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Game Group PLC (GMG)

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Wednesday 27 April, 2011

Game Group PLC

Preliminary Results

RNS Number : 5019F
Game Group PLC
27 April 2011
 



 

 

 

 

 

 

  

 

 

THE GAME GROUP PLC

 

RNS release

 

Year Ended

 

31 January 2011

 

 

Registered Number : 875835

 

 


 

GAME Group plc preliminary results

 

THE GAME GROUP PLC, Europe's leading retailer of pc and video games products, today announces Preliminary Results for the 52 weeks ended 31 January 2011.

 

2010/11: Summary

 

Financial Overview

All figures in £'m (unless stated)

52 Weeks ended 31 January 2011

52 weeks ended 31 January 2010

Group turnover

1,625.0

1,772.4

Gross profit margin (%)

26.3%

27.8%

Operating profit before non-recurring costs

43.2

94.8

Non-recurring costs*

14.7

6.2

Operating profit

28.5

88.6

Profit before non-recurring costs and tax

37.8

90.4

Profit before tax

23.1

84.2

Basic earnings per share before non-recurring costs (pence)

8.75

19.24

Basic earnings per share (pence)

4.51

17.45

Final dividend per share (pence)

3.90

3.90

Full year dividend per share (pence)

5.78

5.78

Trading store numbers  (including franchises)

1,313

1,380

Trading square footage (sq. ft. thousands)

1,370.3

1,438.4

 

Full year sales analysis

52 weeks to 31 January 2011

Total sales (%)

Lfl sales (%)

Group

-8.3

-6.7

UK & Ireland stores

-12.8

-9.8

International stores

-1.3

-2.0

Group Online

-2.0

-2.0

*Non-recurring costs relate to business restructuring in Australia and France

 

Financial and Operational Highlights:

·      Delivered a Group lfl of -6.7% compared to an aggregated market decline of -9.9%

·      Preowned revenue increased by 3.3% to £386.9m (2010: £374.5m)

·      Digital revenues increased by 27% to £41m

·      Own-label revenues increased by 36% to £29m

·      Gross margin improvement between H1 and H2

·      Reduced operating costs by £13.7m

·      Underlying Group PBT of £37.8m in line with market expectations

·      Working capital improved by £66.3m, leading to a closing net cash position of £119.8m

·      Final dividend maintained at 3.90p (full year dividend: 5.78p)

 

2011/12: Current trading and strategic progress:

 

Q1 sales analysis

12 weeks to 23 April 2011

Total sales (%)

Lfl sales (%)

Group

-14.3

-12.1

UK & Ireland stores

-14.9

-12.4

International stores

-15.8

-14.2

Group Online

+2.1

+2.1

 

·      Continued to outperform UK market

·      Leading market share for launch of Nintendo 3DS

·      Strategic initiatives delivering early progress:

o  Multichannel: Online market share has increased from 13% to 18% since Strategic Update in February

o  Right stores: Closed 15 UK stores in Q1 2011

o  Unique products: Digital sales growth continues, up 28% in Q1 2011

o  Novel ways to buy: Preowned sales grown to 29% of total sales, with 41% margin

o  Customer relationships: 180,000 new loyalty members in Q1 2011

 

Ian Shepherd, Group Chief Executive commented:

 

"GAME is on a journey. Our customers have new and different ways to buy and play video games and we need to make sure our business provides everything they want, wherever they want it. Today, no other business does this for the gamer. We plan to be the first.

 

We are operating, however, in a very challenging economic climate and have a lot to do and a long way to go if we want to outperform the market by growing new revenue streams. Our strategy is designed to do just that, and our dedicated teams around the world are focused on delivering it. I'm encouraged by the good progress we've seen in the early months of this year.

 

We face the tough markets of 2011 with a strong balance sheet, high quality retail operations and real differentiators that few competitors can match. We are well placed to deal with the prevailing economic challenges and help our customers through these difficult times and consequently are maintaining guidance for the full year.  In the longer term, we are putting GAME in the right place to deliver the strongest returns as the industry continues to change and evolve."

 

 

- ENDS -

 

Enquiries

 

GAME Group plc

Ian Shepherd, Chief Executive

Ben White, Group Finance Director

Simon Soffe, Communications & Investor Relations Director

+44 1256 784566




Brunswick

Jonathan Glass

Wendel Verbeek

Natalia Marisova

+44 207 404 5959

 

 

Notes:

 

1. GAME Group Store portfolio

 

31 January 2011

31 January 2010

Number

Number

Company owned and concessions

UK and Ireland:

- GAME - Stores

- GAME - Concessions

- Gamestation


381

11

247


390

33

254

Total UK and Ireland

639

677

France

197

199

Iberia

287

283

Scandinavia

65

68

Czech Republic

31

29

Total Continental Europe

580

579

Australia

93

118

Total International

673

697

Total owned and concessions

1,312

1,374

Franchises

Iberia

0

5

Australia

1

1

Total franchises

1

6

Total operational outlets

1,313

1,380

 

 

 

Chairman's Statement

 

 

Overview

 

Our Group has seen significant changes over the last 12 months. With a new Chief Executive in place and a new strategy underway, we are making good progress in difficult markets. We are building on our leading high street retail strengths to establish leading positions in all the channels that people use to play pc and video games. 

 

Our existing skills, which are built on twenty years of experience and knowledge from over 17 million customer relationships, help us to understand changing consumer demands and put us in a strong position to build for the future. 

 

Market background

 

The video games market continued to be tough in 2010. In the UK, hardware revenues were down 25% and entertainment software revenues were down 5%. However, the launch of new peripherals from Microsoft and Sony, along with another year of strong Christmas software releases, provided the market with some support during the important Christmas period.

 

Digital downloads and social gaming products have continued to gain in popularity. The pace of change is accelerating as new products are launched, and as developers and publishers seek the most effective ways to reach consumers.

 

Results

 

Although we held or increased our market share in all of our territories over the year, revenues were down on the previous year with Group like for like sales of -6.7%, reflecting the challenges of the wider market.  Our markets remained competitive and value was critical to customers, so our strong preowned offers and market leading deals helped us to maintain market leadership. Gross margins held up well in the second half with strong preowned and own brand sales offsetting the competitive deals on mint products. The Group continues to exercise strong cost controls, saving £13.7m over the year, and therefore we delivered a profit before tax and non-recurring items of £37.8m (2010: £90.4m).

 

Our disciplined approach to working capital management and capital expenditure meant we improved our cash flow by  £65.1m, and consequently closed the year with a net cash position of £119.8m (2010: £44.9m). In February 2011 we agreed a new 3½ year bank facility, providing us with borrowings of £160m to further strengthen our balance sheet.

 

Reflecting its confidence in the Group's clear strategic direction, but mindful of the wider economic and market conditions, the Board proposes a maintained final dividend of 3.90p per share (2010: 3.90p). This will result in a full year dividend of 5.78p per share (2010: 5.78p).

 

Our people and Board

 

Our colleagues consistently demonstrate a commitment to customers and products. Their passion and skills are at the heart of our brands, and we are very grateful to them all.

 

I will be stepping down as Chairman after the Annual General Meeting on 15 June 2011, and I am delighted that Chris Bell will be appointed as the new Chairman. It has been an immense privilege to serve the Group as Chairman over the last 13 years. During this time our two biggest challenges, the pace of technological change and the expectations of our customers, have continued to accelerate. The Group has evolved with them, and is positioned at the forefront of innovation with a clear plan and the right team. Chris Bell and Ian Shepherd are a strong combination, with Chris's longstanding experience and network in the investor and business communities, and Ian's extensive experience in the consumer technology sector and CRM.

 

Chris, Ian, the Board and the GAME team around the world are committed to growing the Group and delivering significant returns for our shareholders, and I wish them every success.

 

 

Summary

 

Across all of our territories, the markets in which we operate continue to be tough, but we have been able to outperform through our strength in preowned and our success in launching new products.

 

We are making progress delivering our strategic plans. We have outlined clear indicators to measure our progress and are pleased with the actions taken on our portfolio of stores, the expansion of our own brand product range and, in particular, the increasing sales of digital and online products. We have more work to do, and we have robust plans in place.

 

Our industry is driven by innovation, and we expect improvements when new products are announced. This, together with our existing business model and the delivery of our clear strategic plans, means the Group is well positioned to face the ongoing challenges in the retail environment.

