Reporting Accountant work associated with
the Listing process is in line with market practice. The other
substantial non-audit work undertaken by Deloitte, amounting
to £0.5m, principally related to tax compliance services and tax
advisory services.
Management will regularly provide the Audit and Risk
Committee with reports on audit, audit-related and non-audit
expenditure, together with proposals of any material non-audit
related assignments. Further details of the fees paid to the
external auditor are set out in note 6 to the financial statements.
Internal controls
The Company is subject to risks arising from its business
activities and the environment in which it operates. In order
to effectively manage risk, the Company has in place controls
based on the following categories of risk:
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The Audit and Risk Committee has considered the timing
of the next formal tender in light of the Code and the recent
Competition Commission and EU recommendations on audit
tendering and rotation. As the Company only listed in 2014, its
audit appointment is new. Re-appointment will be considered
annually but with no urgency as to the time frame for formal
retendering. However, the audit appointment will be retendered
no later than 10 years from the initial appointment date.
Non-audit services
In addition to its usual responsibilities, the auditor may also
provide non-audit services, but only in appropriate situations
and where they would be deemed as a competitive supplier of
such services. Suitability for the supply of non-audit services
is based on scrutiny in the form of market tenders and tests,
which would provide the Company with sufficient certainty that
a supplier will be appropriate for the role. Non-audit services
include assignments related to the annual audit, or work
requiring specialist understanding of the Group.
The principle the Committee will follow with regard to
non-audit services is that the auditor may not provide a service
which places it in a position where it is unable to maintain
independence. Such circumstances include where the auditor
can audit its own work, or where its role is changed to the
extent that it is either responsible for the management of or
considered as employees of the Group. Additionally, its position
within the Group must not allow the formation of close personal
relationships with Group employees, and it must uphold its
independence, such that it is not deemed to be an advocate
for the Group.
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operational and strategic risk;
financial risk;
health and safety; and
data security risk.
The Our risks section on pages 44 to 47 deals with the
management of risk in more detail.
In 2013/14, the Company was subject to extensive reviews and
auditing as part of the IPO process. The due diligence process,
combined with an assessment of discussions with relevant
stakeholders of the internal control systems, satisfied the Audit
and Risk Committee that such systems are effective in providing
reasonable assurance against material fraud or loss.
The Board is responsible for the Group’s systems of internal
control and risk management and for reviewing its
effectiveness. The Audit and Risk Committee has considered
the Turnbull Guidance when assessing the Company’s risk
management processes, and is satisfied that the systems in
place allow the Company to locate, assess and manage material
risks to the business. These systems and procedures are
designed to manage rather than eliminate risk of failure to
achieve business objectives. They can only provide reasonable,
and not absolute, assurance against material misstatement or
loss. The Audit and Risk Committee is satisfied that the process
of internal controls has been in place for the year of 2013/14
from the point that the Company listed and up to the date of
approval of the Annual Report and Accounts and that the
process is regularly reviewed by the Board.
The Audit and Risk Committee is authorised by the Board to
review any activity within the business. It is permitted to seek
any information it requires from, and require the attendance at
any of its meetings of, any Director or member of management,
and all employees are expected to co-operate with any request
made by the Audit and Risk Committee. The Committee is
authorised by the Board to obtain, at the Company’s expense,
outside legal or other independent professional advice and
secure the attendance of outsiders with relevant experience
and expertise if it considers this necessary. The Chair of the
Audit and Risk Committee reports to the subsequent Board
meeting on the Committee’s work and the Board receives
a copy of the minutes of each meeting.
Risks pertaining to financial reporting, including the Group’s
consolidation process, are measured and controlled by senior
management. These controls allow management to mitigate the
risk of failing to achieve business goals, but do not eliminate
such risk altogether.
The Company reviews trading performance on a weekly basis.
Senior management is responsible for reviewing financial
performance and does so consistently on a weekly, monthly and
quarterly basis. As part of this process, management accounts
are reviewed at a monthly management meeting. In addition to
this, senior management and the Board will undertake to review
both the strategic process and the annual budgeting process
on an annual basis.
These items were considered by the Audit and Risk Committee
at the time it reviewed and agreed the external auditor’s
Group audit plan, produced by Deloitte, to ensure that due
consideration was given at that point, as well as at the time
of reviewing the external auditor’s final audit findings.
The Company also pays great consideration to audit and
self-assessment. The internal audit annual plan will be developed
in conjunction with senior management. The content of the
plan will require approval from the Audit and Risk Committee,
following assessment of a number of risk factors faced by
the Group and a review of its risk register. Areas of risk to be
addressed as a result of the plan will likely relate to both internal
and external audit. Any material findings of internal audit will
be reviewed by management and the Audit and Risk Committee.
With regard to any external audit findings, particularly impacting
financial statements and the control environment, senior
management and the Audit and Risk Committee will again
review, in addition to the Board.
67
Directors’ Remuneration Report
Annual statement by the Chairman of the Remuneration Committee
I am pleased to present, on behalf of the Board, the Remuneration
Committee’s (the ‘Committee’) first Remuneration Report
following the Initial Public Offering (‘IPO’) providing details of
the remuneration of the Directors for the financial year 2013/14
and of our future remuneration policy.
The Committee was formed and approved by the Board in
May 2014 and comprises Caspar Woolley, Lesley Watkins and
myself as Chairman. Terms of reference for the Committee,
amongst other factors, set out the primary responsibilities
of the Committee and are available to view on GAME’s
corporate website www.gamedigitalplc.com. They are further
summarised within the Annual Report on Remuneration which
follows the Remuneration Policy Report. One of the primary
responsibilities for the Committee is the determination of
remuneration for the Chairman, Executive Directors and
certain other senior management governed by the Company’s
remuneration policy.
Remuneration policy
A full review of the Company’s remuneration policy was
undertaken prior to listing. A key objective of this review was
to ensure an appropriate remuneration policy was in place
for a fully listed company taking account of current regulation
and guidance.
In setting the remuneration policy the Committee has focused
on simple market competitive remuneration and incentive
schemes. The proposed policy is consistent with the approach
set out in the IPO prospectus and is designed to:
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attract, retain and motivate high-calibre senior management
and to focus them on the delivery of the Group’s strategic
and business objectives;
promote a strong and sustainable performance culture;
incentivise high growth; and
align the interests of the Executive Directors and other
senior managers with those of shareholders.
As part of the IPO, the Company has taken the opportunity
to launch and operate a Performance Share Plan (‘PSP’)
for a selected group of senior management, and made a free
share award under the Share Incentive Plan (‘SIP’) for the wider
workforce. These awards have been made in order to align the
interests of senior management and the workforce with that of
the shareholders in driving forward share value. The Company
has further adopted the rules for a Save As You Earn share
option scheme (‘SAYE’).
The remuneration policy outlined in this report is intended
to remain in place for three years.
Performance and reward for 2013/14
Our Company was listed and admitted for unconditional trading
to the London Stock Exchange on 11 June 2014 (‘Admission’).
Remuneration arrangements for most of 2013/14 were based
on a different regime as a private equity owned business. The
year ending July 2015 will therefore be the first year in which
the new policy arrangements as set out in this report will apply.
Shareholder feedback
The Committee recognises that building a close relationship
with shareholders can complement the work of the Committee
in developing the remuneration policy and we look forward to
developing this relationship further, having now transitioned
successfully into the listed company environment. One of our
aims has been to develop a remuneration policy which closely
aligns the interests of our senior executives with that of our
shareholders. With this in mind, we have adopted share
ownership guidelines and include clawback provisions
in both our annual bonus and PSP.
As this is the first time we are reporting to you, and the first
time we will be asking you to approve the remuneration policy,
we appreciate any feedback you may have.
Policy overview
The Remuneration Committee has responsibility for
determining the remuneration for the Chairman, Executive
Directors and other senior executives.
The aim of the remuneration policy is: to attract, retain and
motivate high-calibre senior management; to focus them on
the delivery of the Group’s strategic and business objectives;
to promote a strong and sustainable performance culture;
to incentivise high growth; and to align the interests of
Executive Directors and other senior managers with those of
shareholders. In promoting these objectives, the policy aims
to ensure that no more is paid than is necessary and the policy
has been structured so as to adhere to the principles of good
corporate governance and appropriate risk management.
The remuneration arrangements have been structured with
due consideration of both best practice and market practice
for UK listed companies.
John Jackson
Chairman of the Remuneration Committee
What is in this report?
The Directors’ Remuneration Report sets out the
remuneration policy for the Company, describes the
implementation of that policy and discloses the amounts
paid relating to the year ended 26 July 2014. It has been
prepared in accordance with the Large and Mediumsized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013. The policy has been
developed taking into account the principles of the UK
Corporate Governance Code (2012), the Listing Rules
and shareholders’ executive remuneration guidelines.
The Remuneration Policy Report for the Executive
and Non-Executive Directors will be put to a binding
shareholder vote at the forthcoming Annual General
Meeting (‘AGM’). The policy will take formal effect
from that date.
The Annual Statement from the Chairman of the
Remuneration Committee and the Annual Report
on Remuneration will be subject to an advisory
vote at the AGM.
Element
and purpose
How it operates
Base salary
Normally reviewed annually in October
and normally takes effect from this date.
To attract and
retain appropriate
talent.
Salaries are normally paid monthly.
Reflects individual’s
responsibilities,
experience
and role.
Pension
To provide
competitive
retirement
benefits.
Other benefits
To support the
personal health
and well-being of
executives.
Decisions are influenced by:
■■
■■
responsibilities, abilities, experience
and performance of an individual; and
the Company’s salary and pay structures
and general workforce increases.
Directors may participate in a defined contribution
plan, or, subject to Committee approval, elect to
receive cash in lieu of all or some of such benefit.
How the views of shareholders and employees are taken
into account
In setting the remuneration for the Executive Directors, the
Committee takes note of the overall approach to reward for
employees in the Group; salary increases will ordinarily be
(in percentage of salary terms) in line with those of the wider
workforce. The Committee does not formally consult directly
with employees on executive pay but does receive periodic
updates from UK and Spanish HR teams.
The Committee is conscious that this is the first time that
shareholders will vote on the remuneration policy since the
Company’s IPO and will consider any shareholder feedback
received in relation to the policy at the AGM. This, plus any
additional feedback received from time to time, will be
considered as part of the Company’s annual review of
remuneration policy.
The remuneration policy for Directors
The total remuneration package for Executive Directors
is structured so that variable elements (annual bonus and
long-term incentives) make up a significant proportion of
the package. This table summarises the key aspects of
the Company’s remuneration policy for Executive and
Non-Executive Directors:
Maximum opportunity
Performance-related
framework
There is no prescribed maximum
annual base salary or salary
increase. The Committee is guided
by the general increase for the
broader employee population
but may decide to award a lower
increase for Executive Directors
or exceed this to recognise, for
example, an increase in the scale,
scope or responsibility of the role
and/or take account of relevant
market movements.
Not applicable.
The Company may contribute up
to 15% of salary.
Not applicable.
There is no maximum level
of benefits provided to an
Executive Director.
Not applicable.
Dear shareholder,
Remuneration Policy Report
Only base salary is pensionable.
Package of benefits including car allowance,
private health insurance, life insurance,
relocation costs, tax equalisation, critical
illness cover and directors’ and officers’
indemnity insurance.
Additional benefits might be provided from
time to time if the Committee decides payment
of such benefits is appropriate and in line with
market practice.
On listing, the Executive Directors received an IPO Award under
the Company’s new PSP, which was adopted at IPO. These
awards will vest after three years provided that very stretching
performance targets are met.
68
69
Remuneration Policy Report continued
Annual bonus
Provides a
link between
remuneration
and both
short-term
personal and
Company
performance.
How it operates
The annual bonus is based on the Group’s annual
financial performance as set and assessed by the
Committee on an annual basis.
Maximum opportunity
Up to 125% of base salary.
Subject to the Remuneration Committee’s
discretion, up to 50% of any bonus earned will
be paid in shares and deferred for three years,
subject to continued employment.
Performance-related
framework
Normally measured over a
one-year performance period.
Based primarily on Group’s
annual financial performance for
the particular performance year.
■■
■■
■■
Payments under the annual bonus plan may
be subject to clawback/malus in the event of a
material misstatement of the Company’s financial
results, an error in assessing any applicable
performance conditions or misconduct.
PSP awards may take the form of nil-cost options
or conditional awards. Awards normally vest
after three years subject to performance and
continued service.
To incentivise
and recognise
execution over
the longer term.
Payments under the PSP may be subject to
clawback/malus in the event of a material
misstatement of the Company’s financial results,
an error in assessing any applicable performance
conditions or misconduct.
Rewards strong
financial
performance.
Share ownership
To increase
alignment between
management and
shareholders.
All-employee
share plans
To increase
alignment between
employees and
shareholders in
a tax efficient
manner.
Non-Executive
Directors
To provide fees
reflecting time
commitments and
responsibilities of
each role.
■■
■■
150% of salary (normal limit).
200% of salary (exceptional limit).
25% of the award vests for achieving
threshold performance.
100% of the award vests for
achieving maximum performance.
Awards vest on three-year
performance targets against
a range of challenging EPS and
TSR targets set and assessed by
the Remuneration Committee.
The targets for each award will
be set out in the Annual Report
on Remuneration.
To the extent an award vests, a dividend
equivalent provision exists.
Guidelines require Executive Directors to retain
50% of any shares acquired on vesting of the
PSP, and any subsequent share awards thereafter
(net of tax), until the required shareholdings
are achieved.
Rules for two UK tax favoured all-employee share
schemes are in place to encourage employees to
take a stake in the business, which aligns their
interest with that of shareholders:
■■
■■
100% of salary.
Consistent with prevailing
HMRC limits.
Not applicable.
Not applicable.
Share Incentive Plan (SIP).
Cash fee normally paid on a monthly basis.
Out-of-pocket expenses claimable within the
guidelines of the Company expenses policy.
Fees are reviewed periodically.
■■
■■
who participates in the plans;
when to make awards and payments;
implementation and operation of bonus deferral;
how to determine the size of an award or a payment,
and when and how much of an award should vest;
the testing of a performance condition over a shortened
performance period;
how to deal with a change of control or restructuring
of the Group;
whether a Director is a good/bad leaver for incentive plan
purposes; what proportion of awards vest at the original
vesting date, or whether and what proportion of awards
may vest at the time of leaving;
how and whether an award may be adjusted in certain
circumstances (e.g. for a rights issue, a corporate
restructuring or for special dividends); and
what the weighting measures and targets should be
for the annual bonus plan and PSP from year to year.
The Committee also retains the discretion, within the policy,
to adjust existing targets and/or set different measures for the
annual bonus and the PSP. This may only take place if events
occur that cause the Committee to determine that the targets
set are no longer appropriate and that amendment is required
so the relevant bonus can achieve their original intended
purpose, provided that the new targets are not materially
less difficult to satisfy.
Any use of the above discretions would, where relevant, be
explained in the Annual Report on Remuneration and may, as
appropriate, be the subject of consultation with the Company’s
major shareholders.
Choice of performance measures for Executive
Directors’ awards
The choice of the performance condition(s) applicable to the
annual bonus plan, being profit before tax, reflects the principle
that the bonus plan be appropriately challenging and tied to the
strategic and financial performance of the Company.
Save As You Earn share option scheme
(SAYE); and
There is no prescribed maximum
annual fee or fee increase. The
Board is guided by the general
increase in the Non-Executive
market but may decide to award
a lower or higher fee increase to
recognise, for example, an increase
in the scale, scope or responsibility
of the role and/or take account
of relevant market movements.
Not applicable.
Remuneration policy for other employees
The policy described above applies specifically to the
Company’s Executive and Non-Executive Directors. The
following differences exist between the Company’s policy for
the remuneration of the Executive Directors and its approach
to the payment of employees generally:
■■
■■
■■
Details of the performance targets set for the year
under review and performance against them are
provided in the Annual Report on Remuneration.
GAME Digital
Performance
Share Plan (PSP)
How the Committee operates the variable pay policy
The Committee operates the share plans in accordance
with their respective rules and in accordance with the Listing
Rules and HMRC regulations where relevant. The Committee,
consistent with market practice, retains discretion over a
number of areas relating to the operation and administration
of certain plans, including:
Earnings per share (‘EPS’) and total shareholder return (‘TSR’)
were selected by the Committee as the performance conditions
applicable to the PSP on the basis that they align to the strategic
plans of the Company and are designed to ensure growth is
delivered in a profitable way.
In line with HMRC regulations for such schemes the SAYE
and SIP do not operate performance conditions.
■■
■■
a lower level of maximum annual bonus opportunity
(or zero bonus opportunity) may apply to employees;
performance metrics attached to the annual bonus may
differ to reflect the precise roles and responsibilities of
the employee and may be based on country rather than
Group financial performance; and
participation in the PSP is limited to the Executive Directors
and certain selected senior executives.
In general, these differences arise from the development
of remuneration arrangements that are market competitive
for the various categories of employee. They also reflect that,
in the case of the Executive Directors and senior management,
a greater emphasis is placed on performance-related pay
reflecting their influence over the Company’s performance.
Illustrations of application of remuneration policy
(£000)
1,546
1,600
34.5%
1,400
1,200
1,015
1,000
26%
800
600
400
942
34.5%
642
26%
483
100%
48%
31%
342
100%
200
23%
23%
54%
32%
32%
36%
0
Minimum Target Maximum
Minimum Target Maximum
M Gibbs
CEO
B Smith
CFO
Fixed pay
PSP
Annual bonus
Element
and purpose
Notes:
1.Salary levels are based on those applying on 27 July 2014. The value
of taxable benefits is based on the value of taxable benefits as disclosed
for the financial year ended 26 July 2014.
2.The on-target bonus is taken to be 50% of the maximum bonus
opportunity (125% of salary for the CEO and 100% of salary for the CFO).
3.The on-target level of vesting under the PSP is taken to be the 50% of the
maximum opportunity.
4.The maximum value of the PSP is taken to be 100% of the face value of
the award at grant using the grant policy of 125% of salary for the CEO
and 100% of salary for the CFO.
5.No share price appreciation has been assumed for the PSP award.
Note:
1. A description of how the Company intends to implement the policy in this table, from the 2014 AGM, is set out in the Annual Report on Remuneration.
