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. Our disciplined approach to working capital Our results 3 management and capital expenditure meant We are making progress delivering our strategic we improved our cash flow by £65.1m, and plans. We have outlined clear indicators to measure consequently closed the year with a net cash our progress and are pleased with the actions taken position of £119.8m (2010: £44.9m). In February on our portfolio of stores, the expansion of our own- 2011 we agreed a new 3½ year bank facility, brand product range and, in particular, the increasing providing us with borrowings of £160m to further sales of digital and online products. We have more strengthen our balance sheet. work to do, and we have robust plans in place.
Reflecting its confidence in the Group’s clear Our industry is driven by innovation, and we expect strategic direction, but mindful of the wider improvements when new products are announced. economic and market conditions, the Board This, together with our existing business model proposes a maintained final dividend of 3.90p per and the delivery of our clear strategic plans, means share (2010: 3.90p). This will result in a full year the Group is well positioned to face the ongoing dividend of 5.78p per share (2010: 5.78p). challenges in the retail environment.
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. Peter Lewis Chairman I will be stepping down as Chairman after the 27 April 2011 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 Financial and operational highlights to serve the Group as Chairman over the last thirteen years. During this time our two biggest challenges, the pace of technological change and the expectations of our customers, have continued +27% +£66.3m to accelerate. The Group has evolved with them, Digital revenues Working capital and is positioned at the forefront of innovation increased by 27% improved by £66.3m, with a clear plan and the right team. Chris Bell to £41m leading to a closing and Ian Shepherd are a strong combination, with net cash position of Chris’s longstanding experience and network in £119.8m the investor and business communities, and Ian’s extensive experience in the consumer technology sector and CRM. £13.7m Chris, Ian, the Board and the GAME team around the world are committed to growing the Group and Reduced operating +5.78p costs by £13.7m delivering significant returns for our shareholders, Full year dividend and I wish them every success. maintained
GAME: Dedicated to gaming 08
Chief Executive’s review GAME is on a journey
Ian Shepherd Chief Executive The GAME Group plc Annual Report & Accounts 2010-2011 09
Our performance 1 GAME is on a journey. Our Our future strategy customers have new and different Our strategy is rooted in our understanding of our Directors and customers. We know what it is like to be a gamer or Governance 2 ways to buy and play video games someone buying for a gamer, and we passionately want to be our customers’ first choice for all of their and we need to make sure our Our results 3 business provides everything they gaming needs. Our strategy reflects that and is called “Dedicated to gaming”. want, wherever they want it. Today, We know that customers are shopping across no other business does this for the multiple channels, and placing equal importance gamer. We plan to be the first. on their experiences online, on mobile platforms and in stores. In delivering our strategy, we will The need for change focus on five specific areas: Our industry is changing rapidly because customers are demanding it. Customers are offered a massive We will become a multichannel specialist, offering choice of technology products and there have never the same high quality services wherever and been more ways to buy them. whenever our customers need us. We will manage our property portfolio and rejuvenate our estate to This is reflected in the evolution of the market. create the right stores to be the hubs of our Industry analysts are predicting modest growth for multichannel experience. To be our customers’ the “traditional” elements of the market over the chosen gaming partner, we will sell a broad and next few years (i.e. consoles, boxed software, unique product range spanning both physical and accessories and preowned), until the next console digital content. We will also be creative in finding cycle starts. At the same time, they are forecasting ways for customers to experience gaming in the growth in other areas of the market, specifically most affordable way, and will develop novel ways social, mobile and digital games. to buy. Finally, we will be dedicated to our GAME has a strong position in both the traditional customers and build strong relationships with and the emerging digital segments of the games them founded on trust and active communication. 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 Further information go to: retailer who can aggregate all of the products and guide Page 30. Financial review customers to the products that they want. I believe that Page 36. Board of Directors 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 Additional Video Content our existing strengths as we grow from our Scan your smartphone here to see a video of Ian Shepherd discussing GAME’s strategy traditional retail base into a multichannel future. sites.cantos.com/game-group/11/strategic- update-2011/public/
GAME: Dedicated to gaming 10
Chief Executive’s review continued
A multichannel specialist way, with the aim of tripling our online revenues We have an opportunity to grow our online over the next three years. In 2010 our share of business – our share of online games revenues is online revenues was 13 per cent in the UK. lower than our share in retail stores. We also know We have made a good start. The web platforms we that growing our online business benefits our started to build in 2010 are coming online. The stores. Our data shows that the customers who Gamestation website was the first to go live, in shop with us both in stores and online are our best February 2011, and our GAME UK site will follow. Our customers, spending much more than single sites now offer a much better retail experience as well channel customers. Therefore, our ambition is to as more community and social network content. grow the number of customers who shop in this We have just embarked on our online strategy, and we are already seeing some success with To make ourselves a genuinely our market share up by five percentage points to 18 per cent (source: ChartTrack) since our strategic multichannel retailer we need update in February. There is much for us to do, to do three things: with the immediate next steps being the integration of web and stores to create a truly 1 Grow our web presence and joined up proposition. 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; and 3 Continue to invest in emerging digital and mobile channels.
Scan your smartphone here to download the GAME mobile app The GAME Group plc Annual Report & Accounts 2010-2011 11
Strategic objective 1: Our performance 1
Directors and Governance 2
Multichannel Our results 3
Online revenues Ecommerce revenues are a growing proportion of £95m our business
Online market share Our online market share in the UK was 13% in 2010, and our strategy will 13% increase this dramatically
Multichannel One in ten of our customers customers shop with us in multiple channels. Our strategy is 10% to increase this number
Our multichannel initiatives are evolving quickly. The new ecommerce platform is in place, providing a much richer experience for customers and greater efficiency behind the scenes. Our digital businesses are expanding, with pc downloads gaining popularity, our mobile app has been downloaded 250,000 times, and our Moonbase store in Playstation Home is now transactional – the first in the world.
Key activities for 2011 KPI measure
Launch game.co.uk and gamestation.co.uk We aim to increase on new web platform our share of the overall ecommerce video games Introduce web ordering in stores market. This will be the Use barcodes on marketing materials to direct key measure of success for customers online with their smartphones this part of the strategy. Expand web developments to other territories
GAME: Dedicated to gaming 12
Chief Executive’s review continued
Right stores Having the right locations inevitably means that We are re-engineering our stores to be at the we are going to have fewer stores. In the UK we heart of our multichannel offering. This will not are targeting 550 stores by Christmas 2013. We only drive performance online and digitally, but closed 15 stores in the first 12 weeks of 2011, in will also enhance our store offer. addition to the 38 stores we closed last year. We aim to close stores without losing sales, using Our stores must become the place for customers to loyalty card data and marketing initiatives to play and interact with pc and video games. Critically transfer a minimum of 60 per cent customers to this allows us to give them a great shopping the nearest store or online. A relatively short experience and improve our customer conversion. average lease length of five years continues to The opportunity is enormous, with 3.5m customers offer us flexibility. visiting our stores across the Group every week. Our teams are already very good at converting these Internationally, stores remain the key route to customer visits into sales, and in 2010 we increased market in the medium term. In Spain, Portugal the conversion rate by a full percent to 19 per cent. and the Czech Republic, where we are market We are aiming to increase this by 1 per cent every leaders, there may be tactical growth where we year going forward. see local and profitable opportunities. As we move to strengthen our businesses in France and To create the right store environment we are Australia, there may be a small number of increasing the multichannel feel of our outlets: additional closures. 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.