 

 

Peter Lewis

Chairman

27 April 2011

 

The Group will release an IMS statement at the Annual Meeting on 15 June, following the E3 industry conference in Los Angeles, which is scheduled for 7 to 9 June 2011.

 

 

 

Chief Executive's Review

 

Introduction

 

GAME is on a journey. Our customers have new and different ways to buy and play video games and we need to make sure our business provides everything they want, wherever they want it. Today, no other business does this for the gamer. We plan to be the first.

 

The need for change

 

Our industry is changing rapidly because customers are demanding it. Customers are offered a massive choice of technology products and there have never been more ways to buy them.

 

This is reflected in the evolution of the market. Industry analysts are predicting modest growth for the "traditional" elements of the market over the next few years (i.e. consoles, boxed software, accessories and preowned), until the next console cycle starts. At the same time, they are forecasting growth in other areas of the market, specifically social, mobile and digital games.

 

GAME has a strong position in both the traditional and the emerging digital segments of the games market. We already have digital, ecommerce and physical revenue streams - in fact, we take a leading market share in some areas of the UK digital gaming market. The reason why is clear. A lot of the growth in the digital market is fuelled by people buying digital add-ons for their physical games.  This cross-over of channels increases the need for a retailer who can aggregate all of the products and guide customers to the products that they want.  I believe that with our unique combination of strong customer relationships, retail theatre, customer service, innovative pricing models and industry knowledge, GAME is well placed to deliver such an offer.

 

We are not, however, complacent. Trading in our market remains difficult and we need to deliver fundamental changes. It is no surprise, therefore, that the strategy I have recently outlined builds on our existing strengths as we grow from our traditional retail base into a multichannel future.

 

Our future strategy

 

Our strategy is rooted in our understanding of our customers. We know what it is like to be a gamer or someone buying for a gamer, and we passionately want to be our customers' first choice for all of their gaming needs. Our strategy reflects that and is called "Dedicated to Gaming".

 

We know that customers are shopping across multiple channels, and placing equal importance on their experiences online, on mobile platforms and in stores. In delivering our strategy, we will focus on five specific areas:

 

We will become a multichannel specialist, offering the same high quality services wherever and whenever our customers need us.  We will manage our property portfolio and rejuvenate our estate to create the right stores to be the hubs of our multichannel experience. To be our customers' chosen gaming partner, we will sell a broad and unique product range spanning both physical and digital content. We will also be creative in finding ways for customers to experience gaming in the most affordable way, and will develop novel ways to buy. And finally, we will be dedicated to our customers and build strong relationships with them founded on trust and active communication.

 

 

A multichannel specialist

 

We have an opportunity to grow our online business - our share of online games revenues is lower than our share in retail stores. We also know that growing our online business benefits our stores.  Our data shows that the customers who shop with us both in stores and online are our best customers, spending much more than single channel customers.  Therefore, our ambition is to grow the number of customers who shop in this way, with the aim of tripling our online revenues over the next three years. In 2010 our share of online revenues was 13% in the UK.

 

To make ourselves a genuinely multi-channel retailer we need to do three things:

 

1.     Grow our web presence and deliver a better web experience for customers;

2.     Fully integrate the web with our stores, so that our store estate helps us grow online share;

3.     Continue to invest in emerging digital and mobile channels.

 

We have made a good start. The web platforms we started to build in 2010 are coming online. The Gamestation website was the first to go live, in February 2011, and our GAME UK site will follow. Our sites now offer a much better retail experience as well as more community and social network content.

 

We have just embarked on our online strategy, and we are already seeing some success with our market share up by five percentage points to 18% (source: ChartTrack) since our strategic update in February. There is much for us to do, with the immediate next steps being the integration of web and stores to create a truly joined up proposition.

 

Right stores

 

We are re-engineering our stores to be at the heart of our multichannel offering. This will not only drive performance online and digitally, but will also enhance our store offer.

 

Our stores must become the place for customers to play and interact with pc and video games. Critically this allows us to give them a great shopping experience and improve our customer conversion. The opportunity is enormous, with 3.5m customers visiting our stores across the Group every week. Our teams are already very good at converting these customer visits into sales, and in 2010 we increased the conversion rate by a full percent to 19%. We are aiming to increase this by 1% every year going forward.

 

To create the right store environment we are increasing the multichannel feel of our outlets: adding new digital lines, including digital content for consoles, partnering with the leading social gaming sites and trialling new technology to improve our customer service.

 

Having the right locations inevitably means that we are going to have fewer stores. In the UK we are targeting 550 stores by Christmas 2013. We closed 15 stores in the first 12 weeks of 2011, in addition to the 38 stores we closed last year. We aim to close stores without losing sales, using loyalty card data and marketing initiatives to transfer a minimum of 60% customers to the nearest store or online. A relatively short average lease length of 5 years continues to offer us flexibility. 

 

Internationally, stores remain the key route to market in the medium term. In Spain, Portugal and the Czech Republic, where we are market leaders, there may be tactical growth where we see local and profitable opportunities. As we move to strengthen our businesses in France and Australia, there may be a small number of additional closures.

 

 

Unique product range

 

As a specialist, our customers expect to receive a unique and differentiated offer. It is therefore crucial to have a unique product range as we combine web and stores together and we will increase our range of digital content, exclusive versions of games and own-label items - all of which give us stronger than usual market shares - in order to increase customer choice and sales. For example, we plan to double the size of our own-label business in the next three years.

 

Our range of own-label accessories and peripherals already contains over 100 products, and this gives us a strong market share of the total accessories market. We source these products direct from the manufacturer, giving us strong margins and total control. The range is expanding, and includes a range for new launches including accessories for Sony Move, Nintendo DSi and 3DS.

 

In 2010 our own-label sales outperformed the rest of our business, with sales growth of 36%.

 

Exclusive products and extra content are another important part of our customer offering in both physical and digital product. Customers love the opportunity to buy a special version of a product, and we see our market share outperform when we offer exclusive elements.

 

Last year we offered customers 39 exclusive versions of titles, and on average they delivered a market share around a third higher than when we sell a generic version of a game. Our exclusives are stronger than ever, and in Q1 2011 have included exclusive versions of Pokemon Black and White; the Bulletstorm Epic edition which provided Beta access to Gears of War 3; and the Crysis 2 Nano Edition which included an exclusive backpack, figurine and book.

 

Increasingly we are working with supplier partners to provide customers with exclusive digital content when they buy a physical copy of a game. This helps us to introduce customers to digital content, and to position GAME as the lead authority on multichannel gaming.

 

We maintain a very strong share on all new products because our supplier partners see how we actively sell more products than anyone else, and they support us with exclusive products and appropriate volumes of stock.

 

A "retail accelerator" effect also applies very clearly to digital products, and as a retailer we are able to sell more digital content than publishers or developers on their own. Sales of digital products, which include Xbox Live and Sony PSN time cards as well as points cards and downloadable content cards, grew at 27% last year to £41m. This has continued in 2011, with UK Q1 sales up 28% compared to Q1 2010.

 

Novel ways to buy

 

We have always been innovative in giving customers new ways to own and experience games that are as affordable as possible.  Our trade-in model, supporting the sale of preowned games and hardware reduces the cost to our customers of their gaming purchases, particularly when combined with our loyalty cards, and GAME has great skill and expertise in this area. We are also looking at new ownership models, both on our own and with suppliers.

 

The power of preowned and trade-in should not be under-estimated in this market place. Preowned forms the backbone of our value proposition, allowing customers to liquidate their unwanted assets and giving them access to a lower price alternative. It is performing strongly in our business, becoming a larger part of our overall sales mix and delivering strong margins. It is a key pillar of support for our business, and our established model provides opportunity for further growth. Our objective is to increase the number of customers who trade-in products and buy preowned, as they have a higher customer lifetime value.

 

For the first time, a significant range of preowned products is being offered online, giving customers additional choice and strengthening our value messages. Our objective is to have a full range of preowned products available online in the next year.

 

In 2010/11 preowned participation was 23.8% and preowned margins were 39.7%. This has continued in 2011, with preowned participation now 29.1% and preowned margins 41.0%.

 

 

Customer relationships

 

To engage all of our customers, we must communicate regularly and personally with them. Our established CRM programme, combined with our multi-channel initiatives and strategic plans, will make the biggest difference in the future.

