Full Year Results

16 October 2014

GAME DIGITAL PLC

Full Year Results for the 52 weeks ended 26 July 2014

STRONG GROWTH IN SALES, PROFITS AND CASH

GAME Digital plc ("GAME" or the "Group"), the specialist video games retailer is today pleased to announce its Full Year Results for the 52 weeks ended 26 July 2014.

Financial Highlights

• Group revenue growth of 31.0% compared to an aggregated market growth (UK and Spain) of 23.5%5

• Group Adjusted EBITDA1 growth of 117.4%, with both territories performing well

• Adjusted EBITDA to cash flow conversion of 116%

• Strong net cash position of £83.7m

Operational Highlights

• Market share gains in both the UK and Spain

• Over one million new customers signed up to GAME's reward card programmes, now totalling over 16 million

• Strategic initiatives progressing well

o Launch of e-payment method 'GAME Wallet' in June 2014

o Strong performance of preowned tech initiative 'GAMETronics'

• Significant investment to support our omni-channel and digital proposition

o Every UK store re-fitted, with Xbox One and PlayStation 4 digital bays installed

o Developments to eCommerce sites, app and digital distribution platform

• Successful listing on the London Stock Exchange in June 2014

David Hamid, Chairman, said:

"GAME has delivered a strong performance in what has been a transformational year for the company, which included our successful IPO in June. We are a dynamic and well-funded company with a strong platform from which to build and drive further growth and profitability."

Martyn Gibbs, Chief Executive Officer, said:

"I am proud of the achievements of our teams in both the UK and Spain over the last 12 months. Their hard work has delivered a robust performance for 2014, but more importantly, it has placed the Company on a sound footing to deliver success in future years. Our financial strength, together with the investments we have made, position us well to capitalise on the opportunities ahead.

"Our gaming communities lie at the heart of our business and we remain focused on working closely with our supplier partners, innovating and investing in our offer, to ensure we consistently deliver the best interactive gaming experiences possible.

"As we move into the key trading months of the year we are encouraged by the strength of the line-up of new physical and digital games being launched and are well positioned, with exclusives secured on many of the major pre-Christmas new game releases, great deals on both mint and preowned, increased supplier credit, and financing facilities in place in both the UK and Spain."

Results presentation

Management are to host a presentation to analysts and investors at 11:00 today. A recording of the presentation will be available on gamedigitalplc.com later today.

Enquiries 

Notes:

1. Adjusted EBITDA is 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. See note 4.

2. Adjusted operating profit is a non-IFRS measure defined by the Group as profit/loss before brand amortisation, exceptional costs, costs incurred in relation to the change of business structure, and IPO-related share based payment charges.

3. Adjusted operational cash flow is a non-IFRS measure defined by the Group as cash generated by operations before the impact on cash flow of exceptional items and costs relating to the change in business structure

4. Adjusted earnings per share is a non-IFRS measure defined by the Group as profit/(loss) for the period attributable to equity holders of the Group before brand amortisation, exceptional costs, cost of IPO-related share-based compensation, costs relating to the change in business structure, interest on the Senior Loan Notes and Management Loan Notes and tax thereon, divided by the number of ordinary shares in issue as at 26 July 2014. See note 7

5. Source: GFK-Chart Track; market share based on value of retail sales of hardware, software, digital and accessories for 52 weeks ended 26 July 2014

CHAIRMAN'S STATEMENT

GAME is a lively and exciting company - we want to share the excitement which is endemic within our industry with as wide an audience as possible, and expect both our customers and our colleagues to have fun and enjoy our products.

In April 2012 GAME Digital was born out of the ashes of Game Group plc. The company was in a difficult position in need of an urgent and fundamental re-structuring. 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 re-birth 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 £862 million, operating profit increasing from a loss of £3.3m to a profit of £24.8m, Adjusted EBITDA up 117% to £51.3 million 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 £2.8 million (2013: loss of £15.6 million). Our disciplined approach to working capital management and capital expenditure led to operational cash flow before exceptional items of £59.5 million (2013: £39.0 million), and we consequently closed the year with a net cash position of £83.7 million. In September 2014 we agreed a new revolving bank facility in Spain of €32 million, 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 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: John Jackson, Caspar Woolley and Lesley Watkins, who bring a diverse variety of experience to the Board.

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 one that is based on technology and we continue to focus on and invest in technology to keep us abreast of the market.

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 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.

CHIEF EXECUTIVE'S REVIEW

Performance Overview

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%), gross profit (+20%) and operating profit increased from a loss of £3.3 million to a profit of £24.8 million, 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.

(1) Source: GFK Chart-Track. Market comprises retail sales of mint hardware, boxed content, console digital content and gaming accessories.

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.

Strategy

GAME's strategy is to drive profitable growth 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 developing new business initiatives. We are focused on building on our world class insight capabilities to improve and increase customer engagement with the aim of positioning the Group at the centre of the supplier-customer relationship.