Scan your smartphone here to find your nearest GAME Group store www.game.co.uk/storefinder The GAME Group plc Annual Report & Accounts 2010-2011 13
Strategic objective 2: Our performance 1
Directors and Governance 2
Right stores Our results 3
Customer Our store teams increased conversion customer conversion from +1% 18% to 19% in 2010
Number of stores Our stores are in prime locations in Europe 1,313 and Australia
Portfolio review We closed 67 stores in multi site locations in 2010, transferring customers to -67 the next nearest store or online, and this continues in 2011
Over 3.5m people visit our stores across the Group every week. They are crucial to our business, and form the heart of our multichannel offer. We continue to review the portfolio to ensure we have the right stores in the right locations, and our lease profile gives us flexibility.
Key activities for 2011 KPI measure
Ongoing team training to increase customer We are driving improvements in conversion customer conversion, and will regularly report our progress. Continue portfolio review, and close stores as appropriate
Transfer customers to next nearest store or online
Install new technology to aid sales in store
GAME: Dedicated to gaming 14
Chief Executive’s review continued
Unique product range access to Gears of War 3; and the Crysis 2 Nano As a specialist, our customers expect to receive Edition which included an exclusive backpack, a unique and differentiated offer. It is therefore figurine and book. crucial to have a unique product range as we Increasingly, we are working with supplier partners combine web and stores together and we will to provide customers with exclusive digital content increase our range of digital content, exclusive when they buy a physical copy of a game. This helps versions of games and own-label items – all of us to introduce customers to digital content, and which give us stronger than usual market shares to position GAME as the lead authority on – in order to increase customer choice and sales. multichannel gaming. For example, we plan to double the size of our own-label business in the next three years. We maintain a very strong share on all new products because our supplier partners see how we Our range of own-label accessories and peripherals actively sell more products than anyone else, and already contains over 100 products, and this gives they support us with exclusive products and us a strong market share of the total accessories appropriate volumes of stock. market. We source these products direct from the manufacturer, giving us strong margins and total A “retail accelerator” effect also applies very clearly control. The range is expanding, and includes a to digital products, and as a retailer we are able to range of new launches including accessories for sell more digital content than publishers or Sony Move, Nintendo DSi and 3DS. developers on their own. Sales of digital products, which include Xbox Live and Sony PSN time cards as In 2010 our own-label sales outperformed the rest well as points cards and downloadable content of our business, with sales growth of 36 per cent. cards, grew at 27 per cent last year to £41m. This Exclusive products and extra content are another has continued in 2011, with UK Q1 sales up 28 per important part of our customer offering in both cent compared to Q1 2010. 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
Scan here to view our range of GAMEware own-brand products www.game.co.uk/_/N-/?s=gameware The GAME Group plc Annual Report & Accounts 2010-2011 15
Strategic objective 3: Our performance 1
Directors and Governance 2
Unique product Our results 3 range
Own-label sales Like for like sales of our own-brand products have +36% risen 36% in 2010/11
Digital sales Revenues from digital products increased by 27% +27% to £41m in 2010/11
It is crucial to have a unique product range as we combine web and stores together. We will increase our own-label and licensed product range; increase the number of games and consoles we sell which are exclusive to us; and expand the range of digital products in our stores.
Key activities for 2011
Double the range of direct sourced own-label products
Launch exclusive new digital partners in stores
Expand the range of downloadable content online
Increase the number of exclusive extras on AAA titles
KPI measure Sales of unique products will be provided to monitor progress.
GAME: Dedicated to gaming 16
Chief Executive’s review continued
Novel ways to buy to a lower price alternative. It is performing We have always been innovative in giving strongly in our business, becoming a larger part customers new ways to own and experience of our overall sales mix and delivering strong games that are as affordable as possible. Our margins. It is a key pillar of support for our trade-in model, supporting the sale of preowned business, and our established model provides games and hardware reduces the cost to our opportunity for further growth. Our objective customers of their gaming purchases, particularly is to increase the number of customers who when combined with our loyalty cards, and GAME trade-in products and buy preowned, as they has great skill and expertise in this area. We are have a higher customer lifetime value. also looking at new ownership models, both on For the first time, a significant range of preowned our own and with suppliers. products is being offered online, giving customers The power of preowned and trade-in should additional choice and strengthening our value not be under-estimated in this market place. messages. Our objective is to have a full range Preowned forms the backbone of our value of preowned products available online in the proposition, allowing customers to liquidate next year. their unwanted assets and giving them access In 2010/11 preowned participation was 23.8 per cent and preowned margins were 39.7 per cent. This has continued in 2011, with preowned participation now 29.1 per cent and preowned We have always been innovative margins 41.0 per cent. in giving customers new ways to own and experience games that are as affordable as possible.
Scan here to view preowned products online www.game.co.uk/preowned The GAME Group plc Annual Report & Accounts 2010-2011 17
Strategic objective 4: Our performance 1
Directors and Governance 2
Novel ways Our results 3 to buy
Preowned revenues Preowned is growing and becoming an increasing £386.9m proportion of our sales
Preowned margins Preowned margins are strong, and we aim to 39.7% increase them further
Customers want great value and a variety of ways to buy. Our trade-in service and preowned range are well established but their popularity continues to increase. We are trialling new services which give customers innovative payment methods.
Key activities for 2011
Continue to expand preowned Introduce a full range of preowned products online
Develop our electronic gift card and trade-in card businesses
Explore ways to use loyalty card points as currency
KPI measure
Preowned participation and margin will continue to be the key measures of success.
GAME: Dedicated to gaming GAME: Dedicated to gaming 18
Chief Executive’s review continued
Customer relationships We need to make our customer loyalty count. To To engage all of our customers, we must that end we will use our loyalty card programme communicate regularly and personally with them. to reward, remunerate and retain customers. The Our established CRM programme, combined with key to our success will be supporting the loyalty our multichannel initiatives and strategic plans, schemes through all channels. We have the back will make the biggest difference in the future. office functionality that allows us to know each customer whenever and however they shop with Over 17 million customers have joined our loyalty us. In Q1 2010 we initiated 150,000 proactive programmes, giving us a unique data asset with customer contacts. In Q1 2011 this increased to which to plan for the future. It shows us that over more than 500,000. 60 per cent of customers have shopped with us in the last 12 months, and 10 per cent of them are The key elements of the loyalty card schemes, “super users” – the customers who shop with us the number of card holders and the percentage at least seven times in a five month period. The of “super users” continue to increase. In 2010 we customer lifetime value of these gamers is triple added 2.5m new members and in the first quarter the average. this has improved by 30,000 members a week.
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.
Scan here to learn more about the new Gamestation Elite card www.gamestation.co.uk/elite The GAME Group plc Annual Report & Accounts 2010-2011 19
Strategic objective 5: Our performance 1
Directors and Governance 2
Strong customer Our results 3 relationships
Card numbers The number of loyalty card holders continues 17m to increase
New members Over 2.5m new members joined the GAME Reward card and Gamestation Elite +2.5m card in 2010
Super users 10% of loyalty card customers are "super users". We will grow this number because they spend 10% three times more than average
Close contact with customers has always been central to our strategy. New technology and ideas are allowing us to take that even further, and our loyalty programmes will drive every element of our new strategy. We will increase the number of customers who are active members of our loyalty card programmes around the world, and increase the frequency and personalisation of our communications with them.