 

Over 17 million customers have joined our loyalty programmes, giving us a unique data asset with which to plan for the future. It shows us that over 60% of customers have shopped with us in the last 12 months, and 10% of them are "super users" - the customers who shop with us at least seven times in a five month period. The customer lifetime value of these gamers is triple the average.

 

Our objectives are to increase the number of card holders across the Group, drive up the number of super users, and re-engage lapsed users. We will also proactively use the schemes to drive sales. In 2010 such activities generated less than £5m for the Group. By 2013, we want these revenues to exceed £100m.

 

The first step was to have a card for each brand, and in October 2010 we launched the Gamestation Elite card. It now has over 800,000 members, and is growing rapidly. In total more than 17m customers hold a GAME Reward card or Gamestation Elite card.

 

We need to make our customer loyalty count. To that end we will use our loyalty card programme to reward, remunerate and retain customers. The key to our success will be supporting the loyalty schemes through all channels. We have the back office functionality that allows us to know each customer whenever and however they shop with us. In Q1 2010 we initiated 150,000 proactive customer contacts. In Q1 2011 this increased to more than 500,000.  

 

The key elements of the loyalty card schemes, the number of card holders and the percentage of "super users" continue to increase. In 2010 we added 2.5m new members and in the first quarter this has improved by 30,000 members a week.

 

Current trading:

 

In the first 12 weeks to 23 April 2011, the Group's total sales were down by 14.3 per cent and lfl sales were down by 12.1 per cent.  In the UK and Ireland, total sales and lfl sales were down by 14.9 per cent and 12.4 per cent respectively, outperforming the market. 

 

In our International business, total sales were down by 15.8 per cent and lfl sales on a constant currency basis were down 14.2 per cent. Online sales were up by 2.1 per cent. 

 

Our markets continue to be tough, but we were able to outperform the markets through our strength in preowned and successful new product launches. Our market share on the Nintendo 3DS and AAA software launches, in particular, was higher than our average because of our ability to offer customers excellent value via trade-in deals.

 

 

Summary and Outlook

 

As the games market grows and evolves, we are more convinced than ever that there is a role for a strong multichannel retailer to aggregate content of different kinds and build solid customer relationships based on trust and expertise.

 

The GAME Group is uniquely positioned to fulfil that role. Our ability to launch new products in stores as well as online, with customers using their loyalty cards to buy and enjoy both digital and physical content, are assets no other business possesses. That ability is driven by our passionate, expert and dedicated teams around the world.

 

We are operating, however, in a very challenging economic climate and we have a lot to do and a long way to go if we want to outperform the market by growing new revenue streams. Our strategy is designed to do just that, and our dedicated teams around the world are focused on delivering it.

 

I'm encouraged by the good progress we've seen in the early months of this year. We see good evidence that we can grow our online, digital, own-label and preowned businesses strongly, even in very tough market conditions.

 

It is critical that we implement the strategy with a firm focus on cash generation, efficient capital expenditure and tight control of costs. We will only invest where it helps us to achieve our strategic goals.

 

These strategic and cost actions, coupled with our expectation of the market, lead us to reaffirm guidance for the year with sales growth of +2 per cent to +5 per cent, gross margins down 100 basis points and flat operating costs.

 

We face the tough market of 2011 with a strong balance sheet, high quality retail operations and real differentiators that few competitors can match. We are well placed to deal with the prevailing economic challenges and help our customers through these difficult times.  In the longer term, we are putting GAME in the right place to deliver the strongest returns to our stakeholders as the industry continues to change and evolve.

 

 

Directors' responsibility statement for the year ended 31 January 2011

 

 

Directors' responsibility statement

The Directors are responsible for keeping proper 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 Group, and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors' Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006. 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 group and company and of the profit or loss for the group for that period.

 

The Directors are responsible for preparing the annual report and the financial statements in accordance with the Companies Act 2006. The Directors are also required to prepare financial statements for the Group in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and Article 4 of the IAS Regulation. The Directors have chosen to prepare financial statements for the Company in accordance with UK Generally Accepted Accounting Practice.

 

The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. The financial statements are published on the Group's website (www.gamegroup.plc.uk) in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

 

Group financial statements

International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. A fair presentation also requires the Directors to:

 

•              consistently select and apply appropriate accounting policies;

 

•              make judgements and accounting estimates that are reasonable and prudent;

 

•              state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;

 

•             present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and

 

•              provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance.



 

 

 

Report of the Directors for the year end 31 January 2011

 

 

Parent Company financial statements

Company law requires the Directors to prepare financial statements for each financial year which 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 these financial statements, the Directors are required to:

 

•              select suitable accounting policies and then apply them consistently;

 

•              prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

 

•              make judgements and estimates that are reasonable and prudent; and

 

•              state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements.

 

Directors' responsibility statement pursuant to DTR4

The Directors confirm to the best of their knowledge:

 

•              The Group financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.

 

•              The Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and the Parent Company, together with a description of the principal risks and uncertainties that they face.

 

 

Consolidated Statement of Comprehensive Income for the year ended 31 January 2011

 

 

 

 



















2011

2010


Note


£'000

£'000

Revenue

1


1,625,034

1,772,358

Cost of sales



1,197,638

 1,279,666

Gross profit



427,396

492,692

Other operating expenses

2


398,921

404,102 






Operating profit before non-recurring costs



43,208

94,789

Non-recurring costs

3


(14,733)

(6,199)






Operating profit

4


28,475

88,590

Finance income

5


375

538

Finance costs

6


(5,745)

(4,917) 

Profit before taxation



23,105

84,211

Taxation

8


(7,452)

(23,744) 

Profit for the year attributable to equity holders of the parent



15,653

 60,467

Other comprehensive income:





Exchange differences on translating foreign operations



2,921

3,920

Deferred income tax on share-based payments



370

(1,078)

Income tax on share-based payments



37

 596

Other comprehensive income for the period, net of tax



3,328

 3,438

Total comprehensive income for the period attributable to equity holders of the parent



18,981

 63,905

Earnings per share - basic

10


4.51p

17.45p

                           - diluted

10


4.51p

17.42p 

 

All amounts relate to continuing activities

 

 

Consolidated Balance Sheet as at 31 January 2011                 

 

 

















Restated

Restated




2011

2010

2009


Note


£'000

£'000

£'000

Non-current assets






Property, plant and equipment

11


109,122

128,588

134,141

Intangible assets

12


209,875

212,668

213,735

Deferred tax asset

18


3,647

 3,614

 4,004




322,644

 344,870

 351,880

Current assets






Inventories

13


149,915

176,045

181,965

Trade and other receivables

14


48,538

48,316

55,465

Cash and cash equivalents



151,243

 86,128

 139,614




349,696

 310,489

 377,044

Total assets



672,340

 655,359

 728,924

Current liabilities






Trade and other payables

15


294,570

258,203

349,182

Current portion of long-term borrowings

16


15,875

17,361

26,325

Leasehold property incentives

19


1,869

1,341

904

Current tax liabilities



7,755

 12,943

 26,037




320,069

 289,848

 402,448

Non-current liabilities






Long-term borrowings

16


15,559

23,908

31,847

Leasehold property incentives

19


9,718

10,048

8,328




25,277

 33,956

 40,175

Total liabilities



345,346

 323,804

 442,623

Net assets



326,994

 331,555

 286,301

Equity attributable to equity holders of the parent






Share capital

20


17,373

17,333

17,316

Share premium account

21


47,086

46,662

46,462

Capital redemption reserve

22


2,248

2,248

2,248

Shares held in Trust

22


(3,629)

(3,395)

(6,451)

Merger reserve

22


76,907

76,907

76,907

Foreign exchange reserve

22


30,295

27,374

23,454

Retained earnings

22


156,714

 164,426

 126,365

Total equity



326,994

331,555 

286,301 

 

 

The financial statements were approved by the Board of Directors and authorised for issue on 27 April 2011 and were signed on its behalf by:

 

 

Ben White

Director

 

 

Statement of Changes in Equity for the year ended 31 January 2011

 

 

 

 


Share

Share

Capital

Shares

Merger

Retained

Foreign

Total


capital

premium  redemption

held in

reserve

earnings

exchange





reserve

Trust



reserve



£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 February 2009

17,316

46,462

2,248

(6,451)