70
71
Remuneration Policy Report continued
Service contracts and loss of office
The policy for executive service contracts is that notice periods
will normally not exceed 12 months. The service contracts for
the Executive Directors are terminable by either the Company
or the Executive Director on not less than 12 months’ notice
in respect of Martyn Gibbs or six months’ notice in respect
of Benedict Smith.
The Committee’s policy in relation to termination of service
contracts is to apply an appropriate level of mitigation, having
regard to all of the circumstances of the individual, the
termination of employment and to any legal advice received.
The Company can terminate either Executive Director’s service
contract by payment of a cash sum in lieu of notice equivalent to
the base salary or in monthly equal instalments over the notice
period. The Company also has the discretion to include pension
contributions, car allowance and the cost of providing insured
benefits within the payment in lieu of notice. There are no
enhanced provisions on a change of control.
The Company may also pay outplacement costs, legal costs and
other reasonable relevant costs associated with termination.
Annual bonus on termination
There is no automatic or contractual right to bonus payment.
At the discretion of the Committee, in certain circumstances to
incentivise short-term retention and completion of key business
deliverables, and where poor performance is not a factor in the
decision to exit, a pro-rata bonus may become payable at the
normal payment date for the period of employment and based
on full year performance. Where the Committee decides to
make a payment, the rationale will be fully disclosed in the
Annual Report on Remuneration.
PSP on termination
Share-based awards are outside of service contracts.
The default treatment is that any outstanding awards would
lapse on termination. However, under the Rules of the PSP,
in certain prescribed circumstances, such as death, injury,
ill-health, retirement, redundancy, leaving the Group because
the employer company or business leaves the Group or where
the Committee determines otherwise, ‘good leaver’ status
can be applied.
Awards held by a good leaver will vest on the normal vesting
date, unless the Committee determines otherwise. Vesting will
be subject to satisfaction of any performance conditions which
shall, where the Committee has decided that the PSP awards
may vest early, be measured over the period from grant to the
date of cessation. The proportion of the award which vests will,
unless the Committee determines otherwise, be reduced to
reflect the proportion of the vesting period which has elapsed
as at the date of cessation. Pro-rating will generally be
calculated on a monthly basis.
Letters of appointment
All Non-Executive Directors (save for Franck Tuil) have letters
of appointment with the Company for an initial period of three
years, subject to re-appointment at the AGM. The appointment
letters for the Non-Executive Directors provide that no
compensation is payable on termination. The appointments
are terminable by the Company on three months’ notice.
72
Franck Tuil serves as a Director representing the Major
Shareholder under the terms of the Relationship Agreement
as described in the Corporate Governance Statement on
pages 57 to 63. He is expected to serve for as long as he remains
the Major Shareholder’s nominated Director. The Major
Shareholder is entitled to remove from office such person
as is appointed as its nominated Director and to nominate
another individual in their place. Franck Tuil’s appointment is
terminable (immediately or otherwise) by the Company given
notice in writing under certain circumstances under the terms
of his appointment set out in the Relationship Agreement.
Approach to recruitment and promotions
The recruitment package for a new Director would be set
in accordance with the terms of the Company’s approved
remuneration policy. Currently, this would facilitate a maximum
annual bonus payment of no more than 125% of salary
and policy PSP award of up to 150% of salary (other than
in exceptional circumstances where up to 200% of salary
may be made). The 200% limit has been set in order for the
Company to be able to attract talent should it need to do so.
On recruitment, salary may (but need not necessarily) be set
below the normal market rate, with phased increases as the
executive gains experience. The rate of salary should be set
so as to reflect the individual’s experience and skills.
In addition, on recruitment the Company may compensate for
amounts foregone from a previous employer (using Listing Rule
9.4.2 if necessary) taking into account the quantum foregone
and, as far as is reasonably practicable, the extent to which
performance conditions apply, the form of award and the
time left to vesting.
For an internal appointment, any variable pay element awarded in
respect of their prior role should be allowed to pay out according
to its terms. Any other ongoing remuneration obligations existing
prior to appointment may continue, provided that they are put to
shareholders for approval at the earliest opportunity.
Membership and meetings of the Committee
The UK Corporate Governance Code (2012) (the ‘Code’)
recommends that the Remuneration Committee comprises
at least three members, all of whom should be independent
Non-Executive Directors.
The Remuneration Committee is chaired by John Jackson
and its other members are Lesley Watkins and Caspar Woolley,
all of whom are independent Non-Executive Directors. The
Company therefore complies with the recommendations of
the Code regarding the composition of the Remuneration
Committee. Only members of the Remuneration Committee
have the right to attend and vote at its meetings; however,
other individuals such as the HR Director may be invited
to attend where it is deemed appropriate or necessary.
The Remuneration Committee will meet at least twice a
year and at such other times as the Board or the Committee
Chairman requires.
Committee meeting attendance in the year is set out in the
table below.
Name
Role
J Jackson
L Watkins
C Woolley
Committee Chair
Member
Member
Policy on external appointments
Subject to Board approval, Executive Directors are permitted
to take on non-executive positions with other companies and to
retain their fees in respect of such positions. Details of outside
directorships held by the Executive Directors and any fees that
they received are provided in the Annual Report on Remuneration.
Neither of the Executive Directors currently holds external
directorships, save for one dormant company of which
Martyn Gibbs is a Director and receives no fee.
Legacy arrangements
In approving this Directors’ Remuneration Policy, authority
is given to the Company to honour any commitments entered
into with Directors which were fully disclosed in the prospectus.
Details of any such payments will be set out in the Annual
Report on Remuneration as they arise.
1/1
0/1
1/1
The terms of reference of the Remuneration Committee cover
such issues as: committee membership; frequency of meetings (as
mentioned above); quorum requirements; and the right to attend
meetings. In line with its terms of reference, the Remuneration
Committee has responsibility for, among other things:
■■
■■
For all appointments, the Committee may agree that the
Company will meet appropriate relocation costs.
For the appointment of a new Chairman or Non-Executive
Director, the fee arrangement would be set in accordance
with the approved remuneration policy in force at that time.
Number of meetings
attended out of a
maximum number
■■
■■
making recommendations to the Board on the Company’s
policy on remuneration for the Group;
determining and monitoring specific remuneration packages
for the Chairman, each of the Executive Directors and certain
senior management in the Group, including pension rights
and any compensation payments;
recommending and monitoring the level and structure
of remuneration for senior management; and
recommending and overseeing the implementation of share
option schemes, or other performance-related schemes,
including scheme grants.
The Board remains responsible for the approval and
implementation of any recommendations made by the
Remuneration Committee. Fees in relation to the Non-Executive
Directors including the Chairman of the Board are discussed
and determined by the full Board.
In 2014 the Committee covered the following key areas:
■■
■■
■■
remuneration considerations prior to and post IPO;
consideration of 2014 PSP, SIP and SAYE plans; and
approval of grants on Admission under PSP and SIP.
Remuneration Committee and advisors
The Remuneration Committee has access to independent advice
where it considers it appropriate. The Committee seeks advice
relating to executive remuneration from New Bridge Street
(‘NBS’), part of Aon Hewitt Limited. NBS provides no other
services to the Company. Aon UK Limited provided insurance
brokerage services to the Company during the year.
The Committee is satisfied that the advice received by NBS
in relation to executive remuneration matters during the
year was objective and independent. NBS is a member of
the Remuneration Consultants Group and abides by the
Remuneration Consultants Group Code of Conduct, which
requires its advice to be objective and impartial. The fees
payable to NBS for providing advice in relation to executive
remuneration, including all advice relating to the IPO, over
the financial year under review were £82,531. This advice
primarily related to the development and roll-out of the
post-Admission remuneration structures.
Implementation of the remuneration policy for the year
ending 25 July 2015
A summary of how the Directors’ Remuneration Policy will
be applied during the financial year ending 25 July 2015 is
set out below.
Base salary
The Executive Directors’ salaries were reviewed during 2014
and set on IPO. Salaries will be reviewed again in 2015 and
any increases will take effect from 1 October 2015.
The current salaries are as follows:
■■
■■
Martyn Gibbs: £425,000
Benedict Smith: £300,000
Pension and benefits
The Committee intends that the implementation of its policy in
relation to pension and benefits will be in line with the disclosed
policy on page 69 of this report.
Annual bonus
The maximum annual bonus for the financial year ending 25 July
2015 will be 125% of salary for Martyn Gibbs and 100% of salary
for Benedict Smith. Up to 50% of any bonus earned will be paid
in shares and deferred for three years, subject to continued
employment. Clawback provisions apply.
The bonus will be based entirely on profit before tax. The
specific targets relating to the bonus have not been disclosed
as they are considered by the Committee to be commercially
sensitive but full details will be given on a retrospective basis
in next year’s report.
Performance share plan
The Committee intends to make awards under the PSP to
Executive Directors in the financial year ending 25 July 2015.
Service contracts and letters of appointment
Service contracts and letters of appointment are available
for inspection at the Company’s registered office.
Annual Report on Remuneration
The extent to which any PSP awards will vest will be determined
by reference to the Group’s basic adjusted earnings per share
(‘EPS’), 50% of the award, and total shareholder return (‘TSR’),
50% of the award, as follows:
Earnings per share
EPS (50%
of award)
% of award
vesting
Total shareholder return
3-year absolute
TSR growth
% of award
(50% of award)
vesting
26p
28p
25%
100%
30%
75%
25%
100%
Pro-rata vesting will be applied between the points.
73
Annual Report on Remuneration continued
Awards will be subject to clawback provisions.
Fees for Chairman and Non-Executive Directors
The Company’s approach to Non-Executive Directors’ remuneration is set by the Board with account taken of the time and
responsibility involved in each role. A summary of current fees is shown below and is inclusive of all committee roles:
■■
■■
■■
Chairman: £180,000
Senior Independent Director: £72,000
Other Non-Executive Directors: £45,000
Type of award
M Gibbs
Nil cost option
300% of salary
200p
637,500
£1,275
50%
B Smith
Nil cost option
150% of salary
200p
225,000
£450
50%
■■
Non-Executive
D Hamid5
J Jackson
L Watkins
C Woolley
F Tuil
Vesting determined by
performance over
Three years to
11 June 2017
Three years to
11 June 2017
The performance condition attached to awards is absolute growth in TSR from the Offer Price:
Single figure of remuneration – audited
Directors’ remuneration for the financial year ended 26 July 2014 was as follows:
B Smith4
% of face value
that would vest
at threshold
performance
Executive
Franck Tuil has waived any entitlement to fees under his letter of appointment.
Executive
M Gibbs
Number of shares Face value
of award
over which award
£000
was granted
Share
price at date
of grant
Basis of award granted
Salary
and fees
£000
Benefits
£000
2014
2013
2014
2013
382
350
300
172
16
16
12
6
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
136
167
15
–
9
–
9
–
–
–
–
–
–
–
–
–
–
–
–
–
1
■■
Annual
bonus2
£000
Long-term
incentives
£000
Pension
£000
57
70
45
35
–
–
–
–
38
35
30
17
493
471
387
230
14
25
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
156
192
–
–
–
–
–
–
–
–
3
Total
£000
Notes:
1.Benefits include a car allowance, private medical insurance and life insurance.
2.Relates to the payment of annual bonus for the financial year ended 26 July 2014 where the total bonus was paid in full. Arrangements for bonus deferral
will apply for all future annual bonus awards. Further details are provided below.
3.This comprises a 10% of salary contribution to the Company’s Money Purchase Pension Plan.
4.Benedict Smith joined the Group on 7 January 2013.
5.The payment to David Hamid in 2013 includes an element reflecting work provided as Chairman in 2012. The bonus payment in 2014 relates to his role
as Chairman prior to the IPO.
Annual bonus for the financial year ended 26 July 2014
The annual bonus for the Executive Directors’ year under review was awarded under the Game Retail Limited Bonus Plan,
the pre-IPO bonus plan.
The bonus was based on achievement of Game Retail Limited’s budgeted EBITDA for the year, before exceptional costs and costs
relating to the change in ownership structure (‘Adjusted EBITDA’). Bonus was triggered if Game Retail Limited achieved £36m
Adjusted EBITDA, rising on a sliding scale to maximum payout (40% of salary) for Adjusted EBITDA of £50m. Game Retail Limited
achieved Adjusted EBITDA of £41.2m for the year and total bonuses payable in relation to 2014 were £57,000 for Martyn Gibbs
(15% of salary) and £45,000 for Benedict Smith (15% of salary).
50% of the award vests for absolute growth of 75% over the performance period; and
100% of the award vests for absolute growth of 100% over the performance period,
with straight-line vesting between these points. The TSR at the end of the period will be measured based on the average share
price for the Company for the last 30 days of the period.
Clawback provisions apply for a period of one year after they vest.
Executive Directors chose not to participate in the free share award under the SIP.
Payments to past Directors and for loss of office – audited
No payments were made in the year to past Directors or for loss of office.
External directorships
Neither of the Executive Directors currently holds an external directorship, save for one dormant company of which Martyn Gibbs
is a Director and receives no fee.
Directors’ shareholding and share interests – audited
Share ownership plays a key role in the alignment of our executives with the interests of shareholders. Our Executive Directors
are expected to build up and maintain a 100% of salary shareholding in GAME. The current ownership of the Executive Directors
significantly exceeds the requirement.
The table below sets out the number of shares held or potentially held by Directors (including their connected persons where
relevant) as at 26 July 2014.
Director
M Gibbs
B Smith
D Hamid
J Jackson
L Walters
C Woolley
F Tuil
Beneficially owned
shares as at
26 July 2014
Target shareholder
guidelines
(as % of salary)
Percentage of salary
held in shares as at
26 July 2014
(217p/share)
1,444,911
556,646
1,206,012
0
0
0
0
100%
100%
n/a
n/a
n/a
n/a
n/a
738%
403%
–
–
–
–
–
Outstanding share interests
as at 26 July 2014
PSP
Total
637,500
225,000
–
–
–
–
–
637,500
225,000
–
–
–
–
–
Scheme interests awarded during the year – audited
The Company made the following awards, ‘the IPO Awards’, under the PSP with effect from Admission:
For the awards to be made in the financial year ending 25 July 2015, the base price for TSR will be the Offer Price. Thereafter
it will normally be measured over three financial years starting with the financial year in which the award is made.
There has been no change in the Directors’ interests in the ordinary share capital of the Company between 26 July 2014 and the
date of this report.
Total pension entitlements – audited
During the year under review, the Executive Directors received pension contributions of 10% of salary into defined contribution
arrangements. Details of the value of pension contributions received in the year under review are provided in the ‘Pensions’
column of the ‘Single figure of remuneration – audited’ table.
74
75
Annual Report on Remuneration continued
Percentage change in the remuneration of the
The table below shows the percentage change in the Chief
Executive’s salary, benefits and annual bonus between the
financial year ended 27 July 2013 and 26 July 2014, compared
to that of the total amounts for all UK employees of the Group
for each of these elements of pay. The UK workforce was
chosen as the most appropriate comparator group as it
provides a more appropriate reflection of the earnings
of the average worker than the Group’s total wage bill.
Introduction
The Directors present their report for the year ended 26 July
2014 in accordance with section 415 of the Companies Act 2006.
Certain disclosure requirements for inclusion in the Directors’
Report have been incorporated by way of cross-reference to
content elsewhere in the Annual Report and referenced below.
In addition, this report should be read in conjunction with:
■■
■■
Total Shareholder Return (Rebased)
GAME Digital plc versus FTSE Small Cap (excluding
Investment Trusts) – Total Shareholder Return Index
120
Element of remuneration
Salary
Benefits
110
Annual bonus
100
% change
Chief Executive
Average per employee1
Chief Executive
Chief Executive
31%
0%
0%
13%
-19%
12%
Note:
1. UK employees only.
90
80
06 June
2014
Game Digital
26 July
2014
FTSE Small Cap
(excluding Investment Trusts)
Change in Chief Executive remuneration
The table below sets out total Chief Executive remuneration
for 2014, together with the percentage of maximum annual
bonus awarded in that year.
As this is the first Directors’ Remuneration Report for
GAME, this information has not been previously disclosed. In
accordance with the requirements of the disclosure rules, the
remuneration of the Chief Executive for the current and prior
year (calculated in line with the methodology used to calculate
the single figure) is provided as a suitable corresponding sum.
CEO total remuneration
Annual bonus (% of maximum)
Share award (% of maximum)
2014
£000
2013
£000
493
38%
n/a
471
50%
n/a
2014
2013
% change
£63.9m
£57.5m
11%
£nil
£nil
–
Statement of shareholder voting
GAME has not held an AGM since listing and therefore
no voting outcomes are available. We will publish details
of remuneration-related voting outcomes in next year’s
Directors’ Remuneration Report.
Approval
This Directors’ Remuneration Report, including both Policy
and Annual Remuneration Report, has been approved by
the Board of Directors on 15 October 2014.
Signed on behalf of the Board
John Jackson
Chairman of the Remuneration Committee
15 October 2014
each of which is incorporated by way of cross-reference into
the Directors’ Report.
Information regarding the Company’s charitable donations can
be found in the Operating responsibly section in the Strategic
report on page 50. The Company did not make any political
donations during the year.
Management report statement
The Directors’ Report together with the Strategic report on
pages 4 to 56 form the Management Report for the purposes
of DTR 4.1.5R.
Relative importance of the spend on pay
The following table shows the Group’s actual spend on pay
for all employees compared to distributions to shareholders:
Total spend on pay
Distributions to
shareholders by way of
dividend and share
buy-back
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Greenhouse Gas emissions reported information, which
can be found on page 51;
group employees reported information, which can be found
on pages 48 to 49; and
information concerning employee share schemes, which can
be found on page 68 and in note 23 to the financial statements,
Results and dividends
The results for the year are set out in the Consolidated
Statement of Comprehensive Income on page 84. The Directors
are not recommending payment of a final dividend this year.
Directors
The individuals who have acted as Directors of the Company
during the year and biographical details setting out their key
strengths and experiences are set out on pages 58 to 59.
Only the Executive Directors have service contracts in place,
which run for an indefinite period. The non-executives were
all appointed on 16 May 2014 and, save for Franck Tuil, it is
envisaged that they will initially serve for a three-year term
from the date of the first AGM. Franck will serve for as long
as he remains the Major Shareholder’s appointee under the
Relationship Agreement and the Major Shareholder has the
right to appoint a representative Director. Details of each
Director’s contractual arrangements, including notice periods,
are included as part of the Directors’ Annual Report on
Remuneration on pages 68 to 76 and that information is
incorporated by reference into the Directors’ Report.