Key activities for 2011 KPI measure
Generate more personalised communication The number of card with every customer holders, and the percentage of super Increase the frequency and relevance of users, are the key communications measures of success. Move more customers into the “super user” category
Leverage the launch success of the Gamestation Elite card. GAME: Dedicated to gaming 20
Chief Executive’s review continued
As the games market grows and physical content, are assets no other business possesses. That ability is driven by our passionate, evolves, I am more convinced expert and dedicated teams around the world. than ever that there is a role for We are operating, however, in a very challenging a strong multichannel retail economic climate and we have a lot to do and a long way to go if we want to outperform the brand to aggregate content market by growing new revenue streams. Our of different kinds and act as strategy is designed to do just that, and our dedicated teams around the world are focused a guide for customers. on delivering it.
I’m encouraged by the good progress we’ve seen in the early months of this year. We see good Current trading evidence that we can grow our online, digital, In the first 12 weeks to 23 April 2011, the Group’s own-label and preowned businesses strongly, total sales were down by 14.3 per cent and like for even in very tough market conditions. like (“lfl”) sales were down by 12.1 per cent. In the It is critical that we implement the strategy with a UK and Ireland, total sales and lfl sales were down firm focus on cash generation, efficient capital by 14.9 per cent and 12.4 per cent respectively, expenditure and tight control of costs. We will outperforming the market. only invest where it helps us to achieve our In our International business, total sales were strategic goals. down by 15.8 per cent and lfl sales on a constant These strategic and cost actions, coupled with our currency basis were down 14.2 per cent. Online expectation of the market, lead us to reaffirm sales were up by 2.1 per cent. guidance for the year with sales growth of +2 per Our markets continue to be tough, but we were cent to +5 per cent, gross margins down 100 basis able to outperform the markets through our points and flat operating costs. strength in preowned and successful new product We face the tough market of 2011 with a strong launches. Our market share on the Nintendo 3DS balance sheet, high quality retail operations and and AAA software launches, in particular, was real differentiators that few competitors can higher than our average because of our ability to match. We are well placed to deal with the offer customers excellent value via trade-in deals. prevailing economic challenges and help our Summary and Outlook customers through these difficult times. In the As the games market grows and evolves, we are longer term, we are putting GAME in the right more convinced than ever that there is a role for a place to deliver the strongest returns to our strong multichannel retailer to aggregate content stakeholders as the industry continues to change of different kinds and build solid customer and evolve. 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 Ian Shepherd Chief Executive The GAME Group plc Annual Report & Accounts 2010-2011 21
Our performance 1
Directors and Governance 2
Our strategy Our results 3 going forward
Strategic objective Drivers Income stream Progress in Q1
Multichannel Compelling web offer Online and digital UK online share since Joined-up multichannel offer revenues February: up 5% to 18% Mobile and digital Q1 online revenues: Group like for like +2%
Right stores Right stores in right locations Customer conversion Portfolio: closed 15 UK Customer experience stores in Q1 2011 New service technologies Footfall conversion: continued strong performance
Unique product Digital products Increased digital Digital sales: +28% range Own-label products revenues Group and local market Own-label and exclusives exclusives revenues Novel ways to buy Preowned More customers using Preowned revenues: 29.1% Customer finance options preowned and trade-in of sales Loyalty points as currency Preowned margin: 41.0%
Strong customer Reward and Elite card More customers using Card members: up 180k relationships user bases preowned and trade-in in Q1 to 17 million Card usage Personalised communications
Strengths: Leading market share; preowned skill; knowledgeable, passionate people; strong retail infrastructure; unique customer database. Cost control: Tight control of working capital; Balance Sheet discipline; focus on operating cost savings.
GAME: Dedicated to gaming 22
Operational review We serve customers in our stores, online and via our digital services
Ian Shepherd Chief Executive Ben White Group Finance Director The GAME Group plc Annual Report & Accounts 2010-2011 23
Our performance 1 Overview to drive sales for each platform. The platforms The GAME Group plc is Europe’s leading specialist that did not launch new technology (Nintendo Wii Directors and retailer of pc and video game products. The and Sony PSP) saw significant sales declines over Governance 2 business started trading in 1991 from 11 stores the same 12 month period. in the UK, and has grown both organically and There are over 34 million third generation Our results 3 through acquisition to become a multichannel consoles installed in the UK, more than double the operation serving customers in Europe and number of the previous generation. This means Australia. We serve customers in our stores, that there is more than one hardware unit per online, and via our digital services. household, and people are playing and shopping Our market across multiple formats. The ratio of consoles to The global video games market was worth $37 households is lower in non-UK European markets, billion in 2010, down from $41 billion in 2009 but presenting an ongoing opportunity for growth. still similar in scale to other entertainment Detailed market data is not available for the markets such as cinema and DVD. digital and mobile sectors. However,general The European market is the second largest market data from publishers such as EA, Activision and in the world, worth $14 billion (2010: $17 billion). Codemasters, as well as digital distributors such GAME is the market leader in Europe. as Apple, Facebook and Zynga, demonstrates that this sector is growing quickly. Market analysts are The market remains dynamic and is still driven forecasting that this growth will continue, while by boxed technology launches from the console also discussing how best to gather and publish manufacturers Sony, Microsoft and Nintendo. accurate market data in future. At the same time, virtual products are becoming a larger part of the market, allowing other Significantly, tangible and virtual products are manufacturers and developers to produce advancing in tandem, with a significant number entertaining products for our customers. Boxed of software titles being launched with digital product represents 90 per cent of our industry content add-ons and expansion packs. and digital 10 per cent. This is becoming one of the main ways that manufacturers create new ways to play. This Each of the main manufacturers has launched new broad choice of product and wide spectrum technology in the last 12 months: Sony Move of customers benefits the specialist. (September 2010); Microsoft Kinect (November 2010) and Nintendo 3DS (March 2011). These provided useful stimuli to the market, and helped
TotalTotal loyaltyloyalty card card members members TotalTotal preowned preowned revenues revenues
17m17m £386.9m£386.9m +17%+17% +3.3%+3.3%
2010:2010: 14.5m 14.5m 2010:2010: £374.5m £374.5m
0808 09 09 10 10 1111 0808 09 09 10 10 1111 GAME: Dedicated to gaming 24
Operational review continued
Third generation installed base GAME Group took a leading share on all new releases in the UK, having worked in partnership Installed base Growth since Households with publishers to stage high profile launches. Territory January 2011 January 2010 (m) GAME generates margins of around 25 per cent to 35 per cent on new software sales. UK 34.0m 18.0% 26.1 Accessories: Two new peripherals were launched France 22.8m 20.4% 32.3 in 2010: Microsoft Kinect and Sony Move. Each Iberia 13.5m 13.9% 17.9 was launched with a range of new software, and Scandinavia 2.1m 15.4% 8.9 GAME was lead retail partner for both. Our launch campaigns covered multiple channels and used Australia 7.9m 23.4% 7.6 extensive marketing from our Reward Card Czech Republic 0.3m 14.2% 4.2 database. GAME generates margins of between 25 per cent to 35 per cent on accessories.