76,907

126,365

23,454

286,301

Exchange differences

-

-

-

-

-

-

3,920

3,920

on translation of foreign









currency net investment









in subsidiaries









Income tax on share-based









payments









- Deferred tax

-

-

-

-

-

(1,078)

-

(1,078)

- Current tax

-

-

-

-

-

596

-

596

Net income recognised









directly in equity

-

-

-

-

-

(482)

3,920

3,438

Net income recognised









in income statement

-

-

-

-

-

60,467

-

60,467

Total recognised income

 

 

 

 

 

 

 

 

and expense

-

-

-

-

-

59,985

3,920

63,905

Issue of shares

17

200

-

-

-

-

-

217

Purchase of shares

-

-

-

(1,893)

-

-

-

(1,893)

Exercise of options

-

-

-

4,949

-

(4,949)

-

-

Dividends paid

-

-

-

-

-

(19,366)

-

(19,366)

Share-based payment expense

-

-

-

-

-

2,391

-

2,391

 

At 1 February 2010

17,333

46,662

2,248

(3,395)

76,907

164,426

27,374

331,555

Exchange differences

-

-

-

-

-

-

2,921

2,921

on translation of foreign









currency net investment









in subsidiaries









Income tax on share-based









payments









- Deferred tax

-

-

-

-

-

370

-

370

- Current tax

-

-

-

-

-

37

-

37

Net income recognised

-

-

-

-

-

407

2,921

3,328

directly in equity

-

-

-

-

-

-



Net income recognised









in income statement

-

-

-

-

-

15,653

-

15,653

Total recognised income









and expense

-

-

-

-

-

16,060

2,921

18,981

Issue of shares

40

424

-

-

-

-

-

464

Purchase of shares

-

-

-

(1,926)

-

-

-

(1,926)

Exercise of options

-

-

-

1,692

-

(1,692)

-

-

Dividends paid

-

-

-

-

-

(20,073)

-

(20,073)

Share-based payment credit

-

-

-

-

-

(2,007)

-

(2,007)

At 31 January 2011

17,373

47,086

2,248

(3,629)

76,907

156,714

30,295

326,994

 

 

 

The restatement is a reclassification within Non-Current Assets and has no impact on equity.

 

 

Consolidated Statement of Cash Flows for the year ended 31 January 2011

 

 

 

 

 















Restated




2011

2010


Note


£'000

£'000

Cash flow from operating activities





Operating profit



28,475

88,590

Equity-settled share-based payment (credit)/ expense



(2,007)

2,391

Depreciation and amortisation



30,521

32,898

Impairment of goodwill



3,354

-

Loss on disposal of non-current assets



4,800

2,734

Market value movement on financial instrument



5

 81




65,148

126,694

(Increase) / decrease in trade and other receivables



(236)

6,869

Decrease in inventories



27,750

7,220

Increase / (decrease) in trade and other payables



38,623

(87,860)

Increase in leasehold incentives



198

 1,757

Cash generated from operations



131,483

54,680

Finance costs paid



(5,745)

(4,917)

Corporation tax paid



(14,359)

 (36,626)

Net cash from operating activities



111,379

 13,137

Cash flows from investing activities





Purchase of property, plant and equipment



(9,763)

(24,927)

Purchase of intangible assets



(7,909)

(4,963)

Proceeds from sale of equipment



2,396

455

Finance income received



375

 538

Net cash used in investing activities



(14,901)

(28,897) 

Cash flows from financing activities





Proceeds from issue of share capital



464

217

Shares purchased for Trust



(1,926)

(1,893)

Payment of Term Loan



(8,330)

(63,330)

Proceeds from Term Loan



-

50,000

Payment of other long-term borrowings



(1,023)

(2,935)

Payment of finance lease liabilities



(475)

(419)

Dividends paid



(20,073)

 (19,366)

Net cash used in financing activities



(31,363)

 (37,726)

Net increase / (decrease) in net cash and cash equivalents



65,115

(53,486)

Cash and cash equivalents at beginning of period



86,128

 139,614

Cash and cash equivalents at end of period

24


151,243

 86,128






 

 

Statement of Accounting Policies

 

 

The financial information set out above and in the accompanying notes, does not constitute the Company's statutory accounts

for the years ended 31 January 2011 or 2010, but is derived from those Accounts.  Statutory accounts for 2010 have been

delivered to the Register of Companies and those for 2011 will be delivered following the Company's Annual General Meeting.

 

The Independent Auditors' report on the 2010 accounts was unqualified and did not contain a statement under 498(2) or

498(3) of the Companies Act 2006. The Independent Auditors' report on the 2011 accounts was unqualified* and did not

contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

* did not draw attention to any matters by way of emphasis

 

Basis of Preparation

 

The accounting reference date of The GAME Group plc and all of its subsidiary undertakings (the "Group") is 31 January.

The comparative year's results are for the 52 week period ended 30 January 2010.  The current year's results are for the 52

week period ended 30 January 2011.

 

The consolidated financial statements incorporate the results of the Group made up to 31 January 2011.  The Group has used

the acquisition method of accounting to consolidate the results of subsidiary undertakings.  The results of subsidiary

undertakings are included from the date of acquisition.

 

The Group consolidated financial statements have been prepared in accordance with the Companies Act 2006 as applicable to

companies reporting under IFRS and those IFRSs and IFRIC interpretations issued and effective and endorsed by the European

Union as at the time of preparing these financial statements.

 

Change in accounting policy

 

In the current year, the Group has revised its accounting policy for the classification of Droit au Bail (a type of French key money).   The balance of £32,533,000 at 31 January 2010 was previously classified within "Short leasehold land and property" as the payments confer onto the Group many rights similar to those associated with a leasehold.  These assets are assessed as having an indefinite useful life and the carrying value is tested for impairment .  In light of proposed amendments to accounting for leases, the nature of these assets has been reviewed and the accounting policy revised to classify Droit au Bail within Intangible Assets. 

 

There has been no effect on the equity, or results of the Group arising from the revision of this policy.  The financial position and cash flows of the Group has been re-stated to show the revised disclosure within Non-current Assets.

 

 

Notes to the Financial Statements for the year ended 31 January 2011

 

 

 

 

1 Revenue, profit and net assets

 

Revenue, pre-tax profits and net assets all relate to the retail of pc and video game products and the Group's operations are organised and managed by geographic location only. Management consider the reportable operating segments in accordance with IFRS 8 to be split between the UK and Ireland Stores, International Stores, and Global Online. Management do not consider there to be any major individual customers of the Group.

 

Revenue by origin and destination are not materially different. Inter-segment transactions between operating segments are entered into on an arms-length basis in a manner similar to transactions with third parties.

 

The Group's business is seasonal with the key trading period being the Christmas season.

 

 

 


United Kingdom





and Ireland stores

International stores

Global

online

Total


2011

2011

2011

2011


£'000

£'000

£'000

£'000

Revenue

935,320

594,566

95,148

1,625,034

Cost of sales

(673,286)

(442,821)

(81,531)

(1,197,638)

Gross profit

262,034

151,745

13,617

427,396

Other operating expenses excluding





inter-segment expenses

(223,222)

(149,170)

(11,796)

(384,188)

Inter-segment expenses

3,619

(3,619)

-

-

Operating profit / (loss) before non-recurring costs

42,431

(1,044)

1,821

43,208

Non-recurring costs

-

(14,733)

-

(14,733)

Operating profit / (loss)

42,431

(15,777)

1,821

28,475

Net finance costs excluding inter-segment

(5,208)

(162)

-

(5,370)

Inter-segment finance costs

3,503

(3,503)

-

-

Taxation

(5,384)

(2,068)

-

(7,452)

Profit / (loss) after tax

35,342

(21,510)

1,821

15,653

Other segmental information:





Goodwill and other intangibles

155,693

53,584

598

209,875

Other assets

189,088

258,600

14,777

462,465

Assets

344,781

312,184

15,375

672,340

Liabilities

(143,482)

(201,500)

(364)

(345,346)

Net assets

201,299

110,684

15,011

326,994

Capital expenditure

8,222

5,032

4,418

17,672

Depreciation and amortisation

15,774

12,079

2,668

30,521

Impairment of goodwill

-

3,354

-

3,354

Share-based payment credit

(2,007)