Customer Proposition

Our strong supplier relationships help us to ensure that we have the right products at the right time across all of our channels, for all of the major console formats, and also enables us to offer our customers exclusive products. Our 'Only at GAME' proposition is an important differentiator and helps to drive customer loyalty - with customers who purchased exclusive products spending over 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.

Our preowned offer, which contributed over 30% of gross profit in 2014, is core to our value proposition and another important differentiator. Our preowned range is extensive and growing - with the introduction of smartphones and technology products in 2013 under the GAMETronics brand. We are also expanding our accessories and entertainment ranges, and in particular those suitable for our younger customers under the "GAME Junior" sub-brand.

We provide our customers with great value and regular offers and we also 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 also drive our value proposition through our 'Get gaming for less' campaigns, which include daily and weekly promotions and major sales events, all of which are underpinned by our popular reward card programmes.

Our teams are 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 specialist knowledge and friendliness against a panel of other specialist retailers.

Customers increasingly want to shop across a range of channels - in store and online, at home and on the go - and so helping our customers to discover gaming content and shop with us wherever and whenever they want, 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.

We are investing in our stores and eCommerce and mCommerce platforms to provide a more seamless customer journey, increasing convenience and enriching our customers' experiences. In 2013/14 we had over 50 million unique visits to our UK and Spanish websites and in the UK, where we support a mobile commerce site, 45% of online sessions involving the GAME website were through mobile phones. Our app has been downloaded over 1 million times to date, with over 800,000 unique registered users and in 2014 we launched a GAME app in Spain. We regularly update the app to add functionality and services based on feedback from employees and customers.

In the UK, all of our stores have been refitted during the year and now provide areas where customers can play games and interact with new products before making a purchase. We have also expanded the space we dedicate to digital content.

Digital

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 unique customers purchasing digital content from us in the period. 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.

We have developed a robust and scalable digital architecture to support and enhance the delivery of digital content. In the UK, 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. 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 content in the retail channel. Codebank was nominated for industry awards in the UK in 2014.

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 - either through their mobile phone or directly on-screen.

We are working closely with all of our suppliers to expand our offering of console and non-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 PS Vita full game downloads and in September 2014 we were the first retailer in the UK to stock full game downloads and downloadable content for Microsoft's Xbox One.

We are committed to offering our customers access to every digital gaming segment across both console and non-console digital content and are exploring a number of new initiatives 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.

Our stores are currently our largest channel for the sale of digital content. Notably, approximately 75% of all purchases of digital content in store are paid for with cash, trade-in credit or gift cards. Our store staff are well trained in all aspects of our digital offer and play an important role in educating our customers. By focusing on customer education and providing flexible ways for customers to purchase digital content (such as through trade-in) we aim to grow both the total digital retail market and our market share.

Community Engagement

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.

Our community engagement is underpinned by the Reward Scheme in the UK and the Loyalty Card programme in Spain. 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 committed to delivering our gaming communities timely, relevant and generous rewards benefits; access to our unique and interactive gaming events; and rich content and offers delivered through multiple touch points.

In the UK we have an audience of over 1,000,000 on Facebook, Twitter and YouTube and we proactively engage via social media at both a local and national level. We operate a 'Stores Twitter Programme', which allows every store to directly interact with their communities and "tweet" 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, fund raising events and midnight openings. 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.

At the time of the IPO we launched a Virtual Loyalty Share Plan, giving £2 million worth 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. 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. We are developing an enhanced reward programme for our most valuable customers which will ensure we reward and retain our most important customers.

Insight

We collect, analyse and interpret customer data to better understand what customers want and use the insight gained to empower our business decisions, improve our customer offer and benefit our suppliers. 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 analyse transactional data, app data, web metrics, social and community data and 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.

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.

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.

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.

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 select number of our UK stores. Following the successful trial we are now rolling out dedicated space into every store. Our store networks and expertise in the trade-in and re-sale model mean we are well positioned to deliver 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. Our preowned technology sales comprised 38% of all hardware sales in 2014.

In July 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 safe and easy 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 simple and secure payment method. 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 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 stores and online, opening up a new and extensive range of gaming and gaming related products to our customers.

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 preorder 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.

FINANCIAL REVIEW

Revenue

Group revenue increased 31% to £861.8 million (2013: £657.9 million).

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 smart phones 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.

Revenue from other products increased 33% primarily due to the launch of the new 'Toys to life' category - involving figurines which interact with the console game (Skylanders and Infinity) and are predominantly targeted at a younger demographic - the introduction of new categories such as films and new smartphones and tablets, and the increase in sales volumes of accessories.

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 based on additional information received 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 £209.7 million (2013: £174.0 million). 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 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 consistently 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.

Operating expenses

Selling and distribution costs consist of expenses 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 £5.0 million, or 3.7%, 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 costs in-store operations was a reduction in rent reductions and a higher level of marketing income received in the year in support of the new console launches.