Following recommendations from the Nomination Committee,
the Board considers that all Directors continue to be effective,
committed to their roles and able to devote sufficient time to
discharge their responsibilities. All of the Directors will seek
election at the Company’s forthcoming Annual General Meeting
in accordance with the Company’s articles of association which
require all of the Directors to stand for election at the next
annual general meeting.
Subject to the Company’s articles of association, the Companies
Act 2006 and any directions given by the Company by special
resolution and any relevant statutes and regulations, the
business of the Company, including in relation to the allotment
and issuance of ordinary shares, is managed by the Board
which may exercise all the powers of the Company. Matters
reserved for the Board are detailed on page 61 of the Corporate
Governance Statement.
76
Significant agreements – change of control
A number of agreements take effect, alter or terminate upon
a change of control of the Group, such as asset-based lending
agreements and employee share-based incentive schemes.
The Group’s main credit facilities, including the asset-based
lending agreement entered into on 3 June 2014, contain a
provision that means, should a change of control occur, the
facilities may be cancelled and the loans, together with accrued
interest, be declared immediately due and payable by notice
from the lender, whereupon the facilities would be cancelled
and the loan and all outstanding amounts would become
immediately due and payable.
Articles of association
Any amendments to the articles of association of the Company
may be made by special resolution of the shareholders.
Share capital
Details of the Company’s share capital are set out in note 22
to the financial statements. The Company has one class of
share capital: 170,000,000 ordinary shares with a nominal
value of £0.01 each which, following the Company’s Initial Public
Offering, were admitted to unconditional trading on the London
Stock Exchange on 11 June 2014. The rights and obligations
attached to the ordinary shares are governed by UK law and
the Company’s articles of association.
Ordinary shareholders are entitled to receive notice and to
attend and speak at general meetings. On a show of hands,
every shareholder present in person or by proxy (or a duly
authorised corporate representative) shall have one vote and,
on a poll, every member who is present in person or by proxy
(or a duly authorised corporate representative) shall have one
vote for every share held.
Other than the general provisions of the articles of association
and prevailing legislation, there are no specific restrictions
on the size of a holding of the Company’s share capital.
The Directors are not aware of any agreements between
holders of the Company’s shares that may result in the
restriction on the transfer of securities or on voting rights.
No shareholder holds securities carrying any special rights
or control over the Company’s share capital.
Restrictions on the transfers of shares
The articles of association do not contain any restrictions on the
transfer of ordinary shares in the Company other than the usual
restrictions, which are applicable where a share instrument
is not duly stamped or certified as exempt from stamp duty,
is in respect of more than one class of share, relates to joint
transferees and such transfer is in favour of more than four
such transferees, or relates to shares that are not fully paid.
Performance graph
The chart below shows the Company’s TSR performance
against the performance of the FTSE Small Cap index (excluding
Investment Trusts) from the commencement of conditional
trading on 6 June 2014 to 26 July 2014. The FTSE Small Cap index
was chosen as being a broad equity market index, which includes
companies of a comparable size and complexity.
Directors’ Report
On 6 June 2014 the Company entered into an underwriting
agreement with Canaccord Genuity Limited, HSBC Bank plc,
Liberum Capital Limited, Duodi Investments S.à r.l. and the
Directors, in accordance with which:
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the Company has agreed, subject to certain exceptions, not
to directly or indirectly offer, issue, lend, sell, contract to sell,
issue options in respect of, announce any offering or issue of
or otherwise dispose of any shares during the period of 180
days following the IPO without the prior written consent of
the banks;
77
Directors’ Report continued
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each Director has agreed not to directly or indirectly offer,
allot, issue, lend, mortgage, assign, charge, pledge, sell
or contract to sell, issue options in respect of, announce
an offering or issue of or otherwise dispose of any shares
for 365 days following the IPO without the prior written
consent of the banks; and
Duodi agreed not to directly or indirectly offer, allot, issue,
lend, mortgage, assign, charge, pledge, sell or contract to
sell, issue options in respect of, announce an offering or
issue of or otherwise dispose of any shares for 180 days from
the IPO, and, in the period following expiry of the period of
90 days, do such things without the prior written consent
of the banks.
Authority to purchase own shares
At a general meeting held on 5 June 2014, the Company
was generally and unconditionally authorised to make
market purchases of its ordinary shares, subject to the
following conditions:
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the maximum number of ordinary shares that the Company
is authorised to purchase is the lower of:
(i) 26,232,500 shares; and
(ii)14.99% of the entire issued share capital of the Company
immediately following the IPO;
the maximum price which may be paid for each ordinary
share, exclusive of all expenses, is the higher of:
(i)5% above the average of the middle market quotations
for an ordinary share (derived from The London Stock
Exchange Daily Official List), such average to be calculated
over five business days immediately before the day of
the purchase of the ordinary shares; and
(ii)either the price of the last independent trade or the
current independent bid (whichever is the highest) on
the trading venue where the purchase is carried out,
or as otherwise stipulated by Article 5(1) of the Buy-back
and Stabilisation Regulation (2273/2003/EC);
the minimum price which may be paid for each ordinary
share, exclusive of all expenses, is one penny.
The Company’s authority to purchase its own ordinary shares
expires at the Company’s forthcoming Annual General Meeting.
Directors’ interests
The number of ordinary shares of the Company in which
the Directors were beneficially interested at 11 June 2014
(or date of appointment if later) and 26 July 2014 is set out
in the Directors’ Annual Report on Remuneration on page 75.
No Director had any dealings in the shares of the Company
between 26 July 2014 and 15 October 2014.
Directors’ indemnities and insurance
In accordance with the Companies Act 2006 and the Company’s
articles of association, the Company has purchased directors’
and officers’ liability insurance cover which remains in place
as at the date of this report. A review will be carried out on an
annual basis to ensure that the Board remains satisfied that
an appropriate level of cover is in place.
The Company also purchased prospectus liability insurance
to provide cover for liabilities incurred by the Directors in
the performance of their duties or powers in connection
with the issue of the prospectus in relation to the listing
of the Company’s shares on the London Stock Exchange.
78
The Company has entered into a deed of indemnity with each of
its Directors, whereby, to the extent permitted by the Companies
Act 2006 and the Company’s articles of association, and provided
that the Director has at all times acted in good faith, the Company:
(a) indemnifies the Director against costs, liabilities or expenses
(including reasonable professional and legal fees) incurred by
them by virtue of them being, or having been, a Director or other
officer of the Company; and (b) agrees to advance the Directors
with funds required to defend any civil proceedings brought by the
Company, or criminal or regulatory proceedings which arise by
virtue of them being a Director of the Company, such advance
being repayable in certain circumstances.
Major interests in shares
As at 26 July 2014 and as at 15 October 2014, the following
substantial interests (3% or more) in voting rights attaching to
the Company’s ordinary shares had been notified to the Company:
Notifications
received from
Number
of voting
rights as at
26 July 2014
Duodi Investments
S.à r.l.
104,677,981
Invesco Limited
11,440,000
Schroders plc
10,018,059
Pelham Long/
Short Master
Fund Limited
9,340,000
Woodford
Investment
Management LLP
n/a
% voting
rights
as at
26 July
2014
Number
% voting
of voting
rights as at rights as at
15 October 15 October
2014
2014*
61.58 82,177,981
6.72 21,315,000
5.89 10,018,059
48.33
12.53
5.69
Appointment of auditor
As recommended by the Audit and Risk Committee and having
indicated their willingness to act, the Company will propose
a resolution at the Annual General Meeting that Deloitte LLP
be re-appointed as auditor of the Company.
Audit information
Each of the Directors at the date of the Directors’ Report
confirms that:
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so far as he or she is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
he/she has taken all the reasonable steps that he/she ought
to have taken as a Director to make himself/herself aware
of any relevant audit information and to establish that the
Company’s auditor is aware of the information.
The confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
Annual General Meeting
Details of the Company’s first Annual General Meeting and
the resolutions to be proposed will be set out in a separate
notice of meeting.
9,340,000
5.49
Post balance sheet events
of €32m (see note 28 to the financial statements).
n/a 8,983,034
5.28
The Directors’ Report has been approved by the Board
of Directors on 15 October 2014.
5.49
*Notification is only required when the next applicable threshold is
crossed, meaning these holdings may have changed since notification
was last required.
Save as noted above, there have been no other notifiable
interests disclosed to the Company since 26 July 2014 and
15 October 2014.
Financial risk management
The Company’s objectives and policies on financial risk
management including information on liquidity, capital,
credit and risk can be found on pages 101 to 102 of the financial
statements and in the Our risks section on pages 44 to 47.
Going concern
The Company’s business activities, together with factors which
potentially affect its future development, performance or
position can be found in the Strategic report on pages 4 to 56.
Details of the Company’s financial position and its cash flows
are outlined in the Our performance section on pages 52 to 56.
■■
Signed on behalf of the Board
Ruth Cartwright
Company Secretary
15 October 2014
GAME Digital plc
Unity House
Telford Road
Basingstoke
Hampshire
RG21 6YJ
Company number: 09040213
The Directors consider that the Group and the Company have
adequate financial resources together with a strong business
model to ensure they continue to operate for the foreseeable
future. Accordingly, the Directors have adopted the going
concern basis in preparing the financial statements.
The Directors are confident that the Company is in a good
financial position following the IPO process. Furthermore, the
Company is a cash-generative business that, when required,
has access to borrowing facilities to meet the Group’s future
cash requirements.
79
Independent Auditor’s Report to the members of GAME Digital plc
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the financial statements give a true and fair view of the state
of the Group’s and of the parent company’s affairs as at
26 July 2014 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of
the IAS Regulation.
The financial statements comprise the Consolidated Statement
of Comprehensive Income, the Consolidated Statement of
Financial Position and the Parent Company Balance Sheet,
the Consolidated Cash Flow Statement, the Consolidated
Statement of Changes in Equity and the Group and Company
related notes 1 to 28 and 1 to 7 respectively. The financial
reporting framework that has been applied in the preparation
of the Group financial statements is applicable law and IFRSs
as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the
parent company financial statements is applicable law and
United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
Going concern
As required by the Listing Rules we have reviewed the
Directors’ statement contained within the Directors’ Report on
page 78 that the Group is a going concern. We confirm that:
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we have concluded that the Directors’ use of the going
concern basis of accounting in the preparation of the financial
statements is appropriate; and
we have not identified any material uncertainties that may
cast significant doubt on the Group’s ability to continue as
a going concern.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Group’s
ability to continue as a going concern.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below
are those that had the greatest effect on our audit strategy,
the allocation of resources in the audit and directing the efforts
of the engagement team:
Risk
Group restructuring
There were a number of accounting matters arising from the Initial
Public Offering (IPO) and the related restructuring of the Group that
had a material impact on the financial statements and our audit.
These include the following transactions and activities:
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How the scope of our audit responded to the risk
The key judgements in relation to revenue are as follows:
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Loyalty provision – a provision is recognised reflecting the future
cost associated with the crystalisation of loyalty points. Management
employ a redemption rate based on historical usage to estimate
the quantum of points which will be redeemed by customers. The
application and calculation of the redemption rate is a key judgement.
Amounts expected to be redeemed represent deferred elements
of revenue; and
Gift card and deposit provision – similar to the loyalty provision, a
redemption rate is employed to estimate the quantum of gift cards and
deposits which will be reclaimed. Amounts expected to be redeemed
represent deferred elements of revenue.
Inventory valuation
The inventory balance is highly material and assessing net realisable
value is an area of significant judgement, in particular with regards to
the basis of provisioning and the valuation of preowned inventory:
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Preowned inventory is purchased and valued at average cost which
changes on a daily basis. The system driving the calculation is complex
and the balance is material. There is a risk that the average cost is
incorrectly determined; and
The determination of the basis of provisioning is a significant
judgement based on historical experience of stock losses and expected
sales price.
We performed the following procedures to test the valuation of
revenue provisions:
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marketing income to fund marketing activities for games and
consoles; and
rebate discounts on volume stock purchases.
Given the material value and the complexity of the agreements,
we consider that this presents a significant risk to the Group.
We assessed management judgements and estimates on gift cards
and loyalty points for reasonableness by obtaining and testing source
evidence demonstrating historical redemption rates; and
We performed analytical procedures, comparing the revenue
provisions against corresponding positions in previous periods
and corroborating explanations for any variances.
Taxation
The key judgement relating to taxation concerns the deductibility of
interest in respect of the historic loan notes (see note 8). Whilst the loan
notes owed to the parent company were capitalised as part of the IPO,
interest accrued during the period. The level of deductions permissible
for tax purposes is a judgement based on the expected level of debt and
the associated interest cost that the Group could source in the open
market in an arms-length transaction.
We read and understood the legal documentation to assess whether
management’s accounting entries were complete and consistent with
the underlying legal agreements;
We have audited the consolidation, including the adjustments
impacting the merger reserve; and
We have tested management’s allocation of cost between the
Statement of Comprehensive Income and share premium by agreeing
the nature and amount of the expenses, on a sample basis, back to
source documentation.
We engaged our valuation specialists to support our challenge of the
judgemental inputs. We compared the royalty rates to historical rates
actually charged by legacy Game businesses and royalty rates
employed by other comparable businesses. We challenged the useful
economic life by comparing the length to industry practice adopted by
other comparable businesses.
We have performed the following procedures to assess the occurrence
and cutoff of rebates and marketing income:
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We tested automated and manual controls relating to the polling
of stores and the systems which generate the loyalty card and
gift card provisions;
We engaged our IT specialists to perform tests over key automated
controls which assessed the completeness and accuracy of the source
data upon which the calculation of the revenue provisions are based;
We evaluated management’s assessment that the transaction met
the definition of a common control transaction in accordance with
IFRS 3 Business Combinations and that the adoption of reverse asset
accounting is a reasonable basis of accounting and consolidation;
In respect of the rebates we have recalculated the value of the
discounts earned on a contract by contract basis, and compared
the value to management’s assessment;
We agreed the basis of the calculations to the underlying agreements.
We also confirmed a sample to credit notes received to confirm they
related to costs incurred pre-year-end;
We agreed the underlying data upon which the calculations were
based back to the general ledger and stock purchasing system; and
We agreed the receipt of the marketing income to supplier purchase
order to assess the income related to the current year. We tested
a sample of post year-end purchase orders to consider whether
they were recognised in the appropriate period.
We have performed the following procedures to address the level
of deductible interest for tax purposes:
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We engaged our tax specialists to consider the level of interest
deductions made in the tax computations relating to related party debt.
We benchmarked the rate against third-party loan arrangements
to assess whether it reflected an arms-length basis; and
We assessed the quantum of debt management concluded that they
could source based on EBITDA to debt ratios, in an arms-length
transaction with a third-party lender.
We performed the following procedures to test the valuation of inventory:
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80
We performed the following procedures to test the accounting entries
associated with the Group restructuring:
The calculation of the brand assets in the UK and Spain which arose
on the acquisition of those businesses required the inclusion of
judgemental inputs such as the royalty rate and the determination of
a useful economic life for the assets. These judgements had a material
impact on the opening reserves of the statement of financial position.
Assessing when the contractual performance conditions have been
met of supplier funding agreements, thereby permitting the recognition of
discounts (rebates) or income (marketing income) is an area of complexity.
At the reporting dates the key tranches of supplier funding were:
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Revenue recognition
A material level of costs have been incurred in the current year relating
to the IPO. Management are required to allocate the costs between
share premium and the Statement of Comprehensive Income based
on their judgement as to whether they are directly attributable to the
issuance of the shares; and
Supplier funding
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Risk
Management have accounted for the common control transaction
of Capitex Holdings Limited by Game Digital Plc using merger
accounting as it was a reverse asset acquisition (see page 88). The
basis of accounting involves significant judgement in choosing the most
appropriate accounting policy. The steps to effect the restructuring are
complex and material to the financial statements; and
How the scope of our audit responded to the risk
Opinion on financial statements of GAME Digital plc
In our opinion:
We engaged our IT specialists to perform procedures over the
automated controls that govern the calculation of the average cost
of preowned stock;
We agreed a sample of preowned stock valuations from the inventory
ledger to the inventory master file which is linked to the EPOS system;
We tested the controls and linkage of the EPOS system to the
underlying stock and ledger system to assess whether changes
and transactions are automatically updated throughout the system
on a sample basis;
For a sample of inventory items across both preowned and supplier
purchased inventory, we compared sales proceeds received post
year-end to the cost price to assess whether stock was held at the
lower of cost and net realisable value;
With respect to the obsolescence provision, we tested the controls
around stock entry to assess whether the date of origin was accurate
and could not be altered in the system;
We discussed these risks with the Audit Committee. Their
report on those matters that they considered to be significant
issues in relation to the Financial Statements are set out
on page 65.
Our audit procedures relating to these matters were designed
in the context of our audit of the financial statements as a
whole, and not to express an opinion on individual accounts
or disclosures. Our opinion on the financial statements is
not modified with respect to any of the risks described above,
and we do not express an opinion on these individual matters.
We recalculated the provision using source data on a sample basis.
81
Independent Auditor’s Report to the members of GAME Digital plc continued
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
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We determined materiality for the Group to be £2.34m based
on 5% of Adjusted EBITDA which is defined in note 2. (Our
materiality also equates to 2% of equity.) We consider this
measure to be the key driver of the business and a focus for
shareholders. Furthermore, we note that Adjusted EBITDA was
the key performance measure presented in the Prospectus to
support the Initial Public Offering and is the key metric referred
to in broker’s commentary of the performance of the business.
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of £47,000 as well
as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
An overview of the scope of our audit
The Group operates in two distinct geographical markets
being the UK and Spain. Significant judgements impacting
the consolidated Group financial statements have been
accounted for by head office in the UK with local judgements
and transactions driven by the local operating businesses.
In the UK, Game Digital plc is the Group parent and has a
100% ownership of Capitex Holdings Limited which in turn
owns Game Retail Limited, the UK trading company. Capitex
Holdings Limited also controls Cherrilux Investments S.à r.l.,
a Luxembourg holding company which in turn owns Game
Stores Iberia, the Spanish trading company.