-

-

(2,007)

 

 


United Kingdom





and Ireland stores

International stores

Global

online

Total


2010

2010

2010

2010


£'000

£'000

£'000

£'000

Revenue

1,072,698

602,556

97,104

1,772,358

Cost of sales

(751,296)

(447,373)

(80,997)

(1,279,666)

Gross profit

321,402

155,183

16,107

492,692

Other operating expenses excluding





inter-segment expenses

(240,044)

(146,633)

(11,226)

(397,903)

Inter-segment expenses

3,331

(3,331)

-

-

Operating profit before non-recurring costs

84,689

5,219

4,881

94,789

Non-recurring costs

(6,199)

-

-

(6,199)

Operating profit

78,490

5,219

4,881

88,590

Net finance costs excluding inter-segment

(4,184)

(195)

-

(4,379)

Inter-segment finance costs

2,544

(2,544)

-

-

Taxation

(20,321)

(3,423)

-

(23,744)

Profit / (loss) after tax

56,529

(943)

4,881

60,467

Other segmental information:





Goodwill and other intangibles

153,650

58,506

512

212,668

Other assets

212,042

220,653

9,996

442,691

Assets

365,692

279,159

10,508

655,359

Liabilities

(166,077)

(149,524)

(8,203)

(323,804)

Net assets

199,615

129,635

2,305

331,555

Capital expenditure

11,013

14,333

4,544

29,890

Depreciation and amortisation

15,908

14,751

2,239

32,898

Impairment of assets

-

-

-

-

Share-based payment expense

2,391

-

-

2,391

 

 
























2011



2010




Total



Total




£'000

% of Total


£'000

% of Total

Revenue







Hardware


330,437

20.3


433,748

24.5

Software


670,956

41.3


730,800

41.2

New hardware and software


1,001,393

61.6


1,164,548

65.7

Preowned


386,921

23.8


374,485

21.1

Other


236,720

14.6


233,325

13.2

Total


1,625,034

100.0


1,772,358

100.0































2011



2010




Total



Total




£'000

% of Total


£'000

% of Total

Gross margin







New hardware and software


198,823

46.5


257,362

52.2

Preowned


153,761

36.0


156,007

31.7

Other


74,812

17.5


79,323

16.1

Total


427,396

100.0


492,692

100.0






























































2011

2010






Total

Total






%

%

Gross margin







New hardware and software





19.9

22.1

Preowned





39.7

41.7

Other





31.6

34.0

Total Group





26.3

27.8

 

 















2011

2010



£'000

£'000

Revenue by territory




United Kingdom and Ireland


935,320

1,072,698

France


163,441

187,291

Iberia


300,823

288,342

Scandinavia


48,963

49,962

Australia


71,568

69,705

Czech Republic


9,771

 7,256

Total Stores


1,529,886

1,675,254

Total Online


95,148

 97,104

Total Revenue


1,625,034

1,772,358 



Number

Number

Stores by territory




United Kingdom and Ireland


639

677

France


197

199

Iberia


287

283

Scandinavia


65

68

Australia


93

118

Czech Republic


31

 29



1,312

 1,374

Franchises




Iberia


-

5

Australia


1

 1



1

 6



Sq ft

Sq ft

Trading square footage by territory




United Kingdom and Ireland


760,591

797,594

France


183,547

185,172

Iberia


236,389

236,045

Scandinavia


67,209

69,575

Australia


104,050

132,564

Czech Republic


18,494

 17,483



1,370,280

 1,438,433





 

 

2 Other operating expenses

 

 

 














2011

2010



£'000

£'000

Selling and distribution


316,078

324,198

Administrative expenses


82,843

79,904



398,921

404,102

 

Administrative expenses include non-recurring costs of £14,732,620 (2010: £6,199,486) (see Note 3). 

 

 

3 Non-recurring costs

 

In the current year administrative expenses include non-recurring costs of £14,732,620 (2010: £6,199,486).  Current year non-recurring costs relate to the restructuring of the Australian and French businesses.  The non-recurring cost comprises £8.5m of non-cash items including the write-off of goodwill in respect of Australia, together with the write-off off certain assets.  The remaining £6.2m of cash items included termination payments on leases, employment contracts and supplier contracts.  Prior year non-recurring costs were in relation to integration costs following the acquisition of Gamestation.

 

 

4 Operating profit

 


2011

2010


£'000

£'000

This is stated after charging:



Depreciation charge

25,404

28,593

Amortisation of intangible fixed assets

5,117

4,305

Goodwill impairment charge

3,354

-

Operating lease rentals - leasehold premises

86,609

87,775

- other

1,001

1,289

Loss on disposal of non-current assets

4,800

2,734

Auditors' remuneration   - Fees payable to the Company's auditor for the



audit of the Company's annual accounts

78

75

- Fees payable for the audit of the Company's



subsidiaries, pursuant to legislation

357

355

- other services supplied pursuant to legislation

36

33

- other services relating to tax

272

294

- All other services

154

169

 

Goodwill impairment charges have been recognised within administrative expenses in the consolidated statement of comprehensive income.

 

 

5 Finance income

 


2011

2010


£'000

£'000

Interest income on financial assets classified as loans and receivables

375

538


375

538

 

 

6 Finance costs

 


2011

2010


£'000

£'000

Interest expense for finance lease and hire purchase arrangements

10

49

Interest expense for borrowings at amortised cost

5,704

4,866

Other interest

31

2

Finance costs

5,745

4,917

 

7 Employees

 

Staff costs for all employees (including Directors) consist of:




2011

2010


£'000

£'000

Wages and salaries

133,938

135,070

Social security costs

20,576

18,710

Other pension costs

2,026

1,700

Share-based payment (credit) / expense (see Note 20g)

(2,007)

2,391


154,533

157,871

The average number of employees of the Group during the year, including Directors, was as follows:

 

 

2011

2010


Number

Number

Selling

9,372

9,775

Administration and distribution

846

817


10,218

10,592

 

The key management personnel of the business are limited to the Board of Directors.

 

8 Taxation

 

(a)    Analysis of charge in the year















2011

2010



£'000

£'000

Current tax




UK corporation tax expense


7,513

22,192

Adjustments in respect of prior periods


(5,182)

(1,950)

Overseas tax payable


4,784

4,192

Total current tax


7,115

24,434

Deferred tax

 


 

Current year movement

 

(641)

(1,695)

Increase / decrease in tax rate

 

173

-

Prior year movement

 

805

1,005

Total deferred tax

 

337

(690)

Taxation on profit on ordinary activities


7,452

23,744

 

(b) Factors affecting the tax charge for the year


2011

2010


£'000

£'000

Profit on ordinary activities before taxation

23,105

84,211

Profit on ordinary activities multiplied by the standard



rate of corporation tax in the UK of 28.0% (2010: 28.0%)

6,469

23,579

Effects of:



Expenses not deductible for tax purposes

2,128

1,698

Effect of foreign tax rates

304

283

Tax losses incurred and (utilised)/not utilised in the year

2,006

(1,128)

Adjustments to tax charge in respect of previous periods

(4,377)

(946)

Other items

922

258

Tax charge for the year

7,452

23,744

 

The Group has approximately £75.8 million (2010: £54.0 million) of unrelieved trading losses available for offset against future taxable profits of certain Group companies. Of these losses, £11.2 million (2010: £11.4 million) has been provided which represents a recognised deferred tax asset of £3.0 million (2010: £3.1 million). There are unprovided tax losses of £64.6 million (2010: £42.6 million). Deferred tax assets have not been recognised in respect of these losses as there is uncertainty over future taxable profits against which these can be offset.

 

 

9 Dividends

 

 




2011




2010













Pence




Pence




per share

£'000

per share

£'000

Final paid

3.90

13,541

3.71

12,849


Interim paid

1.88

6,532

1.88

6,517





20,073



19,366


 

It is proposed that a final dividend of 3.90p per share (2010: £3.90p per share) will be paid on 15 July 2011 to shareholders on the register on 24 June 2011.  Based on the number of shareholders on the register as at 31 March 2011 the final dividend will be £13,550,944 (2010: £13,541,238).