Rent declined £1.0 million year on year to £35.8 million (2013: £36.8 million), 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 £3.0 million or 7.0%, 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 £0.3 million in the year and costs relating to the change in ownership structure of £2.7 million (2013: £3.1 million) 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 items

Exceptional items totalled £8.4 million (2013: £8.8 million), of which the vast majority (£7.7 million) 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, the exceptional items were incurred in restructuring and establishment costs relating to the establishment of the Group's UK operations, including 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 date of the acquisition of the Group's UK operations.

Adjusted EBITDA

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 £51.3 million (2013: £23.6 million). 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.

The Adjusted EBITDA margin increased by 2.4 percentage points to 6.0%.

Financing costs

Net financing costs totalled £17.6 million (2013: £12.2 million) of which £16.3 million (2013: £12.0 million) 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 £0.8 million.

The Group's Spanish operations incurred net financing costs of £0.3 million (2013: £0.2 million) on third party loan, overdraft and bank guarantee facilities.

Profit before tax

Profit before tax for the year amounted to £7.3 million (2013: loss of £15.4 million). 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

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

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%).

At year-end the Group had net cash of £83.7 million (2013: net debt of £76.6 million).

Upon IPO, the loan notes 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 £50 million 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 €32 million. 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 Euribor90.

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.

Working capital

Net investment in trade working capital reduced by £9.4 million, or 23%, to £31.6 million (2013: £41.0 million).

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 £11.4 million in 2014 (2013: £5.4 million), 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 app) and other strategic growth initiatives.

Principal risks and uncertainties

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 and mitigated where possible, however certain risks, such as acts of terrorism, changes in government regulation, pandemics, and macroeconomic issues remain outside of GAME's full control.

Responsibility Statement

The responsibility statement below has been prepared in connection with the company's full annual report for the year ending 52 week period ended 26 July 2014. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

· the financial statements, prepared in accordance with IFRSs as adopted by the European Union, 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 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.

This responsibility statement was approved by the board of directors on 15 October 2014 and is signed on its behalf by:

Consolidated Statement of Comprehensive Income

For the 52 weeks ended 26 July 2014

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.

Consolidated Statement of Financial Position

As at 26 July 2014 and 27 July 2013

Consolidated Statement of Changes in Equity

For the 52 weeks ended 26 July 2014

Consolidated Statement of Cash Flows

For the 52 weeks ended 26 July 2014

1 Basis of Preparation

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in its annual report to be issued on [•].

The financial information has been prepared in accordance with the accounting policies disclosed in the Game Digital Plc prospectus (pages 164 to 169). The prospectus can be accessed on http://www.gamedigitalplc.com/investor-relations/financial-summary.aspx.

The financial information set out in this preliminary announcement does not constitute the company's statutory accounts for the 52 week periods ended 26 July 2014 and 27 July 2013, but is derived from those accounts. Statutory accounts for 2014 will be delivered to the Registrar of Companies following the company's annual general meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

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 separate share-for-share exchanges of subsidiary undertakings. The businesses acquired by the reorganisation have not previously been presented in the consolidated financial information of a single legal entity. However, because 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 meet the definition of a common control transaction in accordance with IFRS 3 Business Combinations. As the Group has been formed through a reorganisation in which GAME Digital plc became a new parent entity of the Group, the consolidated financial statements have been prepared as a continuation of the existing Group using the pooling of interests method (or merger accounting).

Going concern

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.

2 Operating segments

The Group's Chief Executive is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Chief Executive for the purposes of allocating resources and assessing performance.

The Group's Chief Executive 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 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:

Reconciliation of Adjusted EBITDA to profit/(loss) before taxation

Adjustments made to reconcile from basic to adjusted earnings employed in the earnings per share calculation are detailed in note 7.

Segment assets

For the purposes of monitoring segment performance and allocating resources between segments, the Group's Chief Executive 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.

Other segment information

No impairment losses against property, plant and equipment have been recognised against any segment in any of the periods represented above.

Revenues from major products and services

The Group's revenues from its major products and services were as follows:

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. Pre-owned includes the sale of pre-owned content and hardware. Other revenues relate to the sale of accessories, movies and DVDs within stores and online. No single customer contributed more than 10% to Group revenue.

3 Other operating expenses

For details of these exceptional costs, see note 4.

Included with in Administrative expenses are costs amounting to £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.

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 ending 27 July 2013 to costs of consultancy fees and lease negotiations following the administration of the former GAME Group plc.

The cost of settling acquired liabilities consists of 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.

5 Operating profit/(loss)

6 Finance costs

Included in interest on bank overdrafts and loans 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:

· 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).

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).

7 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

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.

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.

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.

8 Borrowings

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).

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.

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:

· TheSenior 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).

Analysis of bank overdrafts and loans by currency

9 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:

During the Periods 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 end 26 July 2014 (2013: £1.3m). As these arrangement 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.

Transactions with related parties

Amounts owed by/(to) 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 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 8 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 IAS24 (Related Party Disclosures).

10 Post Balance Sheet Events

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 €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 Euribor90.

Forward Looking Statements

This announcement contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events.