2013/14 Results Presentation 16 October 2014 Important Notice This - - PowerPoint PPT Presentation

16 October 2014

• …

2013/14 Results Presentation

Important Notice

This presentation includes statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believe”, “estimates”, “plans”, “projects”, “anticipates”, “expects”, “intends”, “may”, “will”, or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts and include statements regarding the Company’s intentions, beliefs or current expectations. Any forward-looking statements in this presentation reflect the Company’s current expectations and projections about future

• events. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could cause

actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this presentation regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this presentation. No representations or warranties are made as to the accuracy of such statements, estimates or projections. Please note that the Directors of the Company are, in making this presentation, not seeking to encourage shareholders to either buy or sell shares in the Company. Shareholders in any doubt about what action to take are recommended to seek financial advice from an independent financial advisor authorised by the Financial Services and Markets Act 2000.

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Agenda

 Highlights Martyn Gibbs  Financial Review Benedict Smith  Business and strategic update Martyn Gibbs

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Martyn Gibbs

CEO

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“is to build the most valuable community of gamers.”

Our mission…

FY13/14 Highlights

 Group revenue growth +31% to £862m (2013: £658m)  Adjusted EBITDA +117% to £51.3m (2013: £23.6m)  Net cash of £83.7m  Good progress on strategic priorities

• Over 1m new customers signed up to reward card
• Digital progress
• Launch of GAME Wallet
• GAMETronics progressing well

 Listed on the London Stock Exchange in June

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Financial Review

BENEDICT SMITH

GROUP CFO

FINANCIAL HIGHLIGHTS

S U M M A R Y

 Total sales increased by 31%  21% increase in gross margin

• Positive margin rate variance, offset by

negative mix variance  Adjusted EBITDA increased 117%  IPO was 6 weeks before year-end  Exceptional items predominantly related to IPO costs and charges related to the change in ownership structure  Net cash increased to £83.7m at the year end driven by capital structure and working capital improvements

All figures in £’m (unless stated) 27 Jul

2014

26 Jul

2013 VAR % Group sales 861.8 657.9 31.0 Gross profit 209.7 174.0 20.5 Adjusted EBITDA 51.3 23.6 117.4 Adjusted operational cash flow 59.6 38.8 53.6 Profit after tax 2.8 (19.0) nm Adjusted EPS (pence) 17.8 5.2 242.3 Net cash / (debt) 83.7 (76.6) nm 8

2014 £m 2013 £m VAR % Content 329.7 300.2 9.8 Hardware 265.9 113.4 134.5 Preowned 169.0 171.5 (1.5) Other 97.2 72.8 33.5 Total 861.8 657.9 31.0

REVENUE BY CATEGORY

2013 REVENUE MIX 2014 REVENUE MIX

Content Hardware Preowned Other

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46% 17% 26% 11% 38% 31% 20% 11%

GROSS MARGIN BY CATEGORY

2014 % 2013 % VAR %pts Content 28.3 28.0 0.3 Hardware 8.0 2.6 5.4 Preowned 39.0 36.7 2.3 Other 29.9 32.8 (2.9) Total 24.3 26.4 (2.1)

S U M M A R Y

 Underlying improvement in gross margin across content, hardware and preowned  Increase in hardware contribution drove overall 2.1% decline in GM%  The lower margin in “Other” is itself a mix effect GROUP GM% MOVEMENT 10

1.9

• 4.0
• 2.1

Underlying Mix Total

S U M M A R Y

 Strong performance across both geographies

• UK market share +4%pts to 33%
• Spain market share +1%pt to 35%

 No loss making stores in UK  Number of loss making stores in Spain reduced from 17 to 5  Letter of Intent signed with GameStop in Spain to transfer stores and stock Sales 2014 £m 2013 £m VAR % Market % UK 644.7 455.9 41.4 28 Spain 217.1 202 7.5 9 Total 861.8 657.9 31.0 24 Adjusted EBITDA 2014 £m 2013 £m VAR % UK 40.6 14.9 172.5 Spain 10.7 8.7 23.0 Total 51.3 23.6 117.4