Our Group audit was scoped by obtaining an understanding of
the Group and its environment, including Group-wide controls,
and assessing the risks of material misstatement at the Group
level. A full audit scope was performed over GAME Digital Plc,
Capitex Holdings Limited, Game Retail Limited and Game Stores
Iberia. The financial information of Cherrilux Investments S.à r.l.
was subject to specified audit procedures where the extent
of our testing was based on our assessment of the risks
of material misstatement and the Group materiality level.
The components subject to full audit scope account for 100%
of consolidated revenue, consolidated profit before tax and
consolidated net assets. They were also selected to provide
an appropriate basis for undertaking audit work to address the
risks of material misstatement identified above. The component
materialities adopted ranged between £0.6m and £2.1m.
At the parent entity level we also tested the consolidation
process and carried out analytical procedures to confirm
our conclusion that there were no significant risks of material
misstatement of the aggregated financial information of the
remaining components not subject to audit or audit of specified
account balances.
The Group audit team followed a programme of planned visits
that has been designed so that a senior member of the Group
audit team visits Spain at least once a year. All UK components
were audited by the Group audit team.
82
the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with
the Companies Act 2006; and
the information given in the Strategic report and the
Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial
statements.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
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we have not received all the information and explanations
we require for our audit; or
adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent company financial statements are not in
agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report
if, in our opinion, certain disclosures of Directors’ remuneration
have not been made or the part of the Directors’ Remuneration
Report to be audited is not in agreement with the accounting
records and returns. We have nothing to report arising from
these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review the part
of the Corporate Governance Statement relating to the Company’s
compliance with nine provisions of the UK Corporate Governance
Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland),
we are required to report to you if, in our opinion, information
in the Annual Report is:
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materially inconsistent with the information in the audited
financial statements; or
apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired
in the course of performing our audit; or
otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the Directors’ statement that they consider
the Annual Report is fair, balanced and understandable and
whether the Annual Report appropriately discloses those matters
that we communicated to the Audit Committee which we consider
should have been disclosed. We confirm that we have not
identified any such inconsistencies or misleading statements.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be
changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors. We also comply with
International Standard on Quality Control 1 (UK and Ireland).
Our audit methodology and tools aim to ensure that our quality
control procedures are effective, understood and applied. Our
quality controls and systems include our dedicated professional
standards review team, strategically focused second partner
reviews and independent partner reviews.
This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company
and the Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the parent
company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all
the financial and non-financial information in the Annual Report
to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the
implications for our report.
Gregory Culshaw ACA
Senior Statutory Auditor
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Southampton, UK
15 October 2014
83
Consolidated Statement of Comprehensive Income
For the 52 weeks ended 26 July 2014
Consolidated Statement of Financial Position
As at 26 July 2014 and 27 July 2013
52 weeks
ended
27 July 2013
£m
Revenue
Cost of sales
Gross profit
1
861.8
(652.1)
209.7
657.9
(483.9)
174.0
Other operating expenses
3
(184.9)
(177.3)
4
33.2
(8.4)
5.5
(8.8)
Operating profit/(loss)
5
24.8
(3.3)
Investment income
Finance costs
Profit/(loss) before taxation
7
8
0.1
(17.6)
7.3
0.1
(12.2)
(15.4)
Taxation
Profit/(loss) for the period from continuing operations
10
(4.5)
2.8
(0.2)
(15.6)
Loss from discontinued operations
11
–
(3.4)
2.8
(19.0)
Operating profit before exceptional costs
Exceptional costs
Profit/(loss) for the period attributable to equity holders of the Group
27 July
2013
£m
13
14
20
18.1
54.8
–
72.9
15.7
62.5
4.0
82.2
15
16
11
57.6
21.2
–
85.3
164.1
51.5
23.3
1.3
42.9
119.0
237.0
201.2
82.1
1.6
1.4
–
1.4
86.5
69.5
119.5
0.7
0.8
1.5
192.0
77.6
(73.0)
2.8
3.3
6.1
3.9
3.6
7.5
92.6
199.5
144.4
1.7
1.7
13.4
130.2
(2.3)
1.4
–
–
2.5
2.3
(3.1)
144.4
1.7
Note
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Assets classified as held for sale
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Tax liabilities
Liabilities directly associated with assets classified as held for sale
Leasehold property incentives
17
18
11
21
Net current assets/(liabilities)
Total other comprehensive (expense)/income – exchange differences on translation of
foreign operations
(4.6)
4.8
Total comprehensive expense for the period attributable to equity holders of the Group
(1.8)
(14.2)
Earnings/(loss) per share
Basic and diluted (£s)
26 July
2014
£m
12
£0.13 £(113,095.24)
Non-current liabilities
Deferred tax liabilities
Leasehold property incentives
20
21
Total liabilities
The accounting policies and notes on pages 88 to 111 form an integral part of these financial statements.
Net assets
All results relate to continuing operations.
Equity attributable to equity holders of the Group
Share capital
Share premium
Merger reserve
Cumulative translation reserve
Retained earnings
22
24
24
24
Total equity
Note
52 weeks
ended
26 July 2014
£m
The financial statements of GAME Digital plc, company number 09040213, were approved by the Board of Directors and authorised
for issue on 15 October 2014.
Signed on behalf of the Board on 15 October 2014
Benedict Smith
Chief Financial Officer
84
Martyn Gibbs
85
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Retained
earnings
£m
Share
premium
£m
Merger
reserve
£m
At 29 July 2012
Loss for the period
Discontinued operations (note 11)
Other comprehensive income
Total comprehensive income/(expense)
–
–
–
–
–
–
–
–
–
–
2.5
–
–
–
–
(2.5)
–
0.2
4.6
4.8
15.9
(19.0)
–
–
(19.0)
15.9
(19.0)
0.2
4.6
(14.2)
At 27 July 2013
Profit for the period
Other comprehensive expense
Total comprehensive (expense)/income
–
–
–
–
–
–
–
–
2.5
–
–
–
2.3
–
(4.6)
(4.6)
(3.1)
2.8
–
2.8
1.7
2.8
(4.6)
(1.8)
1.7
19.9
–
–
–
(6.5)
–
–
–
1.4
21.6
0.3
(6.5)
1.4
–
1.7
–
13.4
127.7
130.2
–
(2.3)
–
1.4
127.7
144.4
Issue of share capital (note 22)
Share-based payments (note 23)
Cost of issue of share capital (note 24)
Capital contribution (note 24)
Reverse asset acquisition capital adjustment
(see page 88)
At 26 July 2014
Total equity
£m
0.3
The merger reserve disclosed above arose due to the common control transactions that were effected as part of the Group
restructuring which occurred immediately prior to the Initial Public Offering. The acquisition of Capitex Holdings Limited by GAME
Digital plc was treated as a reverse asset acquisition. Further detail can be found in the basis of preparation disclosure on page 88.
The amounts included in other comprehensive income in respect of exchange differences on translation of foreign operations
will be recycled to the income statement upon disposal of the investment to which the reserve relates.
Note
Cash flow from operating activities
Operating profit/(loss)
Depreciation
Amortisation
Loss on disposal of non-current assets
Share-based payments expense
Decrease/(increase) in trade and other receivables
(Increase)/decrease in inventories
Increase in trade and other payables
(Decrease)/increase in leasehold incentives
Cash generated by operations
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
5
5
5
5
24.8
4.3
10.8
0.2
0.3
0.8
(8.6)
15.2
(0.4)
47.4
(3.3)
4.9
10.1
1.2
–
(0.8)
9.7
3.1
5.0
29.9
8
(4.6)
(0.5)
42.3
(2.6)
(0.8)
26.5
13
14
(7.3)
(4.1)
0.5
0.1
(10.8)
(2.5)
(2.4)
–
0.1
(4.8)
13.5
67.7
(67.7)
–
13.5
–
24.9
(28.6)
(0.4)
(4.1)
Net increase in cash and cash equivalents
45.0
17.6
Cash and cash equivalents at beginning of period
Effect of foreign exchange rates
42.9
(2.6)
25.0
0.3
Cash and cash equivalents at end of period
85.3
42.9
Finance costs paid
Corporation tax paid
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of Group undertaking
Investment income
Net cash used in investing activities
7
Cash flows from financing activities
Proceeds from issue of shares
Loan draw downs
Loan repayments
Payment of finance lease liabilities
Net cash generated/(used) in financing activities
22
Cumulative
translation
reserve
£m
Share
capital
£m
86
87
Accounting Policies of the Group
The consolidated financial statements are presented in Pounds
Sterling, being the functional currency of the primary economic
environment in which the parent and subsidiaries operate.
The Group offers an extensive range of gaming and gamingrelated products, including hardware (which comprises consoles
and handhelds), console physical content, console digital content
(in the form of DLC, full game downloads, digital subscriptions
and digital currency top-ups), non-console digital content (such
as PC downloads), accessories, licensed merchandise and
own-label products in the UK and Spain. The Group also sells
mobile devices and movies. This range (with the exception
of digital content) includes both new and preowned products
(which is supported by the Group’s trade-in model).
IFRS does not provide any specific guidance on accounting
for common control transactions, therefore, the Directors have
selected an accounting policy in accordance with paragraphs
10-12 of IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors. The policies applied to each of the
common control transactions have been outlined below:
Acquisition of Cherrilux Investments S.à r.l. by Capitex
Holdings Limited
Given the acquisition of Cherrilux Investments S.à r.l. by
Capitex Holdings Limited constitutes the combination of
two businesses, management has applied the accounting
principles of merger accounting outlined in FRS 6 Acquisitions
and Mergers. This guidance results in an accounting result
similar to pooling. The consolidated accounts have therefore
been prepared as if each of Cherrilux Investments S.à r.l. and
Game Stores Iberia had been held by Capitex Holdings Limited
since acquisition on 1 April 2012.
Standards affecting the financial statements
Adoption of new and revised standards
The following new and revised standards and interpretations
have been applied in the financial statements where
appropriate. Their adoption has not had any significant
impact on the amounts reported in the financial statements:
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Basis of preparation
On 11 June 2014 the Group was listed on the Premium Listing
segment of the Official List of the UK Listing Authority and is
trading on the main market of the London Stock Exchange.
For the purposes of the Initial Public Offer (‘IPO’), there was a
reorganisation of the Group. GAME Digital plc was incorporated
as Project Vespa plc on 14 May 2014 and changed its name to
GAME Digital plc on 16 May 2014. Prior to the IPO, there were
three key steps included in the reorganisation:
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On 9 June 2014, Capitex Holdings Limited had £53.0m of
senior loan notes payable to Duodi Investments S.à r.l. and
£64.0m of junior loan notes to Baker Investments Limited
Partnership. The combined outstanding loan notes and
accrued interest at that date was cancelled and 64.6m shares
were issued to the note holders equating to the carrying
value of the loan notes and interest prior to cancellation.
£0.6m of nominal value was recognised in share capital with
the remaining £128.6m being recognised in share premium
of Capitex Holdings Limited;
On 10 June 2014, Capitex Holdings Limited acquired, in a
share-for-share exchange, Cherrilux Investments S.à r.l.
and its subsidiary Game Stores Iberia SLU, from Duodi
Investments S.à r.l.; and
On 10 June 2014, GAME Digital plc acquired, in a
share-for-share exchange, Capitex Holdings Limited and
its subsidiaries Game Retail Limited, Cherrilux Investments
S.à r.l. and Game Stores Iberia.
The businesses acquired by the share-for-share exchanges
outlined above have not previously been presented in the
consolidated financial information of a single legal entity.
However, in both cases the acquired entities were ultimately
controlled and managed by the same parties before and after
the share-for-share exchanges and that control was not
transitory. The transactions outlined above, therefore, meet
the definition of a common control transaction in accordance
with IFRS 3 Business Combinations.
Acquisition of Capitex Holdings Limited by GAME Digital plc
Though the transaction falls outside IFRS 3 Business
Combinations as GAME Digital plc has no business of its
own, management has accounted for this as a reverse asset
acquisition as this reflects the substance of the transaction.
The effect of the accounting treatment, as a result of the
reverse asset acquisition, is that even though the consolidated
financial statements are issued under the name of GAME Digital
plc, they represent a continuation of Capitex Holdings Limited,
except for its capital structure. As a result, the information
presented in the financial statements of the Group until
26 July 2014 and comparative information presented for
the Group represents that of Capitex Holdings Limited.
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■■
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■■
■■
■■
■■
■■
■■
Since GAME Digital plc became a new parent entity of the
Group, these consolidated financial statements have been
prepared as a continuation of the existing Group.
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GAME Digital plc and its subsidiaries (together ‘the Group’)
is required to prepare its consolidated financial statements
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and in accordance
with the Companies Act 2006.
■■
The Group’s accounting reference date is 31 July. The Group
draws up its financial statements to the Saturday directly before
or following the accounting reference date, as permitted by
section 390 (3) of the Companies Act 2006.
Standards, amendments and interpretations to existing
standards that are not yet effective and have not been adopted
early by the Group:
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■■
■■
■■
The financial statements have been prepared on the historical
cost basis, except for the revaluation of certain financial
instruments that are measured at revalued amounts or fair
values at the end of each reporting period, as explained in the
accounting policies below. Historical cost is generally based
on the fair value of the consideration given in exchange for
goods and services. The principal accounting policies adopted
are set out below.
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■■
■■
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■■
■■
■■
The Group’s accounting policies have been applied consistently.
■■
■■
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of GAME Digital plc (‘the Company’) and entities
controlled by the Company (its subsidiaries). The financial
statements of the subsidiaries are prepared for the same
financial reporting period as the Company. Where necessary,
adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line
with those used by the Group. Intercompany transactions,
balances and unrealised gains and losses on transactions
between Group companies are eliminated on consolidation.
88
Annual Improvements to IFRSs: 2009-2011 Cycle (May 2012)
Amendments to IFRS 1 (December 2012)
Amendments to IFRS 1
Amendments to IFRS 7 (December 2011)
Amendments to IAS 1 (June 2012)
Amendments to IAS 36 (May 2013)
IAS 19 (revised June 2011)
IFRS 13
Amendments to IAS 12
IFRS 12
IFRS 11
IFRS 10
IAS 28 (revised May 2011)
IAS 27 (revised May 2011)
Amendments to IFRS 7
IFRIC 20
Annual Improvements to IFRSs
Severe Hyperinflation and Removal of Fixed Dates
for First Time Adopters
Government Grants
Disclosures – Offsetting Financial Assets and
Financial Liabilities
Presentation of Items of Other Comprehensive Income
Recoverable Amount Disclosures for Non-Financial Assets
(early adopted)
Employee Benefits
Fair Value Measurement
Deferred Tax
Disclosure of Interests in Other Entities
Joint Arrangements
Consolidated Financial Statements
Investments in Associates and Joint Ventures
Separate Financial Statements
Offsetting Financial Assets and Liabilities (Disclosures)
Stripping Costs in the Production Phase of a Surface Mine
Amendments to IAS 39 (June 2013)
Amendments to IAS 36 (May 2013)
Amendments to IFRS 10, IFRS 12 and IAS 27 (October 2012)
Amendments to IAS 32 (December 2011)
IFRS 9
IFRIC 21
Novation of Derivatives and Continuation of Hedge Accounting
Recoverable Amount Disclosures for Non-Financial Assets
Investment Entities
Offsetting Financial Assets and Financial Liabilities
Financial Instruments
Levies
The Directors have evaluated the impact of the adoption
of the above standards and interpretations in future periods
and concluded that their impact will be immaterial.
Significant accounting policies
Going concern
The Company’s business activities, together with factors
which potentially affect its future development, performance
or position, can be found in the Strategic report on pages 4
to 56. The details of the Company’s financial position and its
cash flows are outlined in the Strategic report on pages 52 to 56.
The Directors have a reasonable expectation that the Group and
the Company has adequate financial resources together with a
strong business model to ensure it continues to operate for the
foreseeable future. On that basis they have adopted the going
concern basis of accounting in preparing the financial statements.
The Directors are confident that the Company is in a strong
financial position following the IPO process. Furthermore, the
Company is a cash-generative business, that when required
has access to borrowing facilities to meet the Group’s future
cash requirements.
Revenue
Revenue, which consists of content, hardware, preowned and
other categories, comprises the value of sales (excluding VAT
and similar taxes and trade discounts) of goods provided in
the normal course of business. Revenue is recognised at the
point of sale, for high street retailing, to the extent that it is
probable that the economic benefits will flow to the Group.
Online revenue is recognised when the goods are received by
the customer. Revenue for goods, such as third-party gift cards
and digital content, sold on a commission basis is recognised
net of associated purchase costs. A provision is made within
cost of sales for the reduction in revenue from estimated
customer returns.
Supplier rebates
Supplier rebates and other similar promotional funding are
recognised as a credit to cost of sales over the period to which
they relate, based on actual or estimated volumes. Suppliers also
provide to the Group marketing and advertising support which is
recognised when specific, incremental, and identifiable actual
costs are incurred and is classified as a reduction to other
operating expenses.
Loyalty card scheme
The Group operates loyalty card programmes which allow
members to accumulate points on purchases, get exclusive
offers and other special benefits. Pursuant to IFRIC 13
Customer Loyalty Programmes, the fair value of the points
awarded to customers is accounted for as a separately
identifiable component of a sales transaction. In determining
the fair value, the Group considers, amongst other things,
the amount of the discounts and incentives that would otherwise
be offered to customers who have not earned points from an
initial sale and the proportion of points that are not expected
to be redeemed by customers.
General information
GAME Digital plc is a company incorporated in the United
Kingdom under the Companies Act.
When the points are redeemed and the Group fulfils its
obligations pursuant to the programmes, the revenue that
was allocated to the points is recognised.
In the UK, points awarded expire following a period of
18 months of inactivity. In Spain, the points awarded are valid
until the end of the following calendar year. As stated above,
the valuation of the fair value of the awards considers,
amongst other things, estimated redemption rates.
89
Accounting Policies of the Group continued
Exceptional costs
The Group presents as ‘Exceptional costs’ on the face of
the Statement of Comprehensive Income those costs which,
because of the nature and expected infrequency of events giving
rise to them, merit separate presentation to allow the users
of the financial statements to understand better the financial
performance in the period. The Group’s policy is to expense
these costs in the period in which they are incurred (note 4).
Foreign currencies
The presentational currency of the Group is Pounds Sterling.
The functional currency of Group companies is Pounds Sterling
other than Game Stores Iberia SLU and Cherrilux Investments
S.à r.l. for which it is the Euro.