 

 

10 Earnings per share

 

The calculation of earnings per share for the year ended 31 January 2011 is based on the profit after taxation of £15,652,502 (2010: £60,467,009). The calculation of basic earnings per share is based on a weighted average number of shares in issue during the period of 347,170,991 (2010: 346,512,537).  The number of shares used in these calculations and the reconciliation of denominators used for basic and diluted earnings per share calculations is set out in the table below:

 

 






Effect of



Basic

share options

Diluted

31 January 2011

347,170,991

38,242

347,209,233

31 January 2010

346,512,537

677,327

347,189,864

 

Additional disclosure has been provided in respect of earnings per share before non-recurring costs as the directors believe this gives a better view of ongoing maintainable earnings in the prior year.

 







2011

2010



Pence

Pence

Basic earnings per share


4.51

17.45

Non-recurring costs per share


4.24

1.79

Basic earnings per share before non-recurring costs


8.75

19.24





Diluted earnings per share


4.51

17.42

Non-recurring costs per share


4.24

1.79

Diluted earnings per share before non-recurring costs


8.75

19.21

 

 

There are 475,452 anti-dilutive share options in the current year (2010: 648,948).

 

 

11 Property, plant and equipment

 



Short





Freehold

leasehold

Improvements

Fixtures,



land and

land and

to leasehold

fittings and



property

property

property

equipment

Total


£'000

£'000

£'000

£'000

£'000

Group


Restated



Restated

Cost






At 31 January 2009

20,794

21,692

106,372

99,418

248,276

Additions

178

1,779

6,770

16,200

24,927

Disposals

(362)

(316)

(2,648)

(3,393)

(6,719)

Exchange adjustment

10

(1,246)

(356)

1,743

151

At 31 January 2010

20,620

21,909

110,138

113,968

266,635

Additions

378

668

2,774

5,943

9,763

Disposals

-

(934)

(8,751)

(8,972)

(18,657)

Exchange adjustment

(383)

1,268

1,209

2,038

4,132

At 31 January 2011

20,615

22,911

105,370

112,977

261,873

Accumulated depreciation






and impairment






At 31 January 2009

1,843

9,359

48,531

54,402

114,135

Charge for the year

464

1,831

10,939

15,359

28,593

Disposals

(146)

(255)

(1,845)

(2,387)

(4,633)

Exchange adjustment

4

(63)

(221)

232

(48)

At 31 January 2010

2,165

10,872

57,404

67,606

138,047

Charge for the year

542

2,995

10,251

11,616

25,404

Disposals

-

(682)

(5,038)

(6,481)

(12,201)

Exchange adjustment

(127)

132

507

989

1,501

At 31 January 2011

2,580

13,317

63,124

73,730

152,751

Carrying amount






At 31 January 2011

18,035

9,594

42,246

39,247

109,122

At 31 January 2010

18,455

11,037

52,734

46,362

At 31 January 2009

18,951

12,333

57,841

45,016

 

The net book value of tangible fixed assets includes an amount of £96,887 (2010: £323,485) in respect of assets held under finance lease and hire purchase contracts, and these are recorded in fixtures, fittings and equipment. The related depreciation charge for the year was £226,598 (2010: £893,736). The main finance leases are for EPOS equipment.

 

In the current year the Group has revised its accounting policy for the classification of Droit au Bail.  These amounts have been reclassified from 'Short leasehold land and property' to a separate class of Intangible Asset (see Note 12).  As a result, Property, Plant and Equipment has been restated.

 

 

12 Intangible fixed assets




Computer

Droit



Goodwill

Brands

software

Au Bail

Total


£'000

£'000

£'000

£'000

£'000

Group




Restated

Restated

Cost






At 31 January 2009

160,657

18,164

13,615

31,468

223,904

Additions

-

10

3,558

1,395

4,963

Disposals

-

-

(2,460)

(299)

(2,759)

Exchange adjustment

(461)

48

(120)

(31)

(564)

At 31 January 2010

160,196

18,222

14,593

32,533

225,544

Additions

-

19

7,378

512

7,909

Disposals / impairments

(3,420)

-

(900)

(456)

(4,776)

Exchange adjustment

(2)

(311)

(421)

(1,525)

(2,259)

At 31 January 2011

156,774

17,930

20,650

31,064

226,418

Amortisation






At 31 January 2009

205

2,276

7,688

-

10,169

Charge for the year

-

1,257

3,048

-

4,305

Disposals/impairments

-

-

(1,656)

-

(1,656)

Exchange adjustment

(24)

7

75

-

58

At 31 January 2010

181

3,540

9,155

-

12,876

Charge for the year

-

1,224

3,893

-

5,117

Disposals / impairments

-

-

(682)

-

(682)

Exchange adjustment

77

(32)

(813)

-

(768)

At 31 January 2011

258

4,732

11,553

-

16,543

Carrying Amount






At 31 January 2011

156,516

13,198

9,097

31,064

209,875

At 31 January 2010

160,015

14,682

5,438

At 31 January 2009

160,452

15,888

5,927

 

Brands include £12,225,000 (2010: £13,311,667) in respect of the Gamestation brand which has a remaining useful economic life of 11 years.  On acquisition, the total useful economic life of the Gamestation brand was 15 years.

 

Goodwill is made up as follows:

 




2011

2010





£'000

£'000


UK and Ireland




131,948

131,948


International




24,568

28,067


Total




156,516

160,015


 

 

For the purposes of impairment testing, the goodwill is allocated to the lowest levels for which there are separately identifiable cash flows, known as cash-generating units.  The carrying amount of goodwill allocated to the UK and Ireland cash-generating unit (principally related to the GAME and Gamestation brands) is considered significant in comparison with the carrying amount of goodwill.  The amounts disclosed as International are made up of a number of cash-generating units which are individually, and in aggregate not significant in comparison with the total carrying amount of goodwill.

 

The carrying value of goodwill has been assessed on a value-in-use basis. The key assumptions for the calculations are those regarding growth rates and expected changes to selling prices and direct costs. The growth rates are based on industry forecasts, changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next three years and extrapolates cash flows using a steady growth rate applicable to the relevant market. This rate does not exceed the average long-term growth rate for the global market. The cash flows were discounted using pre-tax discount rates, incorporating relevant country and small corporate factors for each cash-generating unit.  Major assumptions used in the value-in-use calculations are as follows:

 

2011


UK and

Ireland

International



%

%

Pre-tax discount rate



12.3

12.0-13.5

Long-term growth rate



3.0

3.0

2010


UK and

Ireland

International



%

%

Pre-tax discount rate



6.7

6.7

Long-term growth rate



3.0

3.0

 

 

During the year the Australian subsidiary, TGW Pty Limited, implemented a restructuring program which resulted in the closure of a number of stores. This had an adverse effect on the projected value-in-use of the operation concerned and consequently resulted in a full impairment of goodwill of £3.4m.

 

The carrying value of goodwill includes an amount of £6m acquired goodwill in France. An increase in the discount rate to 13% or reduction in forecast profit of 20% would cause an impairment of £1m to the carrying value of this goodwill.

 

To cause the carrying value of any of the remainder of the Group's business units to exceed their recoverable amount would require material and significant adverse changes in one or a more of the assumptions made. The Board do not consider these to be reasonably possible changes.

 

 

13 Inventories


2011

2010


£'000

£'000

Finished goods and goods held for resale

149,915

176,045

 

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 (2010: none) and there are no items of stock written off in the period (2010: none).  The stock provision in the current year is £10,123,536 (2010: £24,905,000), which estimates the difference between the cost of stock and its estimated net realisable value.

 

14 Trade and other receivables







2011

2010



£'000

£'000

Amounts falling due within one year:




Trade receivables


11,660

16,022

Other receivables


14,852

13,134

Total trade and other receivables


26,512

29,156

Prepayments and accrued income


22,026

19,160



48,538

48,316

 

A large proportion of the trade receivables of the Group relates to customers using credit cards or similar arrangements to purchase goods. GAME bears no risk of recovery and as a result, the risk of impairment of accounts receivable is not considered by the Directors to be significant.

 

As at 31 January 2011 and 31 January 2010 there were no amounts which were past due and no amounts which were impaired.

 

The fair values of trade and other receivables are the same as book values as credit risk has been addressed as part of impairment provisioning and due to the short-term nature of the amounts receivable they are not subject to other fluctuations in market rates.