REGIONAL PERFORMANCE

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STATUTORY INCOME STATEMENT

2014 £m 2013 £m Revenue 861.8 657.9 Gross Margin 209.7 174.0 Operating expenses before exceptional costs 176.5 168.5 Operating (loss) / profit before exceptional costs 33.2 5.5 Exceptional costs 8.8 8.4 Operating (loss) / profit 24.8 (3.3) Net interest payable 17.5 12.1 Profit before tax 7.3 (15.4) Tax 4.5 0.2 Loss from discontinued operations

• (3.4)

Profit after tax 2.8 (19.0)

S U M M A R Y

 £16.3m of interest (2013: £12.0m) relates to (related party) loans and facilities which were fully capitalised as part of the reorganisation ahead of the IPO  Exceptional costs in FY14 largely IPO-related; and in FY13 were final costs of restructuring in the UK  Tax rate expected to normalise closer to standard UK / Spanish corporate tax rates going forwards 12

RECONCILIATION TO ADJUSTED EBITDA

2014 £m 2013 £m Operating (loss) / profit 24.8 (3.3) Depreciation and amortisation 15.1 15.0

• f which Brand amortisation

8.3 8.3 EBITDA 39.9 11.7 Exceptional costs 8.4 8.8 Costs related to change in business structure 2.7 3.1 Costs related to share based payments 0.3 0.1 Adjusted EBITDA 51.3 23.6

S U M M A R Y

 13/14 exceptional costs relate predominantly to IPO costs (£7.7m)

• Includes the cost of the Virtual

Loyalty Share Plan – Reward “shares” to 20,000 customers  Landlord litigation accounted for  Costs relating to former private equity

• wnership ceased on IPO

 Share based payment charge relates to LTIP option awards made to senior managers on IPO - essentially a deferred IPO bonus 13

OPERATING EXPENSES

2014 £m 2013 £m VAR % Selling & Distribution Operating costs 133.2 128.9 3.3 Exceptional costs

• (0.5)

nm Operating costs before exceptional items 133.2 128.4 3.7 Administration Operating costs 51.3 48.4 6.0 Exceptional costs (8.1) (8.3) (2.4) Operating before exceptional items 43.2 40.1 7.7 Total Operating costs before exceptional items 176.4 168.5 4.7

S U M M A R Y

 Costs increased 4.7% on Revenue growth of 31%  Total underlying operating costs as a % of sales reduced from 25.2% to 20.5%  Reduction in rent to £35.8m (2013: £36.8m)

• Rent now 4.2% of revenue

(2013: 5.6%)  Impact of investment in UK business and management team in FY14

£’m

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OPERATING CASH FLOW STATEMENT

2014 £m 2013 £m Cash generated by operations 47.3 29.7 Impact on cash flow of exceptional items 9.4 6.0 Costs relating to the change in business structure 2.7 3.1 Adjusted operational cash flow 59.4 39.0 Adjusted EBITDA 51.3 23.6 Adjusted EBITDA to cash conversion ratio 116% 165%

S U M M A R Y

 Continued strong operational cash conversion  Timing of exceptional cash flows  Improved credit terms – and continuing to improve  FY13 benefitted from cash impact of renegotiated leases and greater impact of stock release in the UK from stock built up in FY12 15

BALANCE SHEET AND WORKING CAPITAL

S U M M A R Y

 £83.7m net cash

• No long term debt in the UK, £1.6m in Spain
• €32m facility signed in Spain post year end
• £50m short-term ABL revolving facility in place

with HSBC  Credit terms continue to improve post IPO  Net investment in trade working capital reduced by £9.4m, or 23%, to £31.6m (2013: £41.0m)  Weeks’ inventory on hand improved from 8.2 weeks to 7.3 weeks (based on H2 COGS and revenue) 2014 £m 2013 £m Tangible fixed assets 18.1 15.7 Intangible assets 54.8 62.5 Inventory 57.6 51.5 Trade and other receivables 21.2 23.3 Other assets 1.8 5.3 Cash (net of borrowings) 83.7 (76.6) Trade and other payables (82.1) (69.5) Other (9.2) (10.5) Net assets 145.9 1.7 Inventory 57.6 51.5 Trade Receivables 6.1 7.7 Trade payables (32.1) (18.2) Trade Working Capital 31.6 41.0 16