In preparing the financial information of each Group entity,
transactions in currencies other than the entity’s functional
currency (foreign currencies) are recognised at the rates of
exchange prevailing at the dates of the transactions. At each
reporting period-end, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing at the reporting period-end. 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 a foreign currency are not retranslated.
For the purpose of presenting consolidated financial
information, the assets and liabilities of the Group’s foreign
operations are translated at exchange rates prevailing at the
reporting period-end. Income and expense items are translated
at the average exchange rates for the period, unless exchange
rates fluctuate significantly during that period, in which case
the exchange rates at the date of transactions are used.
Exchange differences arising, if any, are recognised in other
comprehensive income and accumulated in equity. Such
translation differences are recognised to profit or loss
in the period in which the operation is disposed of.
Interest
Interest payable is charged to the statement of comprehensive
income as incurred.
Dividends
Dividends proposed by the Board but unpaid at the period-end
are not recognised in the financial statements until they have
been approved by shareholders at the Annual General Meeting.
Interim dividends are recognised when paid. No dividends were
proposed or paid in either the current or the prior period.
90
Business combinations
Acquisitions of subsidiaries and businesses are accounted
for using the acquisition method. The consideration for each
acquisition is measured at the aggregate at the date of exchange
of the fair values of assets acquired, liabilities incurred or
assumed, and equity instruments issued by the Group in
exchange for control of the acquiree. Acquisition-related costs
are recognised in the statement of comprehensive income as
incurred. Where a business combination is achieved in stages,
the Group’s previously-held interests in the acquired entity are
remeasured to fair value at the acquisition date (i.e. the date the
Group attains control) and the resulting gain or loss, if any, is
recognised in the statement of comprehensive income.
If the initial accounting for a business combination is incomplete
by the end of the reporting period in which the combination
occurs, the Group reports provisional amounts for the items for
which the accounting is incomplete. Those provisional amounts
are adjusted during the remeasurement period or additional
assets or liabilities are recognised to reflect new information
obtained about facts and circumstances that existed as of the
acquisition date that, if known, would have affected the amounts
recognised as of that date. The measurement period is the
period from the date of acquisition to the date the Group obtains
complete information and is subject to a maximum of one year.
Non-current assets held for sale
Non-current assets (and disposal groups) classified as held
for sale are measured at the lower of carrying amount and fair
value less costs to sell.
Non-current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition
is regarded as met only when the sale is highly probable and
the asset (or disposal group) is available for immediate sale in
its present condition. Management must be committed to the
sale which should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
In assessing value-in-use, the estimated future cash flows
are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which
the estimates of future cash flows have been adjusted.
An intangible asset with an indefinite useful life is tested for
impairment annually and whenever there is an indication that
the asset may be impaired.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment
loss been recognised for the asset (cash-generating unit) in
prior periods. A reversal of an impairment loss is recognised
as income immediately.
Operating segments
Operating segments are reported in a manner consistent with
the internal reporting presented to the Group’s chief operating
decision maker. The Group’s operating segments are the UK and
Spain. For the UK and Spain, this constitutes the various trading
companies listed above in the basis of preparation section.
Inter-segment revenue and expenses represent items
eliminated on aggregation and are accounted for on an
arm’s-length basis.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and any recognised impairment loss.
Depreciation is provided to write off the cost less estimated
residual values of all property (other than freehold land), plant
and equipment, on a straight-line basis, over their expected
useful lives at the following annual rates:
■■
When the Group is committed to a sale plan involving loss
of control of a subsidiary, all of the assets and liabilities of
that subsidiary are classified as held for sale when the criteria
described above are met, regardless of whether the Group
will retain a non-controlling interest in its former subsidiary
after the sale.
Impairment of tangible and intangible assets (excluding goodwill)
At the end of each reporting period, the Group reviews the
carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the
asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount
of the cash-generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to
sell and value-in-use. If the recoverable amount of an asset (or
cash-generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (cash-generating unit)
is reduced to its recoverable amount. An impairment loss is
recognised as an expense immediately.
■■
■■
■■
Improvements to leasehold property – over the lesser
of 10 years or the remaining period of the lease
Freehold property – 2%
Fixtures, fittings and equipment – 10% to 33%
Computer hardware – 33%.
The residual values, useful lives and depreciation methods of
property, plant and equipment are re-assessed prospectively
on an annual basis.
Intangibles – computer software and brands
The development of computer software and website costs are
accounted for as intangible assets where the criteria of IAS 38
Intangible Assets have been met. These intangible assets are
valued at cost and are amortised on a straight-line basis over five
years. Amortisation is charged to the other operating expenses
line in the statement of comprehensive income. Intangible assets
with finite lives are reviewed for impairment if there is any
indication that the carrying value may not be recoverable.
A brand intangible was recognised as part of the Acquisition
in respect of the ‘GAME’ masthead in the UK and Spain. The
brand was initially recognised at fair value using the royalty
income method at the Acquisition date. Subsequent to the initial
recognition, the brand is reported at deemed cost, being the
fair value less accumulated amortisation. The brand is being
amortised over eight years.
Leased assets
Assets held under finance leases are recognised as assets of
the Group at their fair value or, if lower, at the present value of the
minimum lease payments, each determined at the inception of
the lease. The corresponding liability to the lessor is included in
the statement of financial position as a finance lease obligation.
Lease payments are apportioned between finance charges
and reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance
charges are charged directly against income, unless they are
directly attributable to qualifying assets, in which case they are
capitalised in accordance with the Group’s general policy on
borrowing costs.
Rentals payable under operating leases are charged to income
on a straight-line basis over the term of the relevant lease.
In some instances, the Group will agree to revenue-based
lease agreements where a portion of the rent is contingent
upon future sales of the store. The costs associated with the
revenue-based portion of the lease are recognised as a period
expense within other operating expenses.
Premiums paid or lease incentives received on the acquisition
of short leasehold properties are transferred to the statement
of comprehensive income on a straight-line basis over the
length of the lease within other operating expenses. The
rent-free amounts are recognised within prepayments and
accrued income prior to being released to the statement of
comprehensive income on a straight-line basis over the
contracted period of the lease.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost is calculated to include, where applicable, duties,
handling, transport and other directly attributable costs.
Net realisable value is based on estimated normal selling
prices less further costs expected to be incurred in selling
and distribution, with a provision being made against lines
identified as slow-moving, old or at risk of obsolescence.
A further shrinkage provision is made to provide for stock loss.
Provisions
A provision is recognised when the Group has a legal or
constructive present obligation as a result of a past event and
it is probable that an outflow of economic benefits, which can
be reliably estimated, will be required to settle the obligation.
If the effect is material, expected future cash flows are
discounted using a current pre-tax rate that reflects the risks
specific to the liability. Calculations of these provisions require
judgements to be made, which include forecast consumer
demand and inventory loss trends.
Gift cards and vouchers
Revenue from gift cards and gift vouchers sold by the Group is
recognised on the redemption of the gift voucher or gift card.
Monies received represent deferred revenue prior to redemption
and are disclosed within accruals. The valuation of the accrual
is adjusted to release amounts relating to outstanding gift card
balances unlikely to be redeemed, which is released against
revenue taking into account relevant expiry rates. This is
calculated based on the historical redemption rates.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
period. Taxable profit differs from the profit/(loss) before
taxation as reported in the statement of comprehensive income
because it excludes items of income or expense that are taxable
or deductible in other periods and it further excludes items that
are never taxable or deductible. The Group’s liability for current
tax is calculated using tax rates that have been enacted or
substantively enacted by the reporting period-end.
91
Accounting Policies of the Group continued
Deferred tax assets are recognised for deductible temporary
differences arising on trading losses which can be offset
against expected future taxable profits.
The carrying amount of deferred tax assets is reviewed at
each period-end and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to
allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected
to apply in the period when the liability is settled or the asset
is realised based on tax laws and rates that have been enacted
or substantively enacted at the balance sheet date. Deferred
tax is charged or credited in the statement of comprehensive
income, except when it relates to items charged or credited in
other comprehensive income, in which case the deferred tax
is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
Pension contributions
The Group makes payments to a number of defined contribution
pension schemes. The assets of these schemes do not form
part of the assets of the Group. The pension cost charge
represents contributions payable during the period (note 9).
When employees of subsidiary companies are issued equitysettled compensation awards over shares in the Parent
Company, the Parent Company shall recognise an increase
in the value of its investment in the subsidiary and an increase
in reserves. The subsidiary in turn will recognise the fair value
of the award in its profit and loss account with an associated
increase in reserves to reflect the deemed capital contribution
from the Parent Company.
Loans and receivables
Trade receivables, loans, and other receivables that have
fixed or determinable payments that are not quoted in an
active market are classified as loans and receivables.
Trade and other receivables are initially recognised at fair
value and subsequently carried at amortised cost, less
provision for impairment. As at the period-end, management
had not identified any objective evidence that indicated an
impairment had occurred. To the extent an indicator of
impairment is identified, a provision for impairment of trade
and other receivables is established when there is objective
evidence that the Group will not be able to collect all amounts
due according to the original terms of the receivables.
This provision represents the difference between the asset’s
carrying amount and the present value of estimated future
cash flows. The amount of the provision is recognised in the
statement of comprehensive income.
Cash and cash equivalents include cash in hand, deposits at
call with banks and unpresented cheques. Bank overdrafts are
shown within borrowings in current liabilities on the statement
of financial position.
Interest income is recognised by applying the effective interest
rate, except for short-term receivables when the recognition
of interest would be immaterial.
Financial assets held at fair value through profit and loss
(‘FVTPL’)
Financial assets are classified as at FVTPL when the financial
asset is either held for trading or it is designated as at FVTPL.
A financial asset is classified as held for trading if:
■■
Share-based compensation
Equity-settled share-based payments to employees and others
providing similar services are measured at the fair value of
the equity instruments at the grant date. The fair value excludes
the effect of non-market-based vesting conditions. Details
regarding the determination of the fair value of equity-settled
share-based transactions are set out in note 23.
The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis
over the vesting period, based on the Group’s estimate of
equity instruments that will eventually vest. At each balance
sheet date, the Group revises its estimate of the number of
equity instruments expected to vest as a result of the effect
of non-market-based vesting conditions. The impact of the
revision of the original estimates, if any, is recognised in profit
or loss such that the cumulative expense reflects the revised
estimate, with a corresponding adjustment to equity reserves.
■■
■■
A financial asset other than a financial asset held for trading
may be designated as at FVTPL upon initial recognition if:
■■
■■
■■
92
it has been acquired principally for the purpose of selling
in the near term; or
on initial recognition it is a part of a portfolio of identified
financial instruments that the Group manages together and
has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a
hedging instrument.
such designation eliminates or significantly reduces a
measurement or recognition inconsistency that would
otherwise arise; or
the financial asset forms part of a group of financial assets
or financial liabilities or both, which is managed and its
performance is evaluated on a fair value basis, in accordance
with the Group’s documented risk management or
investment strategy, and information about the grouping
is provided internally on that basis; or
it forms part of a contract containing one or more embedded
derivatives, and IAS 39 Financial Instruments: Recognition
and Measurement permits the entire combined contract
(asset or liability) to be designated as at FVTPL.
Financial liabilities and equity instruments
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of
the contractual arrangements. Derivative financial instruments
are measured at fair value on the contract date and are
subsequently valued at fair value at each reporting date.
The Group designates certain derivatives as hedges of the
change of fair value of recognised assets and liabilities
(‘fair value hedges’). Hedge accounting is discontinued
when the hedging instrument expires or is sold, terminated
or exercised, no longer qualifies for hedge accounting
or the Company chooses to end the hedging relationship.
Other financial liabilities
Trade and other payables are recognised on the trade date
of the related transactions. Trade payables are not interestbearing and are stated at their nominal value.
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated
at amortised cost, with any difference between the proceeds
(net of transaction costs) and the redemption value recognised
in the statement of comprehensive income over the period
of the borrowings using the effective interest method.
Critical accounting judgements and key sources of
estimation uncertainty
The key assumptions concerning the future and other key
sources of estimation uncertainty at the reporting period date
used in preparing this additional financial information are:
Inventory provisions
As inventories are stated at the lower of cost and net realisable
value, this requires the estimation of the eventual sales price of
goods. A high degree of judgement is applied when estimating
the impact on the carrying value of inventories to take into
account factors such as slow-moving items, shrinkage and
obsolescence. There is uncertainty in the assessment of the
provisions because the calculations require management
to make assumptions and to apply judgement regarding
inventory aging, forecast consumer demand, the promotional
environment and technological obsolescence.
Valuation of brand recognised on acquisition
A valuation was performed on the value of the ‘GAME’ brand
name employed by the UK and Spanish businesses as at
1 April 2012, resulting in the recognition of an intangible asset
of £67.4m. The royalty income method was employed to
determine the brand valuation. The royalty income method
includes uncertainties and requires estimates of key inputs,
such as the royalty rate, the discount rate and a growth rate
applied to revenue flows. The royalty rate was determined
by reference to the rate employed by other comparable
businesses. The discount rate was calculated using the
Capital Asset Pricing Model adjusted for a risk rate reflecting
the relative risk profile of the UK and Spain markets.
Gift card provision and customer deposits
Provisions for future redemptions of gift cards, gift vouchers
and customer deposits are estimated by management on the
basis of historical transactions and redemption patterns.
During the year ended 26 July 2014 the Directors revised
their gift card redemption estimate from a 100% deferral
of revenue to a percentage based on historical redemptions
based on additional information received pertaining to the
actual redemption rate over the two previous financial periods.
This has resulted in a £2.4m decrease in the liability, with
a corresponding adjustment to revenue compared to the
previous estimation procedure.
Impairment of tangible and intangible assets
The Group reviews the valuation of brand, other intangibles
and tangible assets for impairment annually or if events and
changes in circumstances indicate that the carrying value
may not be recoverable. The recoverable amount is determined
based on value-in-use calculations. The use of this method
requires the estimation of future cash flows and the choice of
a suitable discount rate in order to calculate the present value
of these cash flows. See note 14 for further information.
The shrinkage provision involves uncertainty because the
calculations require management to make assumptions and
to apply judgement regarding a number of factors, including
historical results and expectations of current inventory loss
trends. The quantity, age and condition of inventories are
reviewed and assessed through the inventory count process
undertaken throughout the year and across the Group.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the
corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for
all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from goodwill or from the initial
recognition of other assets and liabilities in a transaction that
affects neither the tax profit nor the accounting profit.
Loyalty provision
Management calculates the net cost of loyalty rewards issued
and estimate the amount that will be redeemed. The resulting
value is recorded as a deduction to revenue and recognised as
deferred income on the statement of financial position. The key
judgement used is the estimated redemption rate. Management
uses historical redemption rates experienced under the loyalty
programme and continually reviews the methodology and
assumptions based on developments in redemption patterns.
Changes in this redemption rate have the effect of increasing
or decreasing the provision through the current period.
93
Notes to the Consolidated Financial Statements
for the 52 weeks ended 26 July 2014
Sale of goods
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
861.8
657.9
Sales of goods from discontinuing operations amounts to £nil
(2013: £13.3m).
2. Operating segments
The Group’s Chief Executive Officer is the Group’s chief
operating decision-maker. Management has determined the
operating segments based on the information reviewed by the
Chief Executive Officer for the purposes of allocating resources
and assessing performance.
The Group’s Chief Executive Officer considers the business
from a geographic perspective, namely the UK (including one
store in the Isle of Man) and Spain. Such segments are
separately managed. The Group’s activities in both geographic
segments involve the sale of hardware and software products
via its stores and website. The discontinued and disposed
operations of the Group’s former business in Portugal (note
11) are excluded from the segment revenues and results.
The Group’s Chief Executive Officer assesses the performance
of the operating segments based on Adjusted EBITDA. The
Group defines Adjusted EBITDA as operating profit before
depreciation and amortisation, exceptional items, costs
relating to the change in business structure and IPO-related
share-based compensation (note 3). Adjusted EBITDA is a
supplemental measure of the Group’s performance and liquidity
that is not required to be presented in accordance with IFRS.
The accounting policies of each operating segment are the
same as those detailed previously.
Segment revenues and results
The following is an analysis of the Group’s revenue and Adjusted
EBITDA by reportable segment:
52 weeks
ended
26 July 2014
£m
Revenue
UK
Spain
Total revenue from
external customers
94
644.7
217.1
861.8
52 weeks
ended
27 July 2013
£m
455.9
202.0
657.9
Reconciliation of Adjusted EBITDA to profit/(loss)
before taxation
The accounting policies of the reportable segments are the
same as the Group’s accounting policies described.
Adjusted EBITDA by segment:
UK
Spain
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
40.6
10.7
14.9
8.7
Total
51.3
23.6
Depreciation and amortisation
Exceptional costs (note 4)
Cost of IPO-related share-based
compensation (note 23)
Costs relating to the change
in business structure (note 3)
Investment income (note 7)
Finance costs (note 8)
(15.1)
(8.4)
(15.0)
(8.8)
(0.3)
–
(2.7)
0.1
(17.6)
(3.1)
0.1
(12.2)
7.3
(15.4)
Profit/(loss) before taxation
Adjustments made to reconcile from basic to adjusted earnings
employed in the earnings per share calculation are detailed
in note 12.
Depreciation and amortisation
UK
Spain
Total
Total assets
UK
Spain
Assets classified as held for sale
Combined total assets
Total liabilities
UK
Spain
Liabilities directly associated with
assets classified as held for sale
Combined total liabilities
166.0
71.0
–
237.0
27 July 2013
£m
131.9
68.0
1.3
201.2
67.9
24.7
177.5
21.2
–
92.6
0.8
199.5
For the purposes of monitoring segment performance and
allocating resources between segments, the Group’s Chief
Executive Officer monitors the tangible, financial and current
assets and current and non-current liabilities attributable
to each segment. All assets and liabilities are allocated to
reportable segments.
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
11.2
3.9
10.3
4.8
15.1
15.1
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
Additions to non-current assets
UK
Spain
11.1
0.3
4.3
0.5
Total
11.4
4.8
No impairment losses against property, plant and equipment
have been recognised against any segment in either of the
periods represented above.
Revenue from major products and services
The Group’s revenue from its major products and services was
as follows:
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
Content
Hardware
Preowned
Other
329.7
265.9
169.0
97.2
300.2
113.4
171.5
72.8
Total revenue
861.8
657.9
Segment assets
26 July 2014
£m
3. Other operating expenses
Other segment information
Content revenue includes income relating to the sale of
gaming products for use on hardware platforms, including
both physical and digital content. Digital content is on a
commission basis and is recognised net of associated purchase
costs. Hardware represents the sale of console platforms.