 

15 Trade and other payables

 







2011

2010


 

£'000

£'000

Amounts falling due within one year:




Trade payables


201,009

159,441

Other payables


9,619

6,041

Tax and social security costs


8,022

5,924

VAT payables


32,792

34,091

Accruals and deferred income


43,128

52,706



294,570

258,203

 

Trade payables are non-interest bearing and are normally settled on 30 days following the end of the month of receipt.

 

Book values approximate to fair value at 31 January 2011 and 31 January 2010 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.

16 Borrowings

 





2011

2010


£'000

£'000

Long-term:



Current portion:



Bank loans

15,727

16,864

Obligations under finance leases and hire purchase contracts

148

497


15,875

17,361

Non-current portion:



Bank loans

15,559

23,782

Obligations under finance leases and hire purchase contracts

-

126


15,559

23,908

The borrowings are repayable as follows:



On demand or within one year

15,727

16,864

In one to two years

15,559

15,736

In more than two years but less than five years

-

8,046


31,286

40,646

The finance leases are repayable as follows:



On demand or within one year

148

497

In one to two years

-

126

In more than two years but less than five years

-

-

After five years

-

-


148

623

 

 

The finance leases are repayable as follows:

Minimum Lease Payments

Interest

Present Value


2011

2011

2011

 

£'000

£'000

£'000

 




On demand or within one year

168

(20)

148

In one to two years

-

-

-

In more than two years but less than five years

-

-

-

After five years

-

-

-


168

(20)

148

 


Minimum Lease Payments

Interest

Present Value


2010

2010

2010

 

£'000

£'000

£'000

 




On demand or within one year

530

(33)

497

In one to two years

147

(21)

126

In more than two years but less than five years

-

-

-

After five years

-

-

-


677

(54)

623

 

There is no material difference between the book value and current value of these borrowings.

 

 


2011

2010


£'000

£'000

The gross contractual maturity of financial liabilities is as follows:



On demand or within one year

16,678

18,662

In one to two years

15,715

16,581

In more than two years but less than five years

-

8,140

Less: interest due

(959)

(2,114)


31,434

41,269

 

 

There is no material difference between the book value and current value of these borrowings.

 

17 Financial instruments

 

 

 

Categories of financial instruments




Loans and receivables





2011

2010

Financial assets

£'000

£'000

Current financial assets



Trade and other receivables (Note 14)

26,512

29,156

Net cash and cash equivalents (Note 24)

151,243

86,128


177,755

115,284

 

Financial liabilities


measured at


amortised cost





2011

2010

Financial liabilities

£'000

£'000

Current financial liabilities



Trade and other payables (Note 15)

294,570

258,203

Loans and borrowings (Note 16)

15,875

17,361

Total current financial liabilities

310,445

275,564

Non-current financial liabilities


 

Loans and borrowings (Note 16)

15,559

23,908

Total non-current financial liabilities

15,559

23,908

Total financial liabilities

326,004

 

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.

The maximum exposure to credit risk at the reporting date is represented by the carrying value of the financial assets in the balance sheet.

 

The directors review any requirement for interest rate hedging during the year dependent upon the level of borrowings.

 

(a) Interest rate and currency of borrowings

The currency and interest rate exposure of the Group's borrowings is shown below:

 

2011

2010


£'000

£'000

Floating rate Euro borrowings

-

1,128

Floating rate Sterling borrowings

31,434

40,141


31,434

41,269

 

The floating rate borrowings comprise bank borrowings and finance leases bearing interest rates based upon LIBOR and EURIBOR.

 

The Group holds a Revolving Credit Facility (RCF) of £125 million to be used for general corporate and working capital purposes. As at 29 January 2011 an amount of €nil (2010: €nil) was drawn down for use in Spain.  The interest rate on the RCF is based on LIBOR and EURIBOR.

 

The floating rate sterling borrowings comprise a £33.3 million Term Loan taken out in order to refinance the existing debt at GAME. The interest rate on the loan is based on LIBOR.

 

The terms of the loan facility indicates a fixed charge over the freehold property and a floating charge over assets.

 

(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:

 


2011

2010


£'000

£'000

Sterling

83,628

45,500

Euro

55,897

26,783

Swedish Krona

7,593

4,473

Danish Krone

160

229

Norwegian Krone

863

806

Australian Dollar

1,676

7,447

Czech Koruna

1,426

890


151,243

86,128

 

The floating rate assets comprise bank accounts bearing interest rates based upon LIBOR and EURIBOR. There are no fixed rate financial assets.

 

(c) Sensitivity analysis

 

The sensitivity analyses below are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur and changes in some of the assumptions may be correlated, for example, a change in interest rate and a change in foreign currency interest rates. The sensitivity analysis prepared by management for foreign currency risk and interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

 

At 31 January 2011, if interest rates on the floating rate borrowings denominated in sterling had been 100 basis points higher with all other variables held constant, profit after tax for the period would be £789,048 lower (2010: £1,131,051 lower).

 

At 31 January 2011, if interest rates on the floating rate borrowings denominated in euros had been 100 basis points higher with all other variables held constant, profit after tax for the period would be £85,781 lower (2010: £271,576 lower).

 

The directors consider that 100 basis points is the maximum likely change to Sterling and Euro interest rates over the next year, being the period up to the next point at which the Group expects to make these disclosures.

 

The tables in (a) and (b) above present financial liabilities and assets denominated in foreign currencies held by the Group in 2011 and 2010. If the Euro weakened or strengthened by 10 per cent against Sterling, with all other variables held constant, profit after tax and equity would change by £1,288,242 (2010: change by £331,991).

 

(d) Fair value of borrowings and financial assets

 

Set out below is an analysis of all the Group's borrowings and financial assets by category. The fair value of floating rate borrowings is the amortised cost because the interest rate payments are based on market value.


2011

2010


£'000

£'000

Trade and other receivables

26,512

29,156

Net cash and cash equivalents

151,243

86,128

Current portion of long-term debt

(15,875)

(17,361)

Non-current portion of long-term debt

(15,559)

(23,908)

 

 

The Directors believe that as they are short-term, the fair values for all items, other than long-term debt, equate to their book value.

 

The fair values of both current and non-current bank borrowings are based on cash flows discounted using rates based on the applicable market rate. The discount rate applied were within the range 3 per cent to 4 per cent (2010: 3 per cent to 4 per cent).

 

(e) The Group had no material monetary assets or liabilities that are not denominated in the functional currency of the operating unit involved.

 

(f) As at 30 March 2011, the Group had undrawn working capital facilities available to it of £66.8 million (2010: £54.8 million). There are no significant conditions attached to these facilities.

 

(g) The Group has entered into standby letters of credit to the value of £2,029,205 (2010: £2,029,205). In this respect, the Group treats these letters of credit as a contingent liability until such time as it becomes probable that the Group will be required to make a payment under the terms of the letters.

 

Capital risk management

 

The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 16, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the statement of changes in equity.

 

Gearing ratio

 

It is the Group's policy to maintain its gearing ratio within the range of 0-100 per cent (2010: 0-100 per cent). The Group's gearing ratio at the balance sheet date is shown below:

 


2011

2010


£'000

£'000

Debt(i)

31,434

41,269

Trade and other payables

294,570

258,203

Net cash and cash equivalents

(151,243)

(86,128)

Net debt

174,761

213,344

 

2011

2010


£'000

£'000

Equity(ii)

326,994

331,555

Capital and net debt

501,755

Gearing ratio

35%

39%

 

(i)Debt is defined as current and non-current portion of long-term debt, as detailed in Note 16.

(ii)Equity includes all capital and reserves of the Group.