NET DEBT / CASH BRIDGE

S U M M A R Y

 Capital structure has been transformed  Cash position better than expected pre-IPO from

• IPO & restructuring related c. £11m (of

which £2m reverses)

• Early terms improvement c. £5m
• Better working capital generation– c. £14m
• Prudent forecasting – c. £5m

 Only currency exposure is to EUR on Spanish business 17

(76.5) 117.8 83.7 47.4 13.5 (10.8) (5.1) (2.6)

CAPITAL EXPENDITURE

NEW SPACE, WITH NEW STYLE BROWSERS…

2012/13 2013/14

£4.9m £11.4m

Digital services Store development Maintenance

30% 33% 24% 46% 51% 16% S U M M A R Y

 Strategic investment in technology and digital

• Agile, low-cost development

 Capex at 22% of Adjusted EBITDA (2013: 21%) and 1.3% of revenue (2013: 0.7%)  Likely to remain at c.1.0 - 1.5% of revenue  Store development in FY14 largely for new console cycle and GAMETronics  FY15 focus likely to be GAMETronics, Marketplace and Digital Services (including in- store (e.g. Wi-Fi; digital experience) and App) 18

STORE PORTFOLIO

UK Spain Group Stores opened during year 11 11 Stores closed during year (8) (11) (19) Stores 321 236 557 Average sq. footage 1,209 808 1,036 Average length to first break / lease expiry 2.9 1.9 2.5 2014 Annual Rent, £m 35.8

S U M M A R Y

 UK movements largely repositioning

• All stores profitable

 Spain: closed 11 loss-making stores  Flexible lease profile: avg. 2.5yrs to first break option  Taking on 45 Spanish GameStop stores

• assists transfer of trade and orderly

market over Peak

• all stores profitable
• average period to first break <1yr

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Business Update

MARTYN GIBBS CEO

MARKET GROWTH AND OPPORTUNITY

28 9 49 14 Market Growth GAME

Total Y/Y Mint Market growth, %

Source: GFK-ChartTrack (Based on value of retail sales of console hardware, console software, console digital and accessories)

14.4 4.1 1.8 0.5 XB360 & PS3 XB1 & PS4

Installed Base (Jul-14), units (m)

Source: IHS Screen Digest, GFK-ChartTrack, IDG

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GAME MARKET SHARE

636 682 663 625 610 332 323 321 25% 30% 35% 40% 45% 2007 2008 2009 2010 2011 2012 2013 2014 193 237 260 263 264 254 247 236 15% 25% 35% 45% 2007 2008 2009 2010 2011 2012 2013 2014 Number of stores % share

33%

Market Share FY14

35%

Market Share FY14 Source: GFK-ChartTrack (Based on value of retail sales of console hardware, console software, console digital and accessories). Period as at GAME Digital YE

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GAME DIGITAL

19 million

Total insight base

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BUILDING THE MOST VALUABLE COMMUNITY OF GAMERS

GAMERS DESTINATION: SUPPLIER SUPPORT

 ‘Only at GAME’ exclusives on hardware and software  Software exclusives on 83 titles  Exclusive hardware offers, including

• COD XBOX One and White PS4

 First to market deals on AAA releases  Strong marketing support

1,500,000

Number of exclusive units sold in FY14

3.5x

Value of ‘exclusive’ vs. ‘non- exclusive’ customers (2014)

Note: An ‘exclusive’ customer is one who has purchased at least one exclusive SKU in the last 12 months

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 Core to value proposition  Preowned GM participation 32% in FY14  Significantly expanding GAMETronics

• ffer in FY15

 Over 1,200 products and growing  Roll-out to all stores underway  More training for store teams  Significant marketing planned to raise awareness