Preowned: Our product range is not complete Products without a full preowned offer, and this is available Customers look to the specialist retailer to offer to customers in all of our stores and from our a wide range of hardware, software, accessories, websites. Trade-ins are conducted through stores, preowned and digital products. where customers benefit from the direct service, and we are able to process the products Hardware: Latest generation games consoles efficiently. All preowned games have the same run software, can be controlled by a range guarantee as new games to ensure customers of controllers or motion sensors, and feature receive the same quality, at a lower price. A team online and multi-media capabilities. They are of experts manage the preowned and trade-in manufactured and supplied by Microsoft prices centrally, which has helped us to optimise (Xbox360), Sony (PS2, PS3 and the handheld stock levels, improve profitability and maintain PSP), and Nintendo (Wii and handheld 3DS, optimum prices. GAME generates gross margins DS Lite and DSi). in the region of 40 per cent on preowned sales. As each console goes through its 5-10 year Digital products: The digital sector is growing life cycle, manufacturers lower prices and rapidly, and features a number of different ways introduce new peripherals to maintain demand that customers can buy digital content. and increase functionality. In the last 12 months, manufacturers have focused on increasing Pre-pay cards: Currently, the largest part of the functionality rather than price cuts. digital market for retailers is the sale of pre-pay cards, which allows customers to use cash and Hardware sales are critical to build the “installed trade-in credit rather than just a credit card. base” of units, and drive follow on sales of Digital cards for retail are available for pc games software and peripherals. GAME tends to make (such as World of Warcraft), Xbox Live, Playstation gross margins of up to 12 per cent on hardware. Network and Nintendo Pay and Play. GAME is the Software: Major software launches have market leader in the sales of pre-pay cards at a continued led by global publishers including retail level. Electronic Arts, Activision Blizzard and Ubisoft. DLC: Extra Downloadable content (“DLC”) is The market is dominated by annual franchises produced for video game products, and can including Call of Duty, FIFA and Assassin’s Creed, include extra maps or levels for a game. DLC and some of the principal releases in 2010 broke content is marketed in GAME stores alongside the sales records. boxed title. Call of Duty: Black Ops and Red Dead The GAME Group plc Annual Report & Accounts 2010-2011 25
Our performance 1 Redemption both received DLC retail launches Consumer after the original product launch in 2010. The demands of our consumers are changing Directors and rapidly. The range of consumers who play video Governance 2 POSA cards: Point of Sale Activated cards are used games is still very broad, and increasingly each for currency for online applications such as iTunes audience is being offered digital products as well and Zynga titles such as Cityville and Farmville. Our results 3 as boxed products and accessories. The POSA card is activated in GAME stores, and the customer’s card balance is credited to their The launch of the Kinect and Move motion sensing account automatically once the card is redeemed. accessories captured the interest of “mass market” audiences, and a new range of titles were ESD codes: In 2011 GAME launched a partnership released which included a range of family titles as with Microsoft to market and sell Electronic well as games based around fitness. For the first Software Distribution content in stores. Through time, dance games became a major feature of the this initiative, GAME stores retail game content market, with titles like Dance Central and Just which was only previously available directly within Dance appearing in the top 10 charts. Some of the Xbox Live service, allowing us to introduce these titles, such as Dance Central, have additional customers to the titles and grow sales. content which can be bought digitally. The mix of each product type within GAME’s Core gamers have also benefited from a wide range overall revenues varies depending on the point in of titles, many of which have featured additional the technology cycle. Lower margin hardware is digital content. The additional maps and content more prevalent when new consoles are launched, for major titles such as Call of Duty and Red Dead while software and accessory sales increase later Redemption were marketed in our stores, and gave in the cycle. We focus on maximising preowned our teams the opportunity to introduce customers sales at all times. Digital and own-label sales are to digital add-ons. included in “other” revenues.
Top selling games in 2010 (UK)
Ranking Title Publisher
1 Call of Duty: Black Ops Activision Blizzard
2 FIFA 11 Electronic Arts
3 Just Dance Ubisoft
4 Red Dead Redemption Rockstar/Take 2
5 Wii Fit Plus Nintendo
6 Just Dance 2 Ubisoft
7 Assassin's Creed: Brotherhood Ubisoft
8 Wii Sports Resort Nintendo
9 Halo: Reach Microsoft
10 Battlefield: Bad Company 2 Electronic Arts
Source: GfK Chart-Track
GAME: Dedicated to gaming 26
Operational review continued
Revenue and gross margin split We also have store in store concessions in Hamleys and Selfridges. GAME stores are Group Sales Group Gross Margin designed to appeal more to mass market and casual gamers. 10/11 09/10 10/11 09/10 Gamestation is a leading challenger brand in the % of Total Sales GM as % of Sales UK, with stores located in popular secondary New Hardware & Software 61.6% 65.7% 19.9% 22.1% locations. The store format and marketing appeal Preowned 23.8% 21.1% 39.7% 41.7% more to the “core” gamers.
Other 14.6% 13.2% 31.6% 34.0% The UK store portfolio has been reviewed in detail, and we have closed stores if they are loss-making Total 100.0% 100.0% 26.3% 27.8% or there is overlap with one of our other stores. We have successfully transferred over 60 per cent of customers to the next nearest store or to one of We are able to monitor all of the purchasing our ecommerce sites. We are targeting 550 stores and behavioural trends closely thanks to the in the UK by Christmas 2013. This initiative is being intelligence gained from our loyalty card data. aided by the flexibility of our lease profile (with And we are also tailoring our offer to each average lease length of five years). Customer customer more precisely, so that we can help them transfer is assisted by our loyalty card schemes, find new games and entertainment that matches which enable us to communicate directly with their favourite purchases. customers affected by a closure.
Our business France: GAME is the number two specialist in the Our channels and locations French market. Unusually for a European territory, In each of our markets, customers can choose to the market leaders are the hypermarkets. We shop with us in our stores or using our ecommerce have made significant changes to our French or digital operations. Each territory is supported business in the last 12 months to strengthen by a local distribution centre and head office. our commercial proposition and improve performance. The store portfolio has been Stores reviewed, with two stores closed, and many A GAME store is 1,000 sq ft on average, while stores have been restyled to communicate a Gamestation stores are slightly smaller. Our stronger value message to customers. We believe objective in all stores is to give customers an that there are opportunities for a challenger excellent experience, with clear merchandising brand in this market, and our renewed strategy across a wide range of formats, high profile offers has driven improvements. and promotions, and easily accessible information and advice. We are updating our stores to reflect Iberia: We are the market leader in Spain and the changing market – making them more Portugal, with a very strong market share. This interactive, with more multichannel functionality, leadership position has been enhanced following and a wider range of digital products. As always, another excellent performance in 2010. The the expertise of our people will remain the Spanish market continues to be focused on stores, core differential, generating an exceptional with ecommerce an important but niche market. customer experience. We have benefited from the rapid growth of shopping centres and are represented in every UK & Ireland: We are the market leader in the UK. new retail development in the country. The GAME brand has the leading market share, with stores located in prime locations in shopping centres, high streets and out-of-town retail parks. The GAME Group plc Annual Report & Accounts 2010-2011 27
Our performance 1 Scandinavia: The Scandinavian market is very Our marketing campaigns are also multichannel, focussed on pc products and we have tailored our and extend across all channels that our customers Directors and offer accordingly. We are the equal number one are using, including social networks. Governance 2 retailer of pc and video games product in the We have invested in the last three years to build a market, with a range of stores and ecommerce sites. universal web platform which allows us to operate Our results 3 Australia: Following a review of our Australian seamlessly across channels, including mobile. This business in 2010, we have implemented a number platform is now in place and we are launching the of changes to strengthen our consumer customer-facing elements of it. proposition and improve performance. The store Our Gamestation website is the first to launch, portfolio has been reviewed, and 25 outlets were and the technology is now being extended closed. A team from the UK, including experts in to the GAME UK website, and then sites in preowned and operations, are in place to increase other territories. our value messaging and operational efficiency. Our brand is strong, and we are seeing rapid Our store teams are the principal advocates of improvements. gaming on the high street, and they actively promote the benefits of online play and digital Czech Republic: GAME is the market leader, having content to our customers. All of these are entered Czech Republic in 2008 via acquisition. We displayed in our stores, and our teams are able to are enhancing our proposition, and the market discuss with customers which will provide them shows good opportunity for growth, and potential with the most entertainment. for expansion into other Central European markets. Operating Infrastructure Multichannel retailing Distribution Increasingly we are seeing the same customers In every market that we operate in, our customers shopping across multiple channels. They want like to buy products as soon as they are released. access to our brands 24 hours a day, 7 days a The majority of sales are made in the first week week, and are looking for information and of launch, or in the six week period around opinions as well as products and services. Christmas. Therefore immediate availability and We have realigned our business so that timely replenishment are critical to our credibility. ecommerce and stores are no longer separate, GAME Group has dedicated distribution facilities but mutually benefit each other. Our stores are in all territories to ensure that products reach supported by our websites, and our ecommerce customers at the right time. Our distribution and digital operations are strengthened by our facilities support our stores, as well as our stores and the teams working in them. ecommerce businesses with delivery direct to customers’ homes.
