Trading Statement

11 August 2015

GAME DIGITAL PLC

Year End Trading Statement

POSITIVE H2 PERFORMANCE; FULL YEAR IN LINE WITH EXPECTATIONS

GAME Digital plc ("GAME" or the "Group") today announces its year end trading update for the 52 weeks ended 25 July 2015.

Group performance overview

The second half of the year saw a robust trading period for the Group, with a good uplift in gross margin and a positive EBITDA contribution, in line with expectations and ahead of the breakeven EBITDA reported in H2 2014.

Revenues excluding hardware were up over 7% in the second half, with gross margin on content sales up by over 300 basis points, boosted by a significant increase in digital sales, which rose by 16% in the half. Preowned and other non-hardware sales were also up strongly.

Hardware revenues, as expected after the initial surge in sales following the launches of Xbox One and PlayStation 4, were lower in the half primarily due to lower average selling prices, falling by approximately 19%. Nevertheless, as a result of the strong performance in sales from all other product areas, the Group's Gross Transaction Value¹ increased 1.0% in the second half and 2.3% for the full year to approximately £960 million (FY statutory revenue -0.4%), well ahead of the combined video games market of the UK and Spain, which saw a decline of 6.0% in the second half and 1.3% over the year.

Given the higher mix of higher margin product sales, lower mix of lower margin hardware sales and the overall improvement in margin rate in both categories, overall margins were up over 200 basis points on last year, driving a 9% increase in gross profit in H2.

In the UK, the Group increased its leading market shares in software, digital and accessories over the year and maintained its total share of the UK video games market at over 33%. Overall, GAME's UK Gross Transaction Value grew 3.6% over the year (FY revenue +0.5%), following a 3.7% decline in H2.

The Spanish market saw healthy growth in the second half of the year, expanding by 7% on an underlying (constant currency) basis. GAME's Spanish business performed particularly strongly, growing revenues 25% on a constant currency basis over the same period. As a result, GAME's share of the Spanish market increased by 7 percentage points in the second half to reach 42% as the business benefitted both from the addition of 44 GameStop stores transferred to the Group last November as well as a solid trading performance across the existing estate. On a reported basis, impacted by the effects of a weakening Euro, Spanish revenues rose 12.2% in the second half, resulting in a 3.1% decrease for the full year.

Costs, cash and capital allocation

Costs remain well controlled across the business and the Group continues to focus on working capital and cash management, resulting in good cash conversion and strong net cash balances. The Group ended the year with a closing net cash position in excess of £60 million.

The Board remains committed to investing in areas where it believes the Group is able to drive attractive returns and that are consistent with its long-term growth strategy. Current capital expenditure programmes for 2015/16 are fully funded and will see further development of GAME's omni-channel and digital infrastructure whilst supporting the rapid development of Multiplay and the Group's eSports and events division.

Business update

The Group's eSports and events division, led by Multiplay, continues to make good progress. In July, Multiplay worked with Mojang to run the Minecon 2015 convention for 10,000 Minecraft fans. The next Insomnia gaming festival at the end of August, will be the Company's largest ever event, with over 35,000 tickets expected to be sold, and hundreds of thousands more viewing the event online. The Group is focused on materially expanding the division's activity, starting at the next Insomnia, and expects this business to grow significantly over the next three years.

Across digital solutions, to date, over 550,000 customers have registered with GAME Wallet, our award winning e-payment platform, and we have now surpassed 1.5 million registered GAME app users in the UK and Spain. In March we launched GAME Marketplace, which to date has added over 100,000 gaming-related products to our range.

The Group's customer engagement metrics remain positive. Over the year one million new customers signed up to GAME's Reward programmes, expanding the total membership across the UK and Spain to over 17 million. The Group has also seen positive improvements in its brand awareness and customer satisfaction metrics over the last year.

Full Year outcome and 2015/16 outlook

The Group expects to deliver Adjusted EBITDA in line with market consensus for the year ended 25 July 20152.