38%

GAMETronics as % of preowned hardware sales

GAMERS DESTINATION: TRADE-IN AND PREOWNED

5% 

Y/Y Growth in preowned Gross Profit

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 Significant focus for 2014  ‘Toys to life’ category growing rapidly  Expect store and online ranges to increase substantially in 2014  Launching GAME Junior awareness and education programme

EXPANDING OUR OFFER FOR KIDS: GAME JUNIOR

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DRIVING DIGITAL GROWTH

 Range – console and non-console

• Worldwide and UK 1sts on code to content

 Attach – in-store and online  New ways to pay – GAME Wallet  New markets – mobile

10% 

Y/Y Digital Receipt Growth

2,100 

Digital products added in FY14

2,380 4,406 2013 2014

1.3 million

Digital customers in FY14

2.4 3.0 2013 2014

# of Digital customers (m) # of Digital products

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DRIVING DIGITAL GROWTH

TV (console)

 Platform credit  Subscriptions  Full game downloads (e.g. Minecraft)  Additional downloadable content

Desktop

 Platform credit  'AAA' full game downloads  Additional downloadable content  Free 2 Play discovery and associated in-game credit

Mobile / Tablet

 iTunes / Google Play credit  Mobile app with range of specialist gaming services  Android based mobile gaming platform (launching 2014/15) 29

COMMUNITY ENGAGEMENT

 Enhanced reward  Lock-ins  Midnight launches  Exhibitions  Social media

Driving customer lifetime value

256

Lock-ins hosted in FY14

1,000,000+

Social media audience

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APP STORES ONLINE MOBILE

 Investing to:  Improve integration  Increase online, mobile and app functionality  Enhance the customer experience  Grow insight

COMMUNITY ENGAGEMENT: CHANNEL DEVELOPMENT

2.5x

Multi-channel customer value vs. single channel customer

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 New website design  Game Wallet integration  Marketplace integration    Game Wallet  Scan it!  Mobile games store  XB1 / PS4 bays  FIFA / COD screens  In-store Wi-Fi  Store environment

COMMUNITY ENGAGEMENT: CHANNEL DEVELOPMENT

eCommerce mCommerce and app Stores

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COMMUNITY ENGAGEMENT: GAME Wallet & Scan it!

 

 Soft launch 1 Oct

• 2,000+ SKUs available

 Personalised experience

• ‘Your price’
• Product recommendations
• Content discovery

 Drives increased Insight  New marketing channel  Launched June 2014  Unique eWallet combining

• top-up cash
• reward points
• trade-in / gift card credit

 Makes buying digital content simple and easy

 unlocks cash customers

 Safe and secure way for parents to allow children to access online content

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 Increased next gen training

• Xbox ExpertZone
• PS4 Ambassadors

 Evaluating ways to enhance online and in store delivery options  Launch of new customer service structure and training tools  Consumer insurance  Consumer credit

DRIVING NEW BUSINESS: ENHANCED SERVICES

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DEVELOPING INSIGHT

 Creating single customer view  Launching fully automated with dynamic content  Trialing ‘Smart offers’ in store  Driving app usage – Scan it!  Community panel  Engaging supplier partners

16 million

Reward card customers

800,000+

Registered app users

600,000+

Weekly targeted e-mails

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CURRENT TRADING AND OUTLOOK

 Market in UK and Spain continues to grow  Continue to benefit from increasing supplier support  Working capital facilities in place  Exclusives secured  Stores and staff are ready for Peak  The biggest months are the months ahead…

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SUMMARY

Core

• ffer

Junior ‘Only at GAME’ Preowned Digital content

Expand range

Preowned tech Marketplace Movies

Increase engagement

Reward Research Social Events

Enhance services

Wallet Consumer Credit Scan it! Warranties Mobile games

 Strong FY13/14 performance  Market dynamics supportive  Improving offer across all channels  Strategic priorities on track  Investing for growth  Strong financial position

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MARKET DYNAMICS

8 15 46 288 463 668 813 960 1,156 1,287 1,377 1,489 1,591 1,685 1,773 1,869 484 645 841 1,001 1,131 1,007 946 1,064 1,298 1,234 1,403 1,439 1,281 1,403 1,589 1,758 1,991 2,072 2,067