Territory overview
UK and Czech Group Ireland France Iberia Australia Scandinavia Republic Total
Store Numbers 639 197 287 94 65 31 1,313
Total Store Sq. Ft.(‘000) 761 184 236 104 67 18 1,370
Average Store Sq. Ft. 1,190 932 824 1,107 1,034 597 1,044
Store Employees 6,628 824 1,175 492 166 87 9,372
GAME: Dedicated to gaming 28
Operational review continued
Business relationships distributed accurately in advance, and stores We maintain long-term and successful open at midnight for two consecutive nights. relationships with hardware, software and digital As a result, we took a leading share in the UK suppliers in order to provide customers with a on both products on launch night and in wide range of products and offers. As a dedicated subsequent weeks. specialist, we work in partnership with suppliers During the snow and harsh weather in December to plan product launches across multiple channels 2010, our distribution centres and stores remained and in multiple markets. This coordinated open and were able to continue serving customers. approach helps deliver benefits to our supplier As a result, we maintained a leading share during partners, our customers and our business, and the crucial trading period, and delivered a trading differentiates us from our generalist competitors. performance which outperformed many of In addition, we work with suppliers to create and our competitors. market exclusive iterations of new titles which Our strategy – summary feature additional digital content or physical We have built a market position which has products like a t-shirt or poster. delivered growth and success over two decades. The Group Commercial Strategy team are working As outlined in the Chairman’s statement and CEO closely with new entrants to the market to help review, we are seeing rapid change in our market them build a profile with our customers. place, and are evolving our business to fulfil the demands of our customers. The strength of our logistics infrastructure and business relationships were demonstrated in In February 2011 we outlined a new strategy – 2010, when a selection of new products were called “Dedicated to gaming” – which will position launched within a very short timeframe, and the Group for the future. It is made up of five Northern Europe suffered unusually harsh initiatives which focus on our existing strengths weather conditions. and deliver differentiation to customers.
Microsoft Kinect and Call of Duty: Black Ops were We will: launched within 24 hours of each other at the • Become a multichannel specialist, offering the start of November 2010, with GAME Group as a key same high quality services everywhere that our retail partner to both Microsoft and Activision. Our customers need us. systems performed successfully, with stock • Manage our property portfolio and rejuvenate our estate to create the right stores to be the hubs of our multichannel experience. As a dedicated specialist, we work in • Be our customers’ chosen gaming partner, partnership with suppliers to plan product selling a very broad and unique product range spanning physical and digital content. launches across multiple channels and in • Be creative in finding ways for customers to multiple markets. experience gaming in the most affordable way, and will develop new ways to buy. This coordinated approach helps deliver • Be dedicated to our customers and build strong benefits to our supplier partners, our relationships with them founded on trust and customers and our business, and differentiates active communication. us from our generalist competitors. Few of our competitors are able to replicate all of these initiatives. The GAME Group plc Annual Report & Accounts 2010-2011 29
Our performance 1 Looking forward We will invest appropriately in The pace of change is accelerating in our market, Directors and with new technology driving changes to the way order to drive change, but will Governance 2 that customers buy and play video games. ensure that all investment is New products, such as the Nintendo 3DS, are focused on activities that Our results 3 being launched in the market from established suppliers, while new products such as tablets and provide the best returns. smartphones are being launched with impressive gaming capabilities. At the same time, existing customers are looking to expand their gaming At the same time, tight controls on operating experience with online play and additional digital costs throughout the business will be maintained. content, while new customers are entering the Operating structures and working hours for our market by playing on browser based games or via store teams were reviewed in 2010, and we social networks. maintain flexibility and tight control over them.
As the market becomes ever more complex, we Growth in the video games industry has been believe that the requirement for a trusted retail driven by innovation and new product launches, aggregator increases. over the last two decades, and the Group remains well prepared to maximise the opportunities We are well placed to take that role, with presented by new technology launches in strong consumer trust and recognition for our the future. brands, and established relationships with the video games industry. We acknowledge that we need to take these strengths to new customers and new suppliers, and that is why we are focusing our strategic initiatives on being “Dedicated to gaming”.
Our customer proposition will continue to offer customers the widest choice of products while also giving them excellent, and often unique, value for money. We are able to do this in multiple channels, giving customers a single brand voice and loyalty scheme.
However, we recognise that we need to improve our back-office technology and systems in order to give customers a more seamless service and experience.
We will invest appropriately in order to drive change, but will ensure that all investment is focused on activities that provide the best returns. Total capital expenditure in the current year is expected to be in the region of £18m including information technology and head office expenditure for the Group.
GAME: Dedicated to gaming 30
Financial review
Group turnover Profit before tax £1,625.0m £23.1m
2010: £1,772.4m 2010: £84.2m
Profit and Loss Account of sales were 23.6 per cent compared to Revenue 22.5 per cent last year. This evidences the strong Total sales decreased by 8.3 per cent from cost disciplines within the business throughout £1,772.4m to £1,625.0m and like for like sales the year. Net store closures reduced the cost base decreased by 6.7 per cent. These results compare by £3.3m, store controllables reduced by £4.4m, well to the wider pc and video games market, head office costs came down by £2.0m and our which showed a year on year on decrease of procurement activities realised a further £4.0m approximately 10 per cent across the markets in of savings. which we operate. Profit before tax Average sales per annum per sq. ft. decreased We achieved a profit before tax and non-recurring by £49 to £1,116. items of £37.8m compared to a profit before tax and non-recurring items of £90.4m for last year. Gross Margin Profit before tax was £23.1m compared to £84.2m. Overall gross margin was 26.3 per cent compared to a prior year margin of 27.8 per cent. This Non-recurring items decrease in gross margin was in line with our In the current year we rationalised our businesses expectations. It was caused by the impact of in both France and Australia, resulting in a non- promotional activity and our drive to continue to recurring cost of £14.7m. This consisted of a cash offer a compelling, mint value proposition to our spend of around £6.2m, on lease disposals and customers. Through our strong preowned and employee and supplier contractual payments, and own-label products, both of which deliver good a non-cash charge of £8.5m for the write-off of margins, we were able to mitigate some of the certain fixed and current assets. impact of our value activities. Taxation Our gross margins in the second half of the The effective rate of Corporation Tax was 32.3 per year showed a solid improvement from the first cent (2010: 28.2 per cent) and we have continued half. This was as a result of a change in the sales to provide deferred taxation in line with IAS 12. mix towards our higher margin products and Excluding the impact of the write-off of the non-tax an improvement in the gross margins on those deductible Australian goodwill, £3.4m, the rate products. This was particularly the case for was 28.2 per cent. preowned, where we saw second half margins Earnings per share return to approximately 41 per cent from a first half Basic earnings per share were 4.51p compared to position of around 38.5 per cent. 17.45p last year, a decrease of 74 per cent. Diluted Operating Expenses earnings per share were 4.51p compared to 17.42p Total operating costs have decreased by 3.4 per last year, a decrease of 74 per cent. cent, or £13.7m, from £397.9m to £384.2m, excluding non-recurring costs, and as a percentage The GAME Group plc Annual Report & Accounts 2010-2011 31
Our performance 1 Dividend Stock The Board is recommending a final dividend of Stock at the end of the period represented Directors and 3.90p per share, which will give a total dividend for £114,000 per owned store compared to £128,000 Governance 2 the year of 5.78p, equal to last year. The dividend for the same period last year. The decrease in the will be paid on 15 July 2011, to shareholders on the average stock holding per store reflects the benefit Our results 3 register on the 24 June 2011. of more efficient logistics operations.