Looking ahead, the Group expects the overall UK video games market to grow slightly over the next twelve months, with the shape of the market continuing to develop in the way it has in the second half of 2014/15. Increasing sales of higher margin new generation software, digital content and accessories to the growing installed base of PlayStation 4 and Xbox One owners is anticipated to more than offset the continued declines in the value of lower margin hardware sales (driven by lower selling prices) and prior generation (PlayStation 3, Xbox 360) software sales. Expected growth in pre-owned hardware, software, mobile phone and tablet sales will also aid the margin profile. Similar trends are expected in Spain, although due to a smaller installed base of PlayStation 4 and Xbox One consoles it is expected that the Spanish market will decline slightly over the same period.

As a result of these market dynamics and continued progress with the Group's strategic initiatives, the Board remains confident that the Group will achieve growth in sales and profits in FY2015/16.

The Board will announce its full year results for the 52 weeks ended 25 July 2015 on 15 October 2015.

Martyn Gibbs, Chief Executive Officer of GAME Digital, said:

"The Group traded well throughout the second half, with a strong performance on new release titles and preowned technology products contributing to a 9% year on year increase in H2 margin delivery. We are confident that our strategy of focusing on the recruitment and retention of Xbox One and PlayStation 4 owners across our two major territories provides a solid foundation from which to drive growth over the medium term.

"We have made good progress on our customer and community engagement and strategic priorities over the year. Our ambition to broaden our offer beyond purely retail, to the places and ways in which our customers play games is moving forward at pace, with continued support from our supplier partners. Combined with a clear focus on retail growth opportunities and further investment into strategically important areas, the business is positioned well for the future. I am particularly pleased with how the incorporation of Multiplay into the Group has progressed and how the team is setting the path for the future.

"Our preparations for this year's peak trading season are already well advanced. The line-up of new physical and digital games launches in the coming months looks very strong and our pre-order rates on the major titles are encouraging, supported by our excellent range of exclusives." 

Enquiries:

1. Gross Transaction Value ("GTV") is a non-IFRS measure defined as total retail receipts excluding VAT, including publishers' share of digital sales and before the deduction of the cost of Reward points. GTV provides a more comparable measure to market growth as it includes total digital receipts at till, rather than digital commissions

2. Adjusted EBITDA is a non-IFRS measure defined by the Group as operating profit/loss before tax, depreciation, amortisation, net finance costs, exceptional costs, costs incurred in relation to the change of business structure, acquisition related costs and IPO-related share based payment charges. The analyst range of consensus Adjusted EBITDA for the 52 weeks to 25 July 2015 is £46.0m-£47.0m, with the average being £46.4m.

Notes:

a. Constant currency growth rates calculated by rebasing the comparative period results using the current period exchange rate

b. Market data sourced from GfK-Chart Track. Market share data based on value of retail sales of mint hardware, mint software, console digital content and gaming accessories

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.

Notes to editors

Listed on the London Stock Exchange in June 2014 and comprising three divisions: Retail, Digital Solutions and Esports and Events, GAME Digital plc is dedicated to delivering an authoritative range of specialist products and services to the gaming communities of the UK and Spain and providing more ways for gamers to enjoy more games and gaming experiences, more often. GAME's UK and Spanish retail businesses are the market leaders in each country, operating a total of nearly 600 stores across the two countries, a fully integrated omni-channel offer including the multi-award winning GAME App, and a reach of more than 17 million customers across its Reward programmes. Through GAME's Digital Solutions division, GAME is pioneering the use of new technologies to deliver gaming content and reach gamers and business partners outside its main markets. Multiplay, GAME's Esports and Events business delivers unparalleled gaming events and experiences directly and on behalf of third parties, including its flagship consumer event, Insomnia, the UK's largest gaming festival. For more information please visit www.gamedigitalplc.com or www.multiplay.com