 

18 Deferred taxation

 


Asset

Liability

Net

(Charged)/

Credited to profit or loss

(Charged)/

Credited to equity


2011

2011

2011

2011

2011


£'000

£'000

£'000

£'000

£'000

Accelerated capital allowances

211

-

211

681

-

Tax losses carried forward

3,028

-

3,028

(85)

-

Share options

995


995

(774)

370

Other temporary and deductible differences


(587)

(587)

(159)

-

Deferred tax asset / (liability)

4,234

(587)

3,647

(337)

370

 


Asset

Liability

Net

(Charged)/

Credited to profit or loss

(Charged)/

Credited to equity


2010

2010

2010

2010

2010


£'000

£'000

£'000

£'000

£'000

Accelerated capital allowances

-

(470)

(470)

(536)

-

Tax losses carried forward

3,113

-

3,113

1,516

-

Share options

1,399

-

1,399

355

(1,078)

Other temporary and deductible differences

-

(428)

(428)

(645)

-

Deferred tax asset / (liability)

4,512

(898)

3,614

690

(1,078)

 

 


2011

2010


£'000

£'000

At 1 February

3,614

4,004

Deferred tax (charge) / credit in the income statement for the year (Note 8)

(337)

690




Deferred tax taken to equity:



Accelerated capital allowances

-

-

Tax losses carried forward

-

-

Share options

370

(1,078)

Other temporary and deductible differences

-

-

Other items

-

(2)

At 31 January

3,647

3,614

 

19 Leasehold property incentives

 

 











2011

2010

Rent-free periods and reverse premiums




£'000

£'000

At 1 February




11,389

9,232

Rent free periods and reverse premiums received during the year

2,660

3,311

Released to statement of comprehensive income




(2,462)

(1,154)

At 31 January




11,587

11,389

Due within one year




1,869

1,341

Due greater than one year




9,718

10,048

At 31 January




11,587

11,389

 

20 Called-up share capital




2011



2010










£'000

Number


£'000

Number

Authorised







Ordinary shares of 5p

24,000

480,000,000

24,000

480,000,000

Allotted, called-up and fully paid

 

 

 

 

 

 

Ordinary shares of 5p

17,373

347,461,388

17,333

346,659,167

 

 

(a) Shares issued

During the year, 802,221 (2010: 335,510) shares were issued to employees exercising share options granted under various option schemes. The total consideration received on the exercise of these options was £464,158 (2010: £216,799). The weighted average share price during the period was 77.62p (2010: 152.96p).

 

Between the year end and 1 April 2011, no shares have been exercised.

 

(b) Shares purchased

During the year no shares (2010: nil) were repurchased for cancellation by the Company at a cost of £nil (2010: £nil).

 

(c) Trust shares

During the year 2,000,000 shares (2010: 1,450,000 shares) were purchased at a cost of £1,925,800 (2010: £1,893,495). These shares are to be used wholly and exclusively to pay LTIP awards when they become due for payment.

 

Trust shares comprise 3,297,275 (2010: 2,368,001) 5p ordinary shares. The market value of these shares at 31 January 2011 is £2,209,174 (2010: £2,178,561).

 

21 Share premium account

 


2011

2010


£'000

£'000

Amount subscribed for share capital in excess of nominal value



At 1 February

46,662

46,462

Arising on issue of shares during the year (net of expenses)

424

200

At 31 January

47,086

46,662

 

 

22 Reserves

 

Share Capital - the amount subscribed for share capital at nominal value.

 

Share Premium - the amount subscribed for share capital in excess of nominal value.

 

Capital Redemption Reserve - relates to the capital redemption reserve; amounts transferred from share capital on redemption of issued shares.

 

Shares held in Trust - relates to shares held in trust, being the weighted average cost of own shares held in treasury and by the ESOP Trust, the Employee Benefit Trust was established in January 2002 to provide for the future obligations of the Company for share awards under the Performance Share Plan and other share-based plans. Under the scheme the trustee, First Tower Trustees Limited, purchases the Company's ordinary shares in the open market.

 

Merger Reserve - relates to the merger reserve which holds the share premium arising on the share for share exchange on acquisition of Game Plc.

 

Retained Earnings - relates to retained earnings, being the cumulative net gains and losses recognised in the consolidated income statements.

 

Foreign Exchange Reserve - relates to the foreign exchange reserve, which holds gains/losses arising on re-translating the net assets of overseas operations into Sterling since 1 February 2004.

 

The cumulative amount of goodwill resulting from acquisitions in previous years prior to the adoption of FRS 10 (Goodwill and intangible assets) which has been eliminated against Group reserves, net of goodwill attributable to disposals before 31 January 2011, is £9,639,000 (2010: £9,639,000).

 

 

23 Acquisitions

 

 

There were no acquisitions during the current or prior year.

 

24 Analysis of net funds

 



2011

2010


 

£'000

£'000

Cash and cash equivalents 


151,243

86,128

Net cash and cash equivalents


151,243

86,128

Current portion of long-term borrowings


(15,875)

 (17,361)

Long-term borrowings


(15,559)

 (23,908)

 Net funds


119,809

 44,859

 

During the year, the Group did not enter into any new finance lease arrangements in respect of assets (2010: nil).

 

25 Operating lease commitments

 

 

The Group leases certain land and buildings on short-term leases. The rents payable under these leases are subject to re-negotiation at various intervals specified in the leases. At the balance sheet date, the Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

 




2011



2010










Motor

Land and


Motor

Land and


vehicles

buildings

vehicles

buildings



£'000

£'000


£'000

£'000

The total future minimum lease payments







are due as follows:







Not later than one year

116

3,370

91

4,093

Later than one year but not later than five years

818

127,755

795

110,805

Later than five years


-

265,168

-

326,950


934

396,293

886

441,848

 

 

The average remaining term on operating leases over land and buildings is five years.

 

The operating leases over land and buildings in International operations have lengths of term for a maximum period of nine years.

 

26 Related party transactions

 

There were no related party transactions within the year or prior year.

 

 

 

 

27 Principal risks and uncertainties

 

 

Risk at GAME

 

Our Board believes that recognising and managing risks is the key to an effectively run business.  The monitoring of risk is delegated to the Audit Committee which has tasked the business with capturing and reporting on risk in a consistent manner across the Group.  The methodology is both bottom up, with detailed risk reports on all operating matters being sent from each territory, and top down, with senior management identifying all risks that could potentially prevent us from delivering our agreed strategy.  Every identified risk is examined and mitigating activities are put in place.  A risk report is presented to the Audit Committee half yearly.

 

Risk factors

 

Risk Type

Impact

Risk Mitigation

Technology

 

Speed of change and growth of technology in the market place

 

 

 

 

The digital world is evolving quickly.  If we do not adapt to the changes we run the risk of failing to deliver a truly multichannel offering to our customers.

 

 

We are investing in the mobile and digital future to ensure we can serve our customers in whichever medium they wish to purchase games, be that digital download, web or in store.

Competition

 

The pc and video games market continues to be an attractive place to do business.  Our competition comes in many guises. A relatively new entrant to the games market is found in the mobile operators selling directly to consumers whilst supermarkets continue to discount heavily or run short- term loss leading campaigns on newly released products.  We also have our more traditional competition from other specialists and online players.

 

 

 

If we are unable to compete we run the risk of losing our customers and our market share.

 

 

 

We use a suite of specialist tools to give customers great value. We recognise that this is not always direct price cuts. 

 

This is where our position as a specialist in the market place must give us the edge.  We strive to find exclusive offerings for our customers that they cannot get anywhere else.  Our preowned offerings, trade-in promotions and the use of loyalty card points as currency allows our customers to enjoy popular and new products at great value.

Reputational

 

We have built up customer loyalty over many years.  GAME and Gamestation are trusted brands.  

 

Our customers demand that we stock the broadest range of products but trust us to sell those products appropriately.  Some of our video games, for instance, are age restricted and mis-selling is illegal.

 

Through our loyalty card programmes we have built up a valuable database of information about our customers.  Our customers give us personal information so that we can keep them up to date with offers and new releases of interest to them.  It is vital that this data is protected and secure.

 

 

 

Damage to our reputation could lead to loss of revenue and shareholder value.

 

 

We protect our reputation by ensuring that our staff are highly trained and know their obligations to protect and respect our customers.

 

We demand that our teams follow regular rigorous training programmes, and adhere to strict policies and procedures relating to age-rated products, and data protection.

Major Business Interruption

 

Like all businesses any disruption to our capacity to do business will affect our profitability.

All parts of our business, in every territory, have put together business continuity plans to ensure we are able to trade through challenges.  This was put to the test recently in the UK when adverse weather conditions close to Christmas threatened to disrupt our supply chains. Our processes worked, and business interruption was minimised.

People and Change

 

Business change cannot be delivered if we fail to attract, develop and retain the right people in the right roles.

Every aspect of the Group's reward and development programmes is regularly reviewed to ensure that it keeps pace with our business needs and market conditions.  Our Group HR Director works closely with the Remuneration Committee to ensure best practice across the Group

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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