Balance Sheet Cash flow Intangible Assets Net cash generated from operations was £111.4m Following the rationalisation of our Australian compared to £13.1m last year. This reflects a business we made the decision to write-off the strong working capital performance throughout £3.4m of goodwill held in our books for the the year. The improvement in our logistics asset. We believe we have made the necessary functions allowed us to run the business with a operational changes in Australia and it is now a significantly lower stock position. We were also fundamentally different business to the one able to improve our trade creditor payment profile. we acquired. Reporting Our impairment testing also revealed that the In the current year, the Group has revised its goodwill balance relating to an element of our accounting policy for the classification of Droit au French business, of £6m, is sensitive to changes in Bail (a type of French key money). The balance of the assumptions used. We will monitor this going £32,533,000 at 31 January 2010 was previously forward against the trading performance of the classified within “Short leasehold land and French business. property” as the payments confer onto the Group many rights similar to those associated with a Capital Expenditure leasehold. These assets are assessed as having an Capital expenditure in the period amounted to indefinite useful life and the carrying value is £17.7m. Approximately half of this expenditure tested for impairment. In light of proposed was undertaken to develop our websites and IT amendments to accounting for leases, the infrastructure. Additionally, we invested in new nature of these assets has been reviewed and the stores and relocated stores and distribution accounting policy revised to classify Droit au Bail facilities across the Group. In summary: within Intangible Assets.
Capital expenditure (£m)
31 Jan 31 Jan 2011 2010
Stores 3 10
Refits 2 3
Web 5 5
Infastructure 8 12
Total 18 30
GAME: Dedicated to gaming 32
Risk at GAME Risk type Impact Technology The digital world is evolving quickly. Speed of change and growth of technology in the market place. If we do not adapt to the changes we run the risk of failing to deliver a truly multichannel offering to our customers.
Competition If we are unable to compete we run The pc and video games market continues to be an attractive place to do the risk of losing our customers and business. Our competition comes in many guises. A relatively new entrant our market share. 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 more traditional competition from other specialists and on line players.
Reputational Damage to our reputation could, in turn, We have built up customer loyalty over many years. GAME and Gamestation damage the trust our customers have are trusted brands. put in us which would lead to a loss of revenue and shareholder value. 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.
Major business interruption Like all businesses any disruption to As with all businesses, a failure to recover from major events such as flu our capacity to do business will affect pandemics, fires or system failures, would hamper our ability to do business. our profitability.
People and change Business change cannot be delivered if No business can stand still. Every business and the people working within the we fail to attract, develop and retain the business must adapt to survive. right people in the right roles. The GAME Group plc Annual Report & Accounts 2010-2011 33
Our performance 1
Directors and Governance 2
Our results 3 Risk mitigation
We are investing in the mobile and digital future to ensure Our Board believes that recognising and we can serve our customers in whichever medium they wish managing risks is the key to an effectively run to purchase games, be that digital download, web or in store. business. The monitoring of risk is delegated to the Audit Committee which has tasked the business with capturing and reporting on risk We use a suite of specialist tools to give customers great in a consistent manner across the Group. value. We recognise that this is not always direct price cuts. The methodology is both bottom up, with This is where our position as a specialist in the market place detailed risk reports on all operating matters must give us the edge. We strive to find exclusive offerings being sent from each territory, and top down, for our customers that they cannot get anywhere else. Our with senior management identifying all preowned offerings, trade-in promotions and the use of risks that could potentially prevent us from reward card points as currency allows our customers to delivering our agreed strategy. enjoy popular and new products at great value. Every identified risk is examined and mitigating activities are put in place. We protect our reputation by ensuring that our staff are A risk report is presented to the Audit highly trained and know their obligations to protect and Committee half yearly. 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.
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.
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.
GAME: Dedicated to gaming 34
Corporate responsibility
Throughout our work with all these parties, we endeavour to have a positive impact in society and on the environment whilst striving to achieve our Fair game commercial objectives. Strategic goals We have six strategic goals that drive our approach to corporate responsibility.
1. Strategic goal: Actively minimise our impact on the environment. As a responsible retailer, GAME is acutely aware of its duty to minimise its impact on the environment – so we are doing all we can to promote sustainable practices across our offices, distribution centres and stores.
As part of this process, we are reviewing all areas of our business to identify how we can improve our energy efficiency and waste recycling levels; reduce carbon emissions, water use and packaging; and minimise the impact of our suppliers’ transport operations.
2. Strategic goal: Provide a safe and healthy environment for our employees to work in. The wellbeing and professional development of our employees are of paramount importance to us.
3. Strategic goal: Enable our staff to achieve their full potential. Over the last year, the UK stores have taken on more than 1,000 work experience candidates from local schools, colleges, universities and job centres, providing them with hands-on retail experience.
The performance of our business is reliant on close relationships with a range of stakeholders, including our customers, owners, employees and suppliers. We have a clear responsibility to all of these groups as well as the wider community and environment. Our business is strengthened by close association with all of these parties, and we are very aware of all responsibilities towards them. The GAME Group plc Annual Report & Accounts 2010-2011 35
Our performance 1 4. Strategic goal: Support national and local CR committee members community projects relevant to our stakeholders. GAME Group’s Corporate Responsibility Directors and We are proud to support a wide range of Committee includes representatives from across Governance 2 community projects that are relevant to all of our the business who meet bi-monthly to review stakeholders at both a national and local level. CR policy, monitor our progress against objectives Our results 3 and agree new initiatives to enhance our 5. Strategic goal: Help our customers be CR programme. responsible consumers. We take our responsibilities to our customers The Committee is chaired by Group Finance very seriously and provide our employees with Director Ben White. Company Secretary, Vivienne all of the tools they need to sell age-rated Hemming, is accountable for our CR performance. games appropriately. Following our active participation in the UK Byron We recognise that we have a Review of mature video games content and game certification, we continue to work with responsibility to understand and government, industry partners and customers to endeavour to meet the needs of develop and implement new legislation. We also continue to ensure that our measures to sell everyone involved in our business. games responsibly are robust, well understood and rigorously tested. For further information download 6. Strategic goal: Behave ethically and with our full CR report from integrity when sourcing products and dealing www.gamegroup.plc.uk with our suppliers. We know that an effective CR strategy means ensuring that every link in the supply chain operates according to the same principles – starting, of course, with suppliers themselves.
That’s why we’re so careful about choosing our suppliers in the first place and seeking their assurance that they comply with our own high ethical standards.
GAME: Dedicated to gaming 36
Board of Directors An enhanced
Ian Shepherd (41) leadership Title: Chief Executive Appointment: June 2010 Skills and Experience: Ian previously spent four years at Vodafone, latterly as its UK Consumer Director, leading the company's largest division team with over £3bn in revenue. This included responsibility for Vodafone's UK chain of over 400 stores. Before joining Vodafone, Ian spent nine years at BSkyB including five as Customer Marketing Director and two as Managing Director of Sky Interactive.