Preowned includes the sale of preowned content and hardware.
Other revenue relates to the sale of accessories, movies
and DVDs within stores and online. No single customer
contributed more than 10% to Group revenue.
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
133.4
–
128.9
(0.5)
133.4
128.4
Administrative expenses
Less exceptional costs
51.5
(8.4)
43.1
48.4
(8.3)
40.1
Total operating expenses
184.9
177.3
(8.4)
(8.8)
176.5
168.5
Selling and distribution
Selling and distribution before
exceptional costs
Other operating costs before
exceptional costs
For details of these exceptional costs, see note 4.
Included within Administrative expenses are costs relating
to the change in business structure comprising £1.3m
(2013: £1.3m) relating to advisory, investment monitoring fees
and other holding company costs of £1.4m (2013: £1.8m) which
the Group incurred in return for certain services received prior
to the IPO under the former private companies’ ownership and
governance structure. The agreements relating to the provision
of these services have been terminated and the former holding
company arrangements no longer apply.
4. Exceptional costs
Administrative expenses include exceptional costs of £8.4m
for the 52 weeks ended 26 July 2014 (2013: £8.8m).
The exceptional costs relate principally to costs incurred
relating to the delivery of the IPO and costs incurred with
external advisors in strategically restructuring the business.
52 weeks
ended
26 July 2014
£m
Restructuring (income)/costs
associated with the former
GAME Group
Cost of settling acquired liabilities
IPO costs
Cost of rebranding
52 weeks
ended
27 July 2013
£m
(0.3)
1.0
7.7
–
5.3
3.0
–
0.5
8.4
8.8
1. Revenue
95
for the 52 weeks ended 26 July 2014 continued
The cost of settling acquired liabilities relates to legal costs
of litigation involving a number of institutional landlords and
the administrators of the former GAME Group plc in relation
to the payment of certain outstanding rent and other sums in
place at the date of acquisition of the business. Game Retail
Limited agreed to indemnify the former GAME Group plc and
its administrators in relation to the payment of such sums,
to the extent that they are held by the court to be payable
as an expense of the administration.
Exceptional costs in relation to the IPO were £7.7m. These costs
include the cost of preparing to become a listed company, cash
payments under employee bonus arrangements and the cost
of the Virtual Loyalty Share Plan offered to 20,000 of the Group’s
most loyal customers in the UK. A £0.3m charge in respect
of share awards relating to the IPO have been classified as
non-exceptional on the basis the charge will recur. This has
been treated as an adjusting item for Adjusted EBITDA.
Costs of rebranding consist of the costs incurred in rebranding
Gamestation-branded stores in the UK under the single
brand and facia, ‘GAME’, and the costs of amalgamating the
Gamestation and GAME loyalty and reward card programmes
under a unified GAME loyalty and reward card programme.
6. Auditor remuneration
52 weeks
ended
26 July 2014
£m
Fees payable to the Group’s auditor
for the:
– Audit of the consolidated Group
– Audit of the Company’s
subsidiaries financial statements
0.1
–
0.2
0.1
Total audit fees
0.3
This is stated after charging:
Depreciation charge of property,
plant and equipment
Loss on disposal of non-current assets
Amortisation of intangible assets
Staff costs
Operating lease
– leasehold
rentals
premises
– other
52 weeks
ended
27 July 2013
£m
0.1
Other fees payable to the auditor:
– Reporting accountant services
relating to IPO
– Tax compliance services
– Tax advisory
– Other services
1.8
0.1
0.3
0.1
–
–
0.5
–
Total non-audit fees
2.3
0.5
Auditor remuneration of £0.2m was paid in the UK and £0.1m
was paid in Spain. Of the fees payable to Deloitte LLP in 2014,
£1.5m was included as share issue costs and related to
reporting accountant services.
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
0.1
0.1
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
1.3
16.3
0.2
12.0
17.6
12.2
Interest on bank deposits
8. Finance costs
4.3
0.2
10.8
72.0
4.9
1.2
10.1
63.4
35.8
0.4
36.8
0.6
The amount of inventory recognised as an expense in the period
equates to the amount recognised as cost of sales.
Interest on bank overdrafts and loans
Interest payable to related parties
Included in interest on bank overdrafts and loan finance costs
is the arrangement fee of £0.8m for the asset-based revolving
loan facility of up to £50m with HSBC Invoice Finance (UK)
Limited signed as part of the reorganisation in relation to the IPO.
Interest payable to related parties comprises:
■■
■■
96
interest of £3.5m (2013: £2.6m) on the asset-based revolving
loan facility with an indirect related party which was
terminated on IPO and replaced with the asset-based
revolving loan facility of up to £50m from HSBC; and
interest of £12.8m (2013: £9.4m) on the Senior Loan Notes
and Management Loan Notes which were fully capitalised
as part of the reorganisation implemented ahead of the IPO
(note 18).
The charge for the period can be reconciled to the profit/(loss)
in the statement of comprehensive income as follows:
Factors affecting the tax charge for the period
52 weeks
ended
26 July 2014
£m
9. Employees and Directors
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
Wages and salaries
Share-based payments (note 23)
63.5
0.3
55.9
–
Total wages and salaries
63.8
55.9
Social security costs
Pensions
7.8
0.4
7.2
0.3
Total employee costs
72.0
63.4
The Group makes payments to a number of defined contribution
pension schemes. The assets of these schemes do not form part
of the assets of the Group. The pension cost charge represents
contributions payable during the period. The amount of
contributions outstanding at 26 July 2014 was £0.0m (2013: £0.0m).
The average number of employees of the Group during the
period, including Directors, was as follows:
7. Investment income
5. Operating profit/(loss)
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
Of the total interest charge of £17.6m, £4.6m was paid in the
year, all of which relates to interest and charges in relation to
the former and the new asset-based revolving loan facilities
and interest on loan facilities in Spain (2013: £2.6m).
Selling
Administration and distribution
Profit/(loss) on ordinary activities
before taxation
Profit/(loss) on ordinary activities
multiplied by the standard rate
of UK corporation tax (52 weeks
ended 26 July 2014: 23.3%; 52
weeks ended 27 July 2013: 23.7%)
Effects of:
Expenses not deductible for
tax purposes
Effect of changes in tax rate
Overseas tax rates
Adjustments to tax in respect
of previous periods
Losses on which no deferred
tax recognised
Other items
Tax charge for the period
52 weeks
ended
26 July 2014
52 weeks
ended
27 July 2013
4,214
498
3,973
398
4,712
4,371
Information regarding key management personnel is included in
note 27. Detailed information regarding Directors’ emoluments,
pensions, long-term incentive scheme entitlements and their
interests in share options is given in the Directors’ Remuneration
Report on pages 68 to 76.
10. Taxation
Analysis of charge in the period
52 weeks
ended
27 July 2013
£m
7.3
(15.4)
1.7
(3.7)
2.8
(0.4)
0.4
4.0
–
–
(1.0)
0.8
0.3
0.7
(0.9)
4.5
0.2
Finance Acts 2012 and 2013, which provide for reductions in
the main UK rate of corporation tax from 24% to 23% effective
from 1 April 2013, 23% to 21% effective from 1 April 2014 and
from 21% to 20% effective from 1 April 2015 were substantively
enacted on 3 July 2012 and 2 July 2013 respectively. The
relevant substantively enacted rate reductions have been
reflected in the calculations of current and deferred tax
(see note 20) at each balance sheet date.
11. Discontinued operations
On 30 July 2013, the Group completed a sale agreement to
dispose of ETS-Multimédia Jogos e Software LDA, a subsidiary
of Game Stores Iberia SLU, which carried out all of the Group’s
Portuguese operations.
4. Exceptional costs continued
Restructuring (income)/costs associated with the
administration of the former GAME Group plc in the 52-week
period ended 26 July 2014 principally relate to income and
recoveries relating to VAT in respect of gift card liabilities
and in the 52-week period ended 27 July 2013 to costs of
consultancy fees and lease negotiations following the
administration of the former GAME Group plc.
The results of the discontinued operations were as follows:
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
Current tax
UK corporation tax expense
Overseas corporation tax expense
Total current tax
0.4
1.1
1.5
–
2.6
2.6
Deferred tax (see note 20)
3.0
(2.4)
Taxation charge
4.5
0.2
Taxation for overseas jurisdictions is calculated at the rates
prevailing in the respective jurisdictions.
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
Revenue
Expenses
Loss before tax
–
–
–
13.3
(14.2)
(0.9)
Attributable tax expense
Loss on disposal of
discontinued operations
Recycled exchange difference
arising from consolidation
–
–
–
(2.7)
–
0.2
–
(3.4)
Net loss attributable to
97
The major classes of assets and liabilities comprising the
operations classified as held for sale are as follows:
Inventories
Cash and bank balances
Total assets classified as held
for sale
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
–
–
–
0.4
0.4
0.5
–
1.3
Total liabilities associated with
assets classified as held for sale
–
0.8
–
0.8
Net assets of disposal group
–
0.5
12. Earnings per share
Earnings per share (EPS) has been calculated by dividing the
profit or loss for the period by the weighted average number
of ordinary shares in issue during the period.
The calculation of the earnings/(loss) per share are shown
in the table below.
Earnings
52 weeks
ended
26 July 2014
£m
Profit/(loss) for the period
attributable to equity holders
of the Group
Adjustment to exclude loss for the
period from discontinued operations
Adjusted earnings/(loss) from
continuing operations for the
purpose of basic and diluted
earnings per share excluding
Weighted average number of
ordinary shares for basic earnings
per share
Basic and diluted earnings/(loss)
per share (£s)
52 weeks
ended
27 July 2013
£m
2.8
(19.0)
–
3.4
2.8
21,895,604
(15.6)
168
0.13 (113,095.24)
There are no shares or financial instruments that are dilutive.
All shares in issue are considered to be outstanding and are
therefore incorporated in both basic and diluted earnings per
share calculations.
98
IAS 33 Earnings per share requires that the number of shares
used for basic and diluted earnings per share be calculated on the
weighted average number of shares over the year. The corporate
reorganisation and IPO took place between 6 June 2014 and
11 June 2014, shortly before the end of the financial year.
Therefore the weighted average number of shares is considerably
lower than the 170 million shares in issue at the date of the IPO.
For the purposes of Adjusted EPS the number of shares
immediately post the IPO and currently in issue has been used.
52 weeks
ended
26 July 2014
£m
Profit/(loss) for the period
of the Group
Brand amortisation (note 14)
Exceptional costs (note 4)
Cost of IPO-related share-based
compensation (note 23)
Costs relating to the change in
business structure (note 3)
Interest on the Senior Loan Notes and
Management Loan Notes (note 8)
Tax on items above
Adjusted profit for the period
of the Group
Adjustment to exclude loss for the
period from discontinued operations
Adjusted earnings from continuing
operations for the purpose of basic
and diluted earnings per share
excluding discontinued operations
Weighted average basic ordinary
shares
Adjustment to account for IPO
Adjusted ordinary shares
Adjusted earnings per share
52 weeks
ended
27 July 2013
£m
2.8
8.3
8.4
(19.0)
8.3
8.8
0.3
–
2.7
3.1
12.8
(5.1)
9.4
(5.2)
13. Property, plant and equipment
Freehold Improvements
to leasehold
land and
property
property
£m
£m
Computer
hardware
£m
Fixtures,
fittings and Assets under
equipment construction
£m
£m
Total
£m
Cost
At 27 July 2013
Additions
Disposals
Exchange differences
At 26 July 2014
7.6
–
–
–
7.6
22.2
0.2
(0.7)
(2.0)
19.7
2.0
1.2
(0.7)
(0.1)
2.4
8.5
5.3
(0.9)
(0.5)
12.4
–
0.6
–
–
0.6
40.3
7.3
(2.3)
(2.6)
42.7
Accumulated depreciation and impairment
At 27 July 2013
Charge for the period
Disposals
At 26 July 2014
0.2
0.1
–
–
0.3
17.4
2.0
(0.6)
(1.7)
17.1
1.6
0.6
(0.7)
(0.1)
1.4
5.4
1.6
(0.8)
(0.4)
5.8
–
–
–
–
–
24.6
4.3
(2.1)
(2.2)
24.6
Carrying amount
At 26 July 2014
7.3
2.6
1.0
6.6
0.6
18.1
At 27 July 2013
7.4
4.8
0.4
3.1
–
15.7
Computer Assets under
software construction
£m
£m
Total
£m
The carrying value of the property, plant and equipment is not materially different to its fair value.
14. Intangible fixed assets
30.2
5.4
–
3.4
30.2
8.8
21,895,604
168
148,104,396 169,999,832
170,000,000 170,000,000
17.8p
5.2p
An adjustment to earnings per share has been made for the
interest on the Senior Loan Notes and Management Loan Notes
because this related party debt was capitalised as part of the
restructuring ahead of the IPO and was not extant at 26 July 2014
and nor will it recur (note 8). No adjustment has been made to
earnings per share for costs of the short-term stock finance
facility provided to Game Retail Limited by an indirect related
party as this has been replaced (albeit on more favourable terms)
with a new facility provided by HSBC (note 19).
Brand
£m
Cost
At 27 July 2013
Additions
Disposals
At 26 July 2014
67.4
–
–
(1.2)
66.2
8.8
2.8
(0.2)
–
11.4
–
1.3
–
–
1.3
76.2
4.1
(0.2)
(1.2)
78.9
Accumulated amortisation and impairment
At 27 July 2013
Charge for the period
Disposals
At 26 July 2014
11.2
8.3
–
(0.2)
19.3
2.5
2.5
(0.2)
–
4.8
–
–
–
–
–
13.7
10.8
(0.2)
(0.2)
24.1
Carrying amount
At 26 July 2014
46.9
6.6
1.3
54.8
At 27 July 2013
56.2
6.3
–
62.5
11. Discontinued operations continued
The associated non-cash charge taken to write the carrying
value of the Group’s net assets down to net realisable value less
costs to sell in the year ended 27 July 2013 was £2.7m. Cash
proceeds of £0.5m were received on the sale of the business
in the period ended 26 July 2014.
There are no intangible assets with indefinite useful lives. All amortisation charges have been expensed through operating costs.
Brand comprises £46.9m in respect of the ‘GAME’ brand which is being amortised over an eight-year period from acquisition
and has a remaining useful economic life of six years.
To test the brand intangible asset for indicators of impairment the Group prepares cash flow forecasts derived from the most
recent financial projects approved by management and extrapolates cash flows to approximate a value to perpetuity. The rate used
to discount cash flows is 11.7% (2013: 12.2%). The resultant value derived did not indicate any impairment to the carrying value
of intangible fixed assets.
99
Finished goods and goods held
for resale
26 July 2014
£m
27 July 2013
£m
57.6
51.5
The Directors consider that the replacement value of
inventories is not materially different from their carrying value.
There are no individual items of inventory held at fair value less
costs to sell. The stock provision as at 26 July 2014 of £3.8m
(2013: £3.7m) is an estimate of the difference between the
cost of stock and its estimated net realisable value.
No inventory was pledged as security at 26 July 2014 (2013: £nil).
16. Trade and other receivables
Amounts falling due within one year:
Trade receivables
Amounts owed by related parties
Other receivables
Prepayments and accrued income
26 July 2014
£m
27 July 2013
£m
6.1
–
9.9
5.2
7.7
1.7
6.5
7.4
21.2
23.3
As at 26 July 2014 there were no amounts of trade and other
receivables which were impaired (2013: £nil). A large proportion
of trade and other receivables of the Group relates to customers
using credit cards or similar arrangements to purchase goods.
None of the receivables is past due with respect to contract
terms. The Group considers the risk of non-recovery to
be negligible.
The fair values of trade and other receivables are the same as
book values due to the negligible credit risk associated with these
assets and their short duration. Trade and other receivables are
not subject to other fluctuations in market rates.
17. Trade and other payables
Trade payables
Other payables
Tax and social security costs
VAT payables
Accruals and deferred income
26 July 2014
£m
27 July 2013
£m
32.1
9.1
5.0
8.6
27.3
18.2
11.3
3.8
4.6
31.6
82.1
69.5
Trade payables are non-interest bearing. Settlement terms vary
from 7-21 days for consignment stock purchases, with other
stock and services normally settled on 30 days or 60 days
following the end of the month of receipt.
Book values approximate to fair value at each of 26 July 2014
and 27 July 2013 due to the short-term nature of these items
and taking into account the credit risk of the Group. The
difference between the book and fair values is not considered
to be material.
100
Accruals and deferred income includes gift card liabilities at
26 July 2014 of £9.2m (2013: £12.0m) and liabilities in respect of
the loyalty programme at 26 July 2014 of £11.6m (2013: £11.6m).
Redemption rates for gift card accruals and deposits were
introduced in the current period. Previously, the full outstanding
balance was provided for. The combined reduction in the
accrued balances due to the introduction of the redemption
rates was £2.4m for the 52-week period ended 26 July 2014.
18. Borrowings
Current portion:
Loan notes with related parties
Bank overdrafts and loans
The gross contractual maturity of
financial liabilities is as follows:
On demand or within one year
26 July 2014
£m
27 July 2013
£m
–
1.6
117.8
1.7
1.6
119.5
26 July 2014
£m
27 July 2013
£m
1.6
119.5
Loans with related parties
Up until the IPO the Group was funded by related party loans with
the investment vehicles which held either directly or indirectly
a controlling equity interest in the Group. The Group issued
£106.1m of Senior Loan Notes on 1 April 2012. On 18 April 2013,
£63.0m of the Senior Loan Notes were redeemed. On 18 April
2013, an additional £63.0m of Management Loan Notes were
issued to Baker Investments LP (an entity in which each of
Duodi Investments S.à r.l. and certain Directors had an interest).
Analysis of bank overdrafts and loans by currency
Sterling
Euro
In addition to the Senior Loan Notes and Management Loan
Notes, a £2.5m revolving credit facility was provided by
Duodi Investments S.à r.l. to Cherrilux Investments S.à r.l.
on 8 October 2012. £0.2m was outstanding in respect of this
facility at 27 July 2013.
