Game Changing Annual Report & Accounts 2010 - 2011
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Game changing Annual Report & Accounts 2010 - 2011 Dedicated to gaming Financial highlights Group turnover Gross profit margin Trading store numbers £1,625.0m 26.3% 1,313 2010: £1,772.4m 2010: 27.8% 2010: 1,380 Profit before tax Annual dividend per share Trading square footage (000s) £23.1m 5.78p 1,370.3 sq ft 2010: £84.2m 2010: 5.78p 2010: 1,438.4 sq ft Contents ifc- 35 Our performance 36-62 Directors and Governance 63-116 Our results ifc Financial highlights 36 Board of Directors 64 Independent Auditor’s Report 01 Mission and vision 38 Corporate governance 66 Consolidated Statement of statement Comprehensive Income 02 Our strategy – Dedicated to gaming 45 Report of the Directors 67 Consolidated Balance Sheet 04 Our strategy in action 52 Directors’ Remuneration 68 Statement of Changes in Equity Report 06 Chairman’s statement 69 Consolidated Statement of Cash Flows 08 Chief Executive’s review 70 Statement of Accounting Policies 22 Operational review 79 Notes to the Financial Statements 30 Financial review 107 Company Balance Sheet 32 Risk at GAME 108 Notes to the Company 34 Corporate responsibility Balance Sheet 114 Five-Year Summary 115 Shareholder Information The GAME Group plc Annual Report & Accounts 2010-2011 01 Mission and vision Our performance 1 Our vision is to be Directors and Governance 2 our customers’ first Our results 3 choice for all of their gaming needs. We will listen, innovate and refresh the business. Further information go to: Page 30. Financial review GAME: Dedicated to gaming 02 Our strategy – Dedicated to gaming Our strategy is deeply rooted in our understanding of our customers, gained over 20 years of selling video games. Our greatest opportunities are in our heartland, to be as dedicated to gaming as our customers. We will focus on five areas to deliver this: Strategic objective Aim 1 Multichannel To be gamers’ first choice in all channels. Multichannel customers are more loyal and spend more. 2 Right stores Have the right stores in the right locations. Stores are the hub of our multichannel offer, and give us direct access to millions of customers each week. 3 Unique product Offer products that customers can’t buy elsewhere. Digital content, exclusive extras and range own-label products all generate strong revenue growth. 4 Novel ways to buy Introduce new models of game ownership and payment. Preowned and trade-in offer customers great value. We are exploring more innovative models to give customers the value and choice they need. 5 Strong customer Have a direct relationship with every customer. Loyal customers spend more, and use relationships more of our services. The most active, our “super users”, spend three times more than average. Enhanced CRM will be the backbone of our strategy. The GAME Group plc Annual Report & Accounts 2010-2011 03 Overall market (UK) Our performance 1 6 Directors and Governance 2 5 MOBILE Our results 4 DIGITAL 3 3 UK Market (£bn) 2 BOXED PRODUCTS 1 0 2005 2010 2015 Hardware and software – stores Digital software Hardware and software – pre owned Mobile, casual, social & MMOGS (Massively multi player online games) Hardware and software – e-commerce Source: GAME summary of industry forecasts including ChartTrack, Screen Digest, Nick Parker consulting, OC&C. How Goal KPIs Grow our web presence Triple multichannel Online revenues Integrate the web with our stores revenues in three years Online market share Continue investment in emerging digital and mobile channels Right size property portfolio Increase customer Customer conversion Invest in customer experience conversion by 1% each year metrics Use new technology to bring services to life Drive customer conversion in stores Drive own-label and licensed product business Double own-label business Own-label sales Increase digital range in three years Digital product sales Increase exclusive products and content Generate market leading digital revenues Continue to expand preowned Increase the number of Preowned revenue Expand customer finance options customers who buy Preowned margin Create mechanism to use loyalty points as currency preowned and use trade-in Expand our Reward card and Elite card user bases Use CRM to generate Total card ownership Create a step change in card usage revenues of £100m+ by 2013 Percentage of customers Use tailored and personalised communications who are “super users” GAME: Dedicated to gaming 04 Our strategy in action Customer journey We want GAME to be every customer’s first choice when they buy or play a game. Our strategy will ensure we’re with them on every step of their The customer visits our website to journey, delivering a service that no other retailer see additional reviews and watch can match. trailers for the launch games. At the same time, they stumble on a massive argument between proponents of a game they have just finished and a rival title. The 2 discussion is about which is better – the kind of argument gamers love. The customer realises that the team in their local store are passionately involved in the debate too. Months before a new console is launched, a customer receives an email from GAME, giving them all the details and inviting them to visit their local store to learn more and preorder one. The email contains links to launch videos, and a review from a member of the GAME team Thinking about that, the 1 who has played a development model customer packs up three recently during a planning meeting with the completed games, and heads manufacturer. The email also reminds into town intending to trade the customer to trade-in their old them in. On the way, they receive games as soon as possible to capture a text from GAME, with details of their value on a GAME trade-in card. a new downloadable map pack for one of their games. Arriving 3 in store, they watch the rival title being played on an interactive demo pod, and talk about it with one of the store team. He’s carrying a tablet, which shows a video of the new map pack, and is also a big fan. The GAME Group plc Annual Report & Accounts 2010-2011 05 Our performance 1 Reflecting on this, the Directors and customer decides to trade-in Governance 2 two games, but buy the new map pack for the other one. It’s available as a download, which Our results 3 is purchased with cash in the store. At the same time, the customer preorders their new console. They 4 earn loyalty points for the trade-ins and the new map pack, and are given an exclusive preorder pack containing a t-shirt and poster. The map download occurs on their way home, and the maps are waiting on their console when they arrive. The customer loves the new map pack and plays it endlessly. So much so, they need a new online points card. They order it from our website, again earning loyalty points. Regular emails keep them abreast of the plans for the new console, and on launch day the local store opens at midnight. Using their trade-in card and loyalty 5 points, the customer saves over £70, and buys two extra games, both of which have exclusive levels. All of this earns more loyalty points. The team in-store reminds the customer to trade-in the games as soon as they’re finished. They follow up with an email three weeks later, as a reminder. GAME: Dedicated to gaming 06 Chairman’s statement Our Group has seen significant changes over the past 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 Peter Lewis Chairman 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 Making good The video games market continued to be tough in 2010. In the UK, hardware revenues were down 25 per cent and entertainment software revenues progress in were down 5 per cent. However, the launch of new peripherals from Microsoft and Sony, along with another year of strong Christmas software releases, difficult markets 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 The GAME Group plc Annual Report & Accounts 2010-2011 07 Our performance 1 continues to exercise strong cost controls, saving Summary £13.7m over the year, and therefore we delivered Across all of our territories, the markets in which we Directors and a profit before tax and non-recurring items of operate continue to be tough, but we have been able Governance 2 £37.8m (2010: £90.4m). to outperform through our strength in preowned and our success in launching new products.