From left to right: Dana Dunne, Ishbel Macpherson, Peter Lewis, Christopher Bell, Ian Shepherd, Ben White and David Mansfield. The GAME Group plc Annual Report & Accounts 2010-2011 37
Our performance 1
Peter Lewis (70) Dana Dunne (47) Directors and Governance 2 Title: Chairman Title: Non Executive Director Appointment: November 1995 Appointment: January 2010 Our results 3 Skills and Experience: Peter was appointed to Skills and Experience: Dana was the Chief the Board in 1995 as a Non Executive Director Commercial Officer of easyJet plc until March 2011 and in June 1998 he was appointed Non Executive Before joining easyJet, he was CEO of AOL Europe, Chairman. He was a founder and Executive one of the leading online companies in Europe. Prior Chairman of Ashtead Group plc from May to that he was Head of Company Transformation of 1984 to December 2000. AOL in the US, and has held a number of other senior positions in the telecom and media industries.
Ben White (38) Title: Group Finance Director Ishbel Macpherson (50) Appointment: July 2009 Title: Non Executive Director Skills and Experience: Ben joined the Group in 2005. Appointment: October 2005 He previously held a number of senior finance roles Skills and Experience: Ishbel was an investment at Serco Group plc, HIT Entertainment plc and banker for over 20 years, specialising in UK mid- Kingfisher plc before taking up a position with market corporate finance. Her most recent role was GAME Group. He qualified as a Chartered as Head of UK and Emerging Companies Corporate Accountant with Deloitte. Finance at Dresdner Kleinwort Wasserstein. External Appointments: Non Executive Director of Dignity plc and May Gurney Integrated Services plc. Christopher Bell (53) Senior Non Executive Director at Hydrogen Group Title: Senior Independent Director plc and Chairman at Speedy Hire plc. Appointment: January 2003 Skills and Experience: Christopher was appointed David Mansfield (57) Senior Independent Director in 2005 after joining the Company as a Non Executive Director in January Title: Non Executive Director 2003. He was previously Chief Executive of Appointment: April 2010 Ladbrokes plc. Prior to his time at Ladbrokes, he Skills and Experience: David was the Chief Executive held a number of senior positions with Allied of GCap Media plc (formerly Capital Radio before Domecq PLC. May 2005) between 1997 and 2005. Before joining External Appointments: Senior Independent Capital Radio, he held various senior sales, Director of Quintain Estates & Development commercial and marketing positions at Thames plc. Member of the Responsible Gambling Television and Scottish Television. He was a Non Strategy Board and the Responsible Gambling Executive Director at Carphone Warehouse plc from Research Panel. 2005 until his retirement in March 2010. External Appointments: Chairman of Radio Joint Audience Research, LoveLive TV Limited and Student Aid Limited. Director of Ingenious Media plc, Fellow of the Radio Academy and a visiting Fellow of the Member of the University of Oxford. Remuneration Committee Ages stated are those on 31 January 2011 Audit Committee Nomination Committee CR Committee
GAME: Dedicated to gaming 38
Corporate governance statement
There is a commitment to high standards of corporate governance throughout the Group. The Board is structured to enable effective and efficient decision making and allow the Directors to discharge their duty to promote the success of the Company Peter Lewis, Chairman for the benefit of its shareholders.
At the date of this report, the principal governance rules applying to UK companies listed on the London Stock Exchange are contained in the Combined Code on Corporate Governance issued in June 2008 (the ‘Combined Code’). Following the publication in May 2010 of the UK Corporate Governance Code (the ‘Governance Code’), which will replace the Combined Code for the Company’s 2011/12 financial year, the Company is in the process of reviewing its corporate governance procedures and already complies with the majority of the provisions of the new Governance Code. The Board aims to be compliant with all provisions by 31 January 2012 and, for example, plans to introduce annual election of all Directors at the 2011 Annual General Meeting.
Each of the Board’s Committees has made progress in their areas of responsibility as described in this report. In line with our usual practice, I am happy to make myself available to shareholders at the Annual General Meeting on 15 June 2011.
As announced on 27 April 2011, I will retire from the Board at the conclusion of the Annual General Meeting in June. Our current senior Independent Director, Christopher Bell will take over as Chairman. I am delighted that Christopher will be taking over as Chair, he will bring a wealth of knowledge and expertise to the role.
Peter Lewis Chairman The GAME Group plc Annual Report & Accounts 2010-2011 39
Our performance 1 This report, including the report from the Audit Committee and the Directors’ Remuneration Report, describes how the Board applied the principles of good governance, as contained in section 1 of the Directors and Combined Code, and seeks to demonstrate how those principles have been applied during the year Governance 2 under review.
The Board confirms that the Company and the Group have complied during the year ended 31 January 2011 Our results 3 with the principles set out in Section 1 of the Combined Code, except that the Board notes that the Chairman had been a Director for more than nine years but considered that Peter Lewis made a significant contribution to the Company and that his period of office did not impair his independence.
The Combined Code is available at the Financial Reporting Council’s website www.frc.org.uk
The Board is accountable to the Company’s shareholders for good governance and the statements set out below describe how the principles identified in the Combined Code are applied by the Group.
The information required by the Disclosure and Transparency Rule (‘DTR’) 7.1 is set out in the Audit Committee section on pages 41 to 42. The information required by DTR7.2 is contained in this Corporate governance statement other than that required by DTR7.2.6 which is set out in the Report of the Directors at page 45.
Directors The Board consists of a Non Executive Chairman, Peter Lewis, four other Non Executive Directors and two Executive Directors, being the Chief Executive and Group Finance Director. During the year Ian Shepherd was appointed Chief Executive of the Company and Lisa Morgan and Terry Scicluna stepped down from their positions as Chief Executive and Chief Operating Officer respectively. David Mansfield was also appointed as Non Executive Director on 16 April 2010.
Christopher Bell acts as Senior Independent Director. At the Board’s request, from 21 April to 28 June 2010, Mr Bell temporarily took on additional responsibilities whilst a new Chief Executive was sought following the departure of Lisa Morgan. The Board believes that the additional responsibility does not compromise his independence. During this period, Ishbel Macpherson took on the role of Senior Independent Director. Concerns relating to the executive management of the Company or the performance of the other Non Executive Directors may be raised with the Senior Independent Director. The Senior Independent Director is also available to shareholders if they have concerns, which contact through the normal channels of Chairman, Chief Executive or Group Finance Director, have failed to resolve or for which such contact is inappropriate. The Senior Independent Director is also available to listen to the concerns of employees.
All of the Non Executive Directors are considered by the Board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement. It is also considered that the composition of the Board is balanced and not dominated by any one member. The Board have approved a written statement outlining the division of responsibility between the role of the Chairman and Chief Executive, which is available to view on the Corporate Governance section on the Company’s website.
Biographies of Board members appear on pages 36 to 37. These indicate the seniority and range of business experience which are essential, to manage effectively, a business of the size and complexity of the Group. It also includes details of committee chairmanships and other positions held.
The full Board meets at least six times each year and more frequently where business needs require. Whilst the Board has delegated normal operational activities to the Executive Directors and other senior management, including decisions about property and contracts where they do not exceed the delegated authorities set by the Board, it retains a schedule of matters reserved for its decision, including inter alia statutory matters; approval of financial statements and dividends; appointments and terminations of Directors, officers and auditors; appointments of committees and setting of terms of reference; review and approval of Group
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Corporate governance statement continued
performance against budgets; approving risk management strategy and material contracts; and the determining of authority levels within which management is required to operate. A copy of the schedule of matters reserved for the Board is available to view on the Corporate Governance section on the Company’s website.