As part of the reorganisation implemented ahead of the IPO,
the following steps were carried out resulting in all of the Group
debt owing to related parties being settled in full:
■■
■■
■■
The Senior Loan Notes (together with all outstanding interest
thereon and interest that has already been paid thereon)
issued by Capitex Holdings Limited to Duodi Investments
S.à r.l. were capitalised and Capitex Holdings Limited issued
ordinary shares to Duodi Investments S.à r.l. in consideration
for the release of the Senior Loan Notes, the outstanding
interest and payment in kind notes.
The Management Loan Notes were capitalised and Capitex
Holdings Limited issued ordinary shares to Baker Investments
LP in consideration for the release of the Management
Loan Notes. The shares issued in respect of the senior and
management loan notes discussed above were exchanged for
shares in GAME Digital plc, therefore no minority interest arose.
The sum of £0.2m owed by Cherrilux Investments S.à r.l. to
Duodi Investments S.à r.l. was settled by way of a contribution
by Duodi Investments S.à r.l. to the capital contribution account
of Cherrilux Investments S.à r.l. (note 24).
27 July 2013
£m
–
1.6
117.6
1.9
1.6
119.5
19. Financial instruments
Financial risk management
The Group has finance functions in the UK and Spain which
provide management control of liquidity, foreign exchange
and interest rates. The function operates to reduce risk
in accordance with policies approved by the Board.
The Group’s principal financial instruments comprise revolving
credit facilities and cash and cash equivalent. The main purpose
of these financial instruments is to raise finance for the Group’s
operations. The Group has various other financial instruments
such as trade receivables and trade payables which arise
directly from its operations.
It is, and has been throughout the period under review, the
Group’s policy that no trading in financial instruments shall
be undertaken.
There have been no movements in the fair value of the Forward
other than the initial recognition and the revaluation movement
at the end of the reporting period.
The Forward has been classified as a Level 1 financial asset
in accordance with the fair value hierarchy. The cash ultimately
to be received by the Group is derived from the Company’s
share price, which is publicly available and its shares are
quoted on an active market.
Financial liabilities
The main risks arising from the Group’s financial instruments
are liquidity risk, credit risk and interest rate risk. The Board
reviews and agrees policies for managing each of these risks.
Categories of financial instruments
Financial assets
The interest accruing on the Senior Loan Notes and
Management Loan Notes was 7.5% per annum above the
published base rate of Barclays Bank plc.
26 July 2014
£m
Under the Forward, if the customers participating in the Virtual
Loyalty Share Plan redeem Virtual Loyalty Shares, Game Retail
Limited will communicate this to HSBC and HSBC will reduce
the number of ordinary shares under the Forward by the same
number of the Virtual Loyalty Shares that have been redeemed.
HSBC will pay to Game Retail Limited the amount that would be
received if a number of ordinary shares equal to the number of
ordinary shares by which the Forward has been reduced were
sold at then-current market prices. The cash-settled Forward
is carried as a current asset and recognised at fair value
through profit and loss. The carrying amount reflected above
represents the Group’s maximum exposure to credit risk for
such loans and receivables.
26 July 2014
27 July 2013
£m
£m
Current financial liabilities
Trade and other payables (note 17)
Borrowings (note 18)
Leasehold property incentives (note 21)
68.5
1.6
1.4
61.1
119.5
1.5
Total current financial liabilities
71.5
182.1
Non-current financial liabilities
Leasehold property incentives (note 21)
3.3
3.6
3.3
3.6
74.8
185.7
Current financial assets
Trade receivables, other receivables
and amounts owed by related
parties (note 16)
14.7
15.9
Total non-current financial liabilities
85.3
42.9
Total financial liabilities
Financial assets held at fair value
through profit and loss
Cash-settled equity forward
1.3
–
101.3
58.8
On 6 June 2014, Game Retail Limited entered into a derivative
contract with HSBC in order to finance and hedge its liabilities
under the Loyalty Shares Plan. The derivative contract takes the
form of a cash-settled equity forward transaction (the ‘Forward’).
The underlying shares in the Company were sold at nominal value
to HSBC by the selling shareholder on IPO on behalf of Game
Retail Limited. The benefit of this transfer has been reflected
in Group reserves as a capital contribution (note 24).
Financial liabilities
measured at amortised cost
26 July 2014
27 July 2013
£m
£m
The Directors consider that the carrying amounts of financial
assets and financial liabilities recorded at amortised cost in
the financial statements approximate their fair values.
15. Inventories
Market risk
The Group operates autonomously with respect to trading in
the UK and Spain and therefore does not carry any material
exposure to foreign currency exchange movements in respect
of its trading activities. The Group is exposed to the Euro on the
translation of the investment and the results of its Luxembourg
and Spanish subsidiaries.
Credit risk
The Group trades only with recognised, creditworthy third
parties. The Group does not enter into derivatives to manage
its credit risk. At the end of the reporting period there were
no concentrations of credit risk.
101
The maximum exposure to credit risk at the reporting date is
represented by the carrying value of the financial assets in the
statement of financial position.
The Group does not have any significant credit risk exposure
to any single counterparty or any group of counterparties having
similar characteristics. The Group defines counterparties
as having similar characteristics if they are related entities.
Liquidity risk
The Group’s policy on liquidity is to ensure that there are
sufficient committed borrowing facilities to meet the Group’s
medium-term funding requirements.
The Group manages liquidity risk by maintaining adequate
reserves, banking facilities and reserve borrowing facilities, by
continuously monitoring forecast and actual cash flows, and by
matching the maturity profiles of financial assets and liabilities.
(a) Interest rate of borrowings
The interest rate exposure of the Group’s borrowings is
shown below:
Floating rate Sterling borrowings
Fixed rate Euro borrowings
26 July 2014
£m
27 July 2013
£m
–
1.6
117.6
1.9
The floating rate Sterling borrowings represent amounts owed
to related parties, including deferred interest and accrued fees.
During 2013 the Group had a £30.0m short-term stock finance
facility (which during 2014 was increased to £100.0m and then
reduced to £55.0m and subsequently reduced further to £20.0m)
provided to Game Retail Limited by an indirect related party.
Borrowings accrued interest at a rate of 15% per annum on
drawn balances and 5% per annum for undrawn commitments.
The facility was terminated on IPO and was replaced by a
short-term asset-based revolving loan facility of up to £50m
with HSBC Invoice Finance (UK) Limited which accrues interest
at a rate of 3.75% per annum above the base rate of the Bank
of England from time to time on drawn balances and 1.3%
per annum for undrawn commitments.
Interest rate risk
Due to the floating rate of interest on the Group’s principal
borrowings, the Group is exposed to interest rate risk.
No hedging is carried out.
(b) Interest rate and currency of cash balances
The currency and interest rate exposure of the Group’s floating
rate cash balances is shown below:
Sterling
Euro
US Dollar
26 July 2014
£m
27 July 2013
£m
56.4
28.9
–
24.2
18.6
0.1
85.3
42.9
(c) Sensitivity analysis
At the balance sheet date the Group’s principal funding facility is
the asset-based revolving loan facility of up to £50m with HSBC
Invoice Finance (UK) Limited, which was undrawn at 26 July
2014. The interest on drawn balances attracts a floating rate
interest. A 1% increase in the floating interest rate would
increase interest payable by an immaterial amount. There was
no drawn balance at the current or prior year reporting date.
Foreign currency risk management
The Group had no material monetary assets or liabilities that
are not denominated in the functional currency of the Group.
The Group undertakes transactions denominated in
foreign currencies; consequently exposures to exchange
rate fluctuations arise. The carrying amounts of the Group’s
foreign currency denominated monetary assets and
monetary liabilities at the reporting date are as follows:
Liabilities
26 July 2014
27 July 2013
£m
£m
Euro
26.5
22.0
Property,
plant and
equipment
£m
At 27 July 2013
Credited/(charged) to profit or loss in current period
Adjustments in respect of prior periods
Effect of changes in tax rate
Credited/(charged) to profit or loss
Tax losses
£m
Short-term
timing
differences
£m
72.4
69.3
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
–
2.2
0.2
2.3
Management consider 5% to be a reasonable sensitivity
threshold based on historical fluctuations.
Capital risk management
The capital structure of the Group consists of debt, which
includes the borrowings disclosed in note 18, cash and cash
equivalents and equity attributable to equity holders of the
Parent Company, comprising issued capital, reserves and
retained earnings as disclosed in the statement of changes
in equity.
Brand
£m
Total
£m
(2.6)
0.1
0.5
–
0.6
5.7
(4.5)
0.4
–
(4.1)
0.1
–
0.1
–
0.1
(3.1)
0.4
–
–
0.4
0.1
(4.0)
1.0
–
(3.0)
0.1
(0.3)
–
0.3
0.1
At 26 July 2014
(1.9)
1.3
0.2
(2.4)
(2.8)
26 July 2014
£m
27 July 2013
£m
Deferred tax asset
(2.8)
–
(3.9)
4.0
At end of period
(2.8)
0.1
At 26 July 2014 the Group had unused tax losses of £4.4m (2013: £24.6m) available for offset against future profits. A deferred tax
asset of £1.3m (2013: £5.7m) has been recognised in respect of such losses.
21. Leasehold property incentives
Leasehold property incentives are amortised to the statement of comprehensive income on a straight-line basis, over the shorter
of the remaining life of the lease period to expiry or renewal.
Assets
26 July 2014
27 July 2013
£m
£m
The Group is mainly exposed to the Euro. A 5% increase or
decrease in Sterling against the Euro has the following impact
on the Group:
Profit and loss
Other equity
20. Deferred taxation
52 weeks
ended
26 July 2014
£m
Rent-free periods and reverse premiums
At start of period
Rent-free periods and reverse premiums received during the period
Disposals
Released to statement of comprehensive income
52 weeks
ended
27 July 2013
£m
5.1
1.2
(0.1)
(1.5)
0.1
6.7
(0.2)
(1.5)
At end of period
4.7
5.1
Due within one year
Due greater than one year
1.4
3.3
1.5
3.6
At end of period
4.7
5.1
£m
27 July 2013
Number of
shares
£m
19. Financial instruments continued
With respect to credit risk arising from the other financial
assets of the Group, which comprise cash and cash equivalents,
the Group’s exposure to credit risk arises from default of the
counterparty with a maximum exposure equal to the carrying
amount of these instruments.
22. Called up share capital
26 July 2014
Number of
shares
Allotted, called up and fully paid ordinary shares of 1p each
At start of period
Share capital issued
100
169,999,900
–
1.7
100
–
–
–
At end of period
170,000,000
1.7
100
–
159,999,900 shares were issued in June 2014 as a result of a reorganisation implemented by way of a share-for-share exchange
made by the Company for the shares of Capitex Holdings Limited.
102
103
All of the ordinary shares rank equally with respect to voting
rights and rights to receive ordinary and special dividends.
There are no restrictions on the rights to transfer shares.
No dividends have been declared or paid in the 52-week period
(2013: £nil).
■■
■■
50% will vest for absolute growth of 75% (being equivalent
to a compound annual growth rate of approximately 20.5%
per annum); and
100% will vest for absolute growth of 100% (being equivalent
to a compound annual growth rate of approximately 26% per
annum), with straight-line vesting between these two points.
TSR at the end of the vesting period will be measured based on
the average share price for the Company for the last 30 dealing
days of that period. The Director and Senior Manager IPO
Awards will be satisfied either by the transfer of ordinary shares
purchased in the market by the EBT, the transfer of treasury
shares or by a new issue of ordinary shares.
Movements in the Director and Senior Manager IPO Awards and
options for the 52 weeks ended 26 July 2014 and 27 July 2013
are as follows:
Number of
shares
’000
Details contained of options granted under the Group’s share
scheme are contained in note 23.
23. Share-based payments
The Company has established a performance share plan
(the ‘PSP’), an all-employee share incentive plan (the ‘SIP’)
and an all-employee sharesave plan (the ‘SAYE Plan’).
The net charge recognised for share-based payments in the
52 weeks ended 26 July 2014 was £0.3m (2013: £nil).
On IPO 1,804,780 ordinary shares in the Company with
a market value of £3.6m were transferred into the GAME
Digital plc Employee Benefit Trust (the ‘EBT’) by the selling
shareholder to meet the cost of certain IPO-related incentive
and bonus plans. These IPO-related incentive and bonus plans
vest over 12 to 36 months. As a consequence IFRS 2 requires
that the Group recognises a charge because the benefit of
the services for which these shares are remunerated will flow
to the Group. The fair value of the shares at the date of grant
will be recognised over the vesting period.
The Directors regard the resultant non-cash charge as an
IPO cost and so will adjust for this cost in arriving at Adjusted
EBITDA and Adjusted Earnings Per Share.
One-off awards of ordinary shares were made on 11 June 2014
and 16 June 2014 under the PSP and the SIP respectively.
No awards have been made or granted under the SAYE Plan.
Performance share plan
Following the Listing of the Company’s shares on the main
market of the London Stock Exchange, two one-off awards
were made under the PSP.
1. Director and Senior Manager IPO Awards
Nil cost options over 1,003,454 shares in aggregate have been
granted to the Executive Directors of the Company and one
other senior manager within the Group (‘Director and Senior
Manager IPO Awards’) for which there is a vesting period of
36 months at the end of which these options will vest, provided
certain performance conditions are satisfied. The performance
condition these options are subject to is absolute growth in Total
Shareholder Return (‘TSR’) from the Offer Price as follows:
104
Outstanding at 29 July 2012
Granted
Exercised
Forfeited
Expired
–
–
–
–
–
–
Granted
Exercised
Forfeited
Expired
1,003
–
–
–
1,003
Fair value of options granted during
the period (pence)
Weighted average remaining contract life (years)
43.39p
2.9 years
52 weeks
ended
26 July 2014
52 weeks
ended
27 July 2013
198.0p
Nil
0%
1.13%
31.7%
3 years
–
–
–
–
–
–
Assumptions used in estimating
the fair value
Share price at date of grant
Exercise price
Expected dividend yield
Risk-free rate
Expected volatility
Expected life
Because the Group has recently listed, the volatility was
calculated by considering the historical volatility of the share
price of comparable businesses. The expected life used in
the model has been adjusted, based on management’s best
estimate, for the effects of non-transferability, exercise
restrictions, and behavioural considerations.
2. The Senior Employee IPO Awards
Nil cost options over 1,304,780 shares in aggregate have been
granted to certain other senior employees (‘the Senior Employee
IPO Awards’). In general, there is a vesting period of 12 months
for part of the award and a vesting period of 24 months for the
remainder of the award, at the end of which the Senior Employee
IPO Awards will vest. The Senior Employee IPO Awards will
not be subject to performance conditions other than continued
employment. Consequently the options are valued at the grant
price. The Senior Employee IPO Awards will be satisfied by
the transfer of ordinary shares currently held in the EBT.
Movements in the Senior Employee IPO Awards and options for
the 52 weeks ended 26 July 2014 and 27 July 2013 are as follows:
Number of
shares
’000
Granted
Exercised
Forfeited
Expired
–
–
–
–
–
–
Granted
Exercised
Forfeited
Expired
1,304
–
(49)
–
1,255
Fair value of options granted during
the period (pence)
Weighted average remaining contract life (years)
198.0p
1.0 year
The shares relating to Senior Employee IPO Awards were
transferred directly to the EBT on IPO by the selling shareholder
as a package of IPO-related incentives and form part of the 170
million issued ordinary shares of the Company as at 26 July 2014.
While the cost of this equity-settled transaction is recognised
in the Statement of Comprehensive Income together with a
corresponding increase in other reserves in equity, over the
period in which the service conditions are fulfilled, because these
shares were not paid for by the Company or the EBT, and are
designed to be a one-off IPO-related incentive, the cost in the
accounts of these awards (only) has been excluded from Adjusted
EBITDA and will be excluded from Adjusted EBITDA in the future,
in line with the treatment of other one-off IPO-related costs.
The fair value of awards under the SIP are equal to the share
price on the date of award as there is no price to be paid.
The shares relating to the initial award of shares under the
SIP were transferred directly to the EBT on IPO by the selling
shareholder as a package of IPO-related incentives and form
part of the 170 million issued ordinary shares of the Company
as at 26 July 2014. Subsequently on 16 June 2014, they were
transferred to the SIP Trust following the award of free shares.
While the cost of this equity-settled transaction is recognised
together with a corresponding increase in other reserves
in equity, over the period in which the service conditions
are fulfilled, because these shares were not paid for by the
Company or the EBT, and are designed to be a one-off IPOrelated incentive, the cost in the accounts of this initial award
(only) has been excluded from Adjusted EBITDA and will be
excluded from Adjusted EBITDA in the future, in line with
the treatment of other one-off IPO-related costs.
The weighted average share price during the period was 203p
(2013: not applicable).
Shares held in the EBT and SIP Trust
The EBT was established to hold and purchase shares on behalf
of the Company, in connection with the obligation to satisfy
current and future share awards under the PSP and any other
employee incentive schemes. The SIP Trust was established
to hold and purchase shares on behalf of the Company for the
benefit of employees, in connection with the SIP.
The EBT has waived its rights to receive dividends on any
shares held by them, unless otherwise instructed by the
Company, if required by the terms of an employee share
scheme, or by reference to other requirements set out in the
EBT Trust Deed. The Company may direct that the Trustee
can vote at any general meeting. If the Trustee does vote, the
Company cannot direct the manner in which the Trustee votes.
In the absence of such circumstances, the Trustees of the
EBT will abstain from voting at any general meeting.
The Trustees of the SIP Trust shall waive any dividends and
other distributions on any unawarded shares which form part
of the Trust, unless otherwise instructed by the Company, in line
with the terms set out in the SIP Trust Deed. The Trustees of the
SIP Trust will abstain from voting in relation to any unallocated
shares held in the SIP Trust at any general meeting. In respect
of allocated shares in the SIP Trust, the Trustees shall vote in
accordance with the participants’ instructions. In the absence
of any instruction, the Trustees shall not vote.
22. Called up share capital continued
A further 10,000,000 shares were issued in a primary share
issue in June 2014 when the Company’s shares were listed
on the Premium Listing segment of the Official List of the UK
Listing Authority and traded on the main market of the London
Stock Exchange. Cash proceeds from the issue of these shares
totalled £20.0m, from which £6.5m was charged against share
premium (£1.9m remained unpaid at 26 July 2014) (note 24).
The resultant net cash proceeds recorded in the Statements
of Cash Flows from the issue of shares in the IPO is £15.4m.