Xbox and PlayStation Content Sales, £m Xbox and PlayStation Hardware Sales, £m Nintendo and Handheld Sales (Hardware and Software), £m Non-console Digital Sales, £m

173 540 674 565 373 324 435 825 762 680 632 508 356 615 982 1,020 977 813 602 496 533 479 555 501 867 1,166 1,273 1,180 919 611 546 413 303 278 219 139 73 38 77 30 90 104 84 46 78 722 1,263 972 636 411 245 150 129 102 76 55 40

Handheld Wii

(3)

Source: OC&C, UK market mint market

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NEW RELEASE CALENDAR

Q1 Q2 2015… Aug 14 The Last of Us Remastered Nov 14 Call of Duty: Advanced Warfare Feb 15 The Witcher 3: Wild Hunt Aug 14 Street Fighter IV ULTRA Nov 14 The Crew Feb 15 EVOLVE Aug 14 Risen 3 Titan Lords Nov 14 PES 2015 Feb 15 The Order: 1886 Aug 14 Diablo III: Reaper of Souls – Ultimate Evil Edition Nov 14 World of Warcraft: Warlords of Draenor Jul 15 Battleborn Aug 14 Plants Vs Zombies Garden Warfare Nov 14 Assassins Creed: Unity TBC Battlefield: Hardline Aug 14 Madden NFL 15 Nov 14 Halo: The Master Chief Collection TBC Metal Gear Solid V: The Phantom Pain Aug 14 Metro Redux Nov 14 GTAV (next gen) TBC Tom Clancy's The Division Sep 14 The Sims 4 Nov 14 Assassins Creed: Rogue TBC Star Wars Battlefront Sep 14 Destiny Nov 14 Lego Batman 3: Beyond Gotham TBC Rise of the Tomb Raider Sep 14 NHL 15 Nov 14 Far Cry 4 TBC Uncharted 4 - A Thief's End Sep 14 Infinity 2.0 Marvel Nov 14 WWE: 2K15 TBC Batman Arkham Knight Sep 14 FIFA 15 Nov 14 Little Big Planet 3 TBC Tom Clancy's Rainbow Six: Siege Oct 14 Forza Horizon 2 Nov 14 Project CARS TBC Bloodborne Oct 14 Middle Earth: Shadows of Mordor Nov 14 Sonic Boom: Rise of Lyric TBC Let it Die Oct 14 Super Smash Brothers Nov 14 Sonic Boom: Shattered Crystal TBC Dead Island 2 Oct 14 Aliens: Isolation Nov 14 DragonAge: Inquisition TBC Mortal Kombat X Oct 14 DRIVECLUB Nov 14 Pokémon Omega Ruby/Alpha Sapphire TBC Mirrors Edge Oct 14 Skylanders Trap Team Dec 14 Lara Croft and the Temple of Osiris TBC Elder Scrolls Online Oct 14 Sunset Overdrive Jan 15 Dying Light

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Business Transformation post 2012

Re-sized estate Focus on margin management and cash Expanded use of customer insight Investment in online and digital infrastructure Deepened supplier relationships

• Focused on profitable UK and Spanish businesses
• Store portfolio reduced from 874(1) to 556(2) stores
• Lower rents and more favorable payment profile across the UK estate
• Valuable insight across over 19 million customers(3)
• Improving the CRM infrastructure
• Monetised insight database with suppliers
• Overheads substantially reduced
• High margin pre-owned category re-built
• Re-engineered UK working capital management
• New non-stock supplier contracts entered into
• Robust, scalable IT architecture implemented
• App, eComm, mComm and stores integrated in the UK
• UK website upgraded and re-launched
• Increasing digital integration
• Exclusive content secured on major releases
• Support provided for UK store digitisation

Notes: (1) UK and Spanish store base as at 28 January 2012 (UK: 310, Spain: 264). (2) UK and Spanish store base as at 26 July 2014 (UK: 321, Spain: 239). (3) Insight data base for UK and Spain combined, 26AJuly 2014

1) January 2012 2) July 2014

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