As at 26 July 2014, the SIP Trust held 501,515 ordinary shares of
1p each; and the EBT held 1,303,265 ordinary shares of 1p each.
Share incentive plan
The SIP is an HMRC approved scheme open to all UK employees
at the date of invitation. During the financial year ended 26 July
2014 the plan made an award of free shares under the SIP to
participating employees, with individual values being pro-rated
on salary and length of service. There are no performance
conditions other than remaining in employment for three years
from the date of award; hence there is a vesting period of two
years from the award date. Shares are generally held in the
GAME Digital plc Share Incentive Plan Trust (the ‘SIP Trust’)
for at least three years and are capable of being released
to participants at any time thereafter.
105
Cumulative translation reserve
The translation reserve is used to record exchange differences
arising from the translation of the financial statements of
foreign subsidiaries.
Merger reserve
On 11 June 2014 the Group was listed on the Premium Listing
segment of the Official List of the UK Listing Authority and
trading on the main market of the London Stock Exchange
following a reorganisation implemented by way of a share-forshare exchange made by the Company for the shares of Capitex
Holdings Limited. As the Group has been formed through a
reorganisation in which GAME Digital plc became a new parent
entity of the Group, these consolidated financial statements
have been prepared as a continuation of the existing Group
using the pooling of interests method (or merger accounting).
See the basis of preparation note on page 88 for more detail.
Merger accounting principles for this combination have given
rise to a merger reserve of £130.2m.
Retained earnings
Retained earnings include a capital contribution of £1.2m
(2013: £nil) reflecting the benefit to the Group of the sale by the
selling shareholder at nominal value of shares in the Company
to HSBC on behalf of Game Retail Limited to fund a derivative
contract with HSBC which finances and hedges Game Retail
Limited’s liabilities under the Loyalty Shares Plan (note 19).
A further capital contribution of £0.2m (2013: £nil) has been
credited to retained earnings to reflect the settlement as
part of the pre-IPO reorganisation steps of £0.2m which was
owed by Cherrilux Investments S.à r.l. to Duodi Investments
S.à r.l. (note 18).
25. Analysis of net funds/(debt)
26 July 2014
£m
106
27 July 2013
£m
Third-party borrowings
Amounts owed to related parties
85.3
(1.6)
–
42.9
(1.7)
(117.8)
Net funds/(debt)
83.7
(76.6)
26. Operating lease commitments
Operating lease commitments relate primarily to land
and buildings. The Group leases certain land and buildings
on short-term leases, with rents payable under these leases
being subject to renegotiation at various intervals specified
in the leases. At the end of the reporting period, the Group
has outstanding commitments for future minimum lease
payments under non-cancellable operating leases, which
fall due as follows:
Transactions with related parties
Monitoring and advisory fees
Financing costs
23.0
57.8
3.2
31.2
70.6
6.0
84.0
107.8
27. Related party transactions
Transactions between the Company and its subsidiaries, which
are related parties, have been eliminated on consolidation.
GAME Digital plc is the beneficial owner of all of the equity
share capital, either itself or through subsidiary undertakings,
of the following companies:
Country of
incorporation
Game Retail
Limited
Game Stores
Iberia SLU
Capitex
Holdings
Limited
Cherrilux
Investments
S.à r.l.
United
Kingdom
Spain
Country of
operation
Nature of
business
United Retail trading
Kingdom
company
Retail trading
Spain
company
United
Kingdom
United
Kingdom
Holding
company
Luxembourg
Luxembourg
Holding
company
During the period under review, Game Retail Limited was
party to a monitoring services agreement and an advisory
services agreement with related parties as part of its ownership
and governance structure as part of a private group. Fees in
relation to these arrangements amounted to £1.3m for the year
ended 26 July 2014 (2013: £1.3m). As these arrangements were
terminated on IPO and will not recur, they have been adjusted
for in arriving at Adjusted EBITDA.
Financing costs related to the arranging and provision of
long-term loans from Duodi Investments S.à r.l. (the Group’s
immediate Parent Company) and an inventory financing facility
from an indirect related party entity in respect of which
Elliott Advisors (UK) Limited is a sub-adviser to that entity’s
investment services provider. See note 18 for further details.
52 weeks
ended
26 July 2014
£m
52 weeks
ended
27 July 2013
£m
1.3
16.3
1.3
12.0
26 July 2014
£m
27 July 2013
£m
Amounts owed by/(to) related parties
Land and buildings
26 July 2014
27 July 2013
£m
£m
The total future minimum lease
payments are due as follows:
Not later than one year
Between two and five years
Later than five years
24. Equity reserves
Share premium account
The share premium account represents amounts received in
excess of the nominal value of shares on issue of new shares,
net of the direct costs associated with issuing those shares.
Issue costs in relation to the issue of shares on IPO of £6.5m
have been charged to the share premium account. £1.9m of
the costs of the IPO charged to the share premium account
remained unpaid at 26 July 2014.
Amounts owed to related parties
(note 18)
Amounts owed by related parties
(note 16)
–
(117.8)
–
1.7
Up until the IPO the Group was funded by related party loans with
the investment vehicles which held, either directly or indirectly,
a controlling equity interest in the Group. The Group issued
£106.1m of Senior Loan Notes on 1 April 2012. On 18 April 2013,
£63.0m of the Senior Loan Notes was redeemed. On 18 April
2013, an additional £63.0m of Management Loan Notes were
issued to Baker Investments LP (an entity in which each of Duodi
Investments S.à r.l. and certain Directors had an interest). As
described in note 18, all the related party debt was settled in
full as part of the Group reorganisation in relation to the IPO.
The Group made payments regarding the remuneration
of key management personnel. The remuneration of the
key management personnel of the Group is set out below
in aggregate for each of the categories specified in IAS 24
Related Party Disclosures.
Remuneration of key management personnel
Short-term employee benefits
Share-based payments
Post-employment benefits
26 July 2014
£m
27 July 2013
£m
1.2
0.1
0.1
0.9
–
0.1
1.4
1.0
28. Post balance sheet events
of €32.0m. The cost to the Group of these facilities is an
arrangement fee of between 0.15% and 0.18%; a commitment
fee of 0.10% per annum and interest on drawn funds of between
3.0% and 3.6% per annum above Euribor 90.
107
Company Balance Sheet
As at 26 July 2014
Registered Number: 09040213
1
Current assets
2
Total assets
1.6
1.6
14.0
14.0
15.6
Current liabilities
3
Net current liabilities
1.1
1.1
14.5
Non-current liabilities
7
Total liabilities
–
–
1.1
Net assets
14.5
Equity attributable to equity holders of the Group
Share capital
Share premium
Own shares
Retained earnings
1.7
13.4
–
(0.6)
Total equity
14.5
The financial statements of GAME Digital plc, company number 09040213, were approved by the Board of Directors and authorised
for issue on 15 October 2014.
Signed on behalf of the Board on 15 October 2014
Benedict Smith
Chief Financial Officer
108
General Information
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation
to the financial statements.
The Company is a public company limited by shares and was
incorporated in England and Wales on 14 May 2014 with the
name Project Vespa plc and registration number 09040213.
The Company’s name was changed to GAME Digital plc on
16 May 2014. As the Company was incorporated in the current
financial year no comparative information is presented. On
11 June 2014 its shares were listed on the London Stock Exchange.
Basis of preparation
The separate financial statements are presented as required
by the Companies Act 2006. They have been prepared under
the historical cost convention and in accordance with applicable
United Kingdom Accounting Standards and law.
Deferred tax assets are recognised for deductible temporary
differences arising on trading losses which can be offset
against expected future taxable profits.
The Company’s accounting reference date is 31 July. The
Company draws up its financial statements to the Saturday
directly before or following the accounting reference date,
as permitted by section 390 (3) of the Companies Act 2006.
The carrying amount of deferred tax assets is reviewed at
each period-end and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to
allow all or part of the asset to be recovered.
The principal accounting policies are summarised below.
They have all been applied consistently throughout the period
and the preceding period.
Deferred tax is calculated at the tax rates that are expected
to apply in the period when the liability is settled or the asset
is realised based on tax laws and rates that have been enacted
or substantively enacted at the balance sheet date. Deferred
tax is charged or credited in the statement of comprehensive
income, except when it relates to items charged or credited
in other comprehensive income, in which case the deferred
tax is also dealt with in other comprehensive income.
As permitted by section 408 of the Companies Act 2006 the
Company has elected not to present its own profit and loss
account and statement of cash flows for the year. The Company
reported a loss for the 52 weeks ended 26 July 2014 of £0.6m
(2013: £nil).
Significant accounting policies
Investments
Fixed asset investments in subsidiaries are shown at cost
less provision for impairment.
Dividends
Dividends proposed by the Board but unpaid at the period-end
are not recognised in the financial statements until they have
been approved by shareholders at the Annual General Meeting.
Interim dividends are recognised when paid. No dividends
were proposed or paid in either the current or the prior period.
Taxation
The tax expense represents the sum of the tax currently
payable and deferred tax.
Martyn Gibbs
Deferred tax
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amounts of assets and
liabilities in the additional historical financial information and
the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for
all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from goodwill or from the initial
recognition of other assets and liabilities in a transaction that
affects neither the tax profit nor the accounting profit.
Current tax
The tax currently payable is based on taxable profit for the
period. Taxable profit differs from the profit/(loss) before
taxation as reported in the statement of comprehensive income
because it excludes items of income or expense that are taxable
or deductible in other periods and it further excludes items that
are never taxable or deductible. The Group’s liability for current
tax is calculated using tax rates that have been enacted or
substantively enacted by the reporting period end.
Deferred tax assets and liabilities are offset when there is
a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
Pension contributions
The Company makes payments to a number of defined
contribution pension schemes. The assets of these schemes
do not form part of the assets of the Group. The pension cost
charge represents contributions payable during the period.
Trade receivables, loans and other receivables that have fixed
or determinable payments that are not quoted in an active
market are classified as loans and receivables.
Note
Non-current assets
Investment in subsidiaries
26 July
2014
£m
Accounting Policies of the Company
Trade and other receivables are initially recognised at fair
value and subsequently carried at amortised cost, less provision
for impairment. As at the period end, management had not
identified any objective evidence that indicated an impairment had
occurred. To the extent an indicator of impairment was identified,
a provision for impairment of trade and other receivables is
established when there is objective evidence that the Group will
not be able to collect all amounts due according to the original
terms of the receivables. This provision represents the difference
between the asset’s carrying amount and the present value
of estimated future cash flows. The amount of the provision
is recognised in the statement of comprehensive income.
109
Notes to the Company Financial Statements
Cash and cash equivalents include cash in hand, deposits at
call with banks and unpresented cheques. Bank overdrafts are
shown within borrowings in current liabilities on the statement
of financial position.
1. Fixed asset investments
Transactions between the Company and its subsidiaries, which
are related parties, have been eliminated on consolidation.
4. Called up share capital
The Company has investments in the following subsidiaries
which principally affected the profits or net assets of the Group.
Issued and fully paid up:
170,000,000 ordinary shares of £0.01p each
Interest income is recognised by applying the effective interest
rate, except for short-term receivables when the recognition
of interest would be immaterial.
Other financial liabilities
Trade and other payables are recognised on the trade date
of the related transactions. Trade payables are not interestbearing and are stated at their nominal value.
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated
at amortised cost, with any difference between the proceeds
(net of transaction costs) and the redemption value recognised
in the statement of comprehensive income over the period
of the borrowings using the effective interest method.
Country of
incorporation
Principal
activity
Game Retail
Retail trading
Limited
United Kingdom
company
Game Stores
Retail trading
Iberia SLU
Spain
company
Capitex Holdings
Holding
Limited*
United Kingdom
company
Cherrilux
Holding
Investments S.à r.l.
Luxembourg
company
1.7
Holding
%
The Company was incorporated on 14 May 2014 and issued
50,000 ordinary shares of £0.01p at par.
100%
On 10 June 2014, the Company issued 160 million ordinary
shares of £0.01p in exchange for all classes of shares of
Capitex Holdings Limited and Cherrilux Investments S.à r.l.
100%
100%
100%
On 11 June 2014 the ordinary shares were listed on the
London Stock Exchange and the Company issued a further
10 million shares.
The Company has one class of ordinary shares which carry
no right to fixed income.
Note:
* Held directly by GAME Digital plc.
On 10 June 2014, the Company acquired 100% of the share
capital of Capitex Holdings Limited and Cherrilux Investments
S.à r.l. in a share-for-share exchange transaction.
£000
Cost and net book value
At 14 May 2014
Additions
–
1.6
At 26 July 2014
1.6
2. Trade and other receivables
26 July 2014
£m
Amounts owed by Group undertakings
26 July 2014
£m
14.0
14.0
5. Share premium account
£m
At 14 May 2014
Premium arising on issue of equity shares
Expenses of issue of equity shares
–
19.9
(6.5)
At 26 July 2014
13.4
Of the expenses of issue of equity shares of £6.5m, £1.9m
remained unpaid at 26 July 2014.
Share-based compensation reserve
Share-based compensation reserve includes the credit to equity
for equity-settled share-based payments (see note 23 of the
Group financial statements). The equity charge for the period
ended 26 July 2014 was £0.0m.
6. Profit and loss account
£m
3. Trade and other payables
26 July 2014
£m
Amounts owed to Group undertakings
Accruals and deferred income
0.9
0.2
1.1
At 14 May 2014
Loss for the financial period
–
(0.6)
At 26 July 2014
(0.6)
Accounting Policies of the Company continued
7. Deferred tax
The deferred tax asset recognised by the Company during the
current year was £0.0m (2013: nil).
No deferred tax assets have been offset against deferred tax
liabilities. At the balance sheet date the Company had unused tax
losses of £0.6m (2013: nil) available for offset against future profits.
110
111
Glossary of terms
‘accessories’ peripherals, controllers, headsets, motion
capture and game-related figurines;
‘Admission’ date the Company was admitted for unconditional
trading to the London Stock Exchange, being 11 June 2014;
‘app’ a smartphone mobile application;
‘Codebank’ a proprietary system developed by GRL that allows
suppliers to upload and store digital codes, which are in turn
accessed by the Group’s UK distribution channels and delivered
to the customer either by code on receipt or via email. These
codes are then stored in the customer’s ‘Digital Locker’. Codes
are recognised through the relevant console or PC service;
‘console’ a static device on which games are played and which
requires a TV/monitor to operate (for example Xbox One,
PlayStation 4 and Wii U);
‘console digital content’ DLC, subscriptions, full-game
downloads and digital currency top-ups (used, for example,
on Xbox Live, PlayStation Network and Nintendo eShop);
‘content’ games and additional content delivered either
physically or digitally (including: (i) console physical content;
(ii) console digital content; and (iii) non-console digital content);
‘CRM’ Customer Relationship Management;
‘DLC’ any downloadable content;
‘EBIT’ earnings before interest and tax;
‘EBITDA’ earnings before interest, tax, depreciation
and amortisation;
‘eCommerce’ online sales;
‘exclusive content’ market exclusive editions of new
physical video game titles that feature additional exclusive
digital content;
‘EPS’ earnings per share;
‘freemium’ a pricing genre typically associated with digital
content, whereby the initial product is free, but a premium
is charged for proprietary features or functionality;
‘GAME Marketplace’ a strategic initiative to open a GAME-led
marketplace enabling peer-to-peer selling between vendors
and customers;
112
‘GAMEtronics’ GAME’s expanded trade-in and sales offering
whereby customers can buy or trade-in technology devices,
receiving cash or a currency value for them;
‘GAME Wallet’ a payment solution which will provide customers
with an electronic account which brings together the value of
all gift card credits, cash from trade-ins and reward points;
‘GAMEware’ GAME’s own-label products;
‘handheld’ handheld console device (for example Nintendo DS,
DSi, 2DS, 3DS, Sony PSP, Sony PSP Go and PSP Vita);
‘hardware’ consoles and handhelds used to play games;
‘IPO’ Initial Public Offering;
‘mCommerce’ sales via a mobile version of a website;
‘non-console digital content’ PC downloads, mobile, casual
and social games;
‘omni-channel’ a number of different channels (stores, online,
mobile and the GAME App) operating in synchronicity;
‘operating profit’ earnings before interest and tax;
‘PC’ personal computer;
‘POSA card’ point-of-sale activation card;
‘PSP’ Performance Share Plan;
‘SAYE’ Save As You Earn;
‘SIP’ Share Incentive Plan;
‘SKU’ stock-keeping unit, which is a number or combination of
alpha and numeric characters that uniquely identify a product;
‘software’ games and additional content delivered either
physically or digitally (including: (i) console physical content;
(ii) console digital content; and (iii) non-console digital content);
‘trade-in’ the exchange of products for cash or credit (in the
form of gift cards), which can be used to purchase the Group’s
products (or part thereof); and
‘TSR’ Total Shareholder Return.
Registered office
GAME Digital plc
UnityHouse
TelfordRoad
BasingstokeRG216YJ
Stockbrokers
Liberum Capital Limited
RopemakerPlace,Level12
25RopemakerStreet
LondonEC2Y9LY
Tel:+44(0)1256784000
www.gamedigitalplc.com
Canaccord Genuity Limited
88WoodStreet
LondonEC2V7QR
Registerednumber:09040213
CompanySecretary:RuthCartwright
Legal advisors
Macfarlanes LLP
20CursitorStreet
LondonEC4A1LT
Shoosmiths LLP
WitanGateHouse
500-600WitanGateWest
MiltonKeynesMK91SH
Independent auditors
Deloitte LLP
2NewStreetSquare
LondonEC4A3BZ
Registrar
Computershare
ThePavilions,BridgwaterRoad,
BristolBS138AE
Tel:+44(0)8707020000
(callschargedatUKNationalRate)
TextPhone:+44(0)8707020005
Fax:+44(0)8707036101
www.computershare.com/uk
The following terms have the following meanings throughout
the Annual Report unless the context otherwise requires:
Shareholder information
GAME Digital plc
Unity House
Telford Road
Basingstoke RG21 6YJ
www.gamedigitalplc.com
This Report is printed on materials
which are FSC ® certified from
well-managed forests.
These materials contain ECF
(Elemental Chlorine Free) pulp
and are 100% Recyclable.
Designed and produced by Gather
+44 (0)20 7610 6140
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GAME Digital plc Annual Report and Accounts 2014 G A M E D ig ita

Transcription

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