There is an agreed procedure for Directors to take independent professional advice at the Company’s expense. This is in addition to the access which every Director has to the Company Secretary. The Company Secretary is charged by the Board with ensuring that Board procedures are followed. The minutes of all meetings of the Board and each committee are taken by the Company Secretary who ensures that any unresolved concerns of the Directors are recorded in the minutes.
Appropriate Directors’ and Officers’ insurance cover is arranged and maintained via the Company’s insurance broker, Aon Group, and its terms are reviewed annually.
When new members are appointed to the Board, they are provided with advice from the Company Secretary and external advisers in respect of their role and duties as a public company director.
To enable the Board to function effectively and the Directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of Board meetings, this consists of a comprehensive set of papers, including regular business progress reports and discussion documents regarding specific matters.
Appointments to the Board The Board ensures that plans are in place for the orderly succession of appointments to the Board and to senior management; taking into account the need to maintain an appropriate balance of skills. Appointments to the Board of both Executive and Non Executive Directors are considered by the Nomination Committee. The recommendations of the Nomination Committee are ultimately made to the full Board, which considers them before any appointment is made. The Remuneration Committee considers any remuneration package before it is offered to a potential appointee. The members of the Audit, Remuneration and Nomination Committees are set out on pages 41 to 42.
This procedure was utilised during the year in the appointment of Ian Shepherd as Chief Executive. The Nomination Committee met initially to set out the criteria for the role. The Committee then worked with external consultants to review, shortlist and interview a number of candidates prior to making their recommendation to the Board to recruit Ian Shepherd. The Nomination Committee followed a similar procedure for the appointment of David Mansfield as Non Executive Director during the year.
Any Director appointed during the year is required, under the provisions of the Company’s Articles of Association, to retire and seek election by shareholders at the next Annual General Meeting. In addition, following a decision by the Board and in anticipation of the Governance Code, all Directors are required to submit themselves for annual re-election.
Non Executive Directors are appointed for an initial period of three years. The Board may invite a Non Executive Director to serve a further term after three years following a review at the end of this period, subject to re-election.
The Board, having carried out a performance evaluation process, considers the performance of each of the Directors standing for election and re-election at this year’s AGM to be fully satisfactory and is of the opinion that they have demonstrated continued commitment to the role. The Board strongly supports their election and re-election and recommends that shareholders vote in favour of the resolutions at the AGM.
Full details of Directors’ remuneration and a statement of the Company’s remuneration policy are set out in the Directors’ Remuneration Report appearing on pages 52 to 62. The members of the Remuneration Committee and the principal terms of reference of the Committee appear on pages 41 to 42. The GAME Group plc Annual Report & Accounts 2010-2011 41
Our performance 1 Meetings with Non Executive Directors The Chairman holds meetings as required with the Non Executive Directors without the Executive Directors Directors and being present. Governance 2
Individual attendance by Directors at meetings of the Board and of other Committees Meetings held from 1 February 2010 to 31 January 2011 Our results 3
Board Audit Remuneration Nomination
Eligible to Number Eligible to Number Eligible to Number Eligible to Number Director Attend Attended Attend Attended Attend Attended Attend Attended Peter Lewis 7 7 – – – – 1 1 Ian Shepherd1 4 4 – – – – – – Ben White 7 7 – – – – – – Christopher Bell 7 7 3 3 6 6 1 1 Dana Dunne 7 5 2 2 3 2 1 1 Ishbel Macpherson 7 7 3 3 6 6 1 1 David Mansfield2 6 5 2 2 3 1 1 1 Lisa Morgan3 2 0 – – – – – – Terry Scicluna4 3 1 – – – – – –
1 Ian Shepherd was appointed on 28 June 2010. 2 David Mansfield was appointed on 16 April 2010. 3 Lisa Morgan stepped down as CEO and resigned as a director on 21 April 2010 and her employment ended on 20 October 2010. 4 Terry Scicluna stepped down as COO and his employment ended on 30 June 2010.
Board performance evaluation In accordance with the requirements of the Combined Code, during the year the Board undertook a formal internal evaluation of its own performance and that of its committees and individual Directors. This review was led by Christopher Bell as the Senior Independent Director at the time of the review and included an evaluation of the Chairman’s performance. The Board has resolved to undergo a full external performance evaluation during the current financial year to conclude in the financial year 2012/13.
Audit Committee The Audit Committee comprises Ishbel Macpherson as Chairman, together with Christopher Bell, Dana Dunne and David Mansfield. The Board is satisfied that the composition of the Audit Committee adheres to the requirements that it should comprise at least three independent Non Executive directors and that at least one member, in Ishbel Macpherson, has recent and relevant financial experience, gained as the Audit Committee Chair for two other listed companies.
The terms of reference of the Audit Committee are available on request and are published on the Company’s website.
The Audit Committee’s main objectives are, inter alia, to monitor the integrity of the Company’s financial statements and any other formal announcements relating to the Company’s financial performance; review significant financial reporting judgements contained in such statements or announcements, before submission to, and approval by, the Board, and before clearance by the external auditors; review the Company’s internal financial controls and risk management systems; monitor and review the effectiveness of the Company’s internal audit function; and review the arrangements by which employees of the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters.
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The Committee also reviews any matters raised by the auditors. The Chief Executive and the Group Finance Director are invited to attend part of each meeting of this Committee, as are the auditors. The auditors have unrestricted access to the members of the Audit Committee, and the Committee ensures that meetings are used as an open avenue of communication between the external auditors and the Board.
Following a recommendation from the Audit Committee, the Board has adopted a policy in relation to the provision of non-audit services by the auditors, with the objective of ensuring that the provision of such services does not impair the external auditor’s independence or objectivity. This includes, inter alia, assessing all relationships with the audit firm, including their partners and staff; assessing the nature and level of fees for non-audit services in relation to the audit fee; obtaining confirmation of independence from the auditors; and ensuring the appropriateness of the firm as providers for non-audit services.
Remuneration Committee During the year, the Remuneration Committee comprised Ishbel Macpherson, as Chairman, together with Christopher Bell, Dana Dunne and David Mansfield. On 1 February 2011 David Mansfield took over the Chairmanship of this Committee. The work of the Remuneration Committee is covered further in the Directors’ Remuneration Report on pages 52 to 62.
Copies of Executive Directors’ service contracts and the terms and conditions of appointment of the Non Executive Directors are available for inspection at the Company’s office during normal business hours.
The terms of reference of the Remuneration Committee are available on request and are also published on the Company’s website.
Nomination Committee The Nomination Committee comprises Peter Lewis, as Chairman, together with Christopher Bell, Ishbel Macpherson, Dana Dunne and David Mansfield.
It meets as required and makes recommendations to the Board on all Board and Committee appointments, including the selection of Non Executive Directors. The terms of reference of the Nomination Committee are available on request and are also published on the Company’s website.
Audit and internal control The respective responsibilities of the Directors and the auditors in connection with the Annual Report and Accounts are explained on pages 49 to 50 and 64 respectively and the Statement of the Directors on going concern appears on page 44.
The Board of Directors acknowledges its responsibility for the Company’s system of internal control and for reviewing its effectiveness over financial, operating, compliance and risk management activities. The system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable (but not absolute) assurance against material misstatement or loss.
The Board has reviewed the effectiveness of the system of internal control during the year by reference to budgets, management accounts, cash flow projections and reports from the internal and external auditors. The GAME Group plc Annual Report & Accounts 2010-2011 43
Our performance 1 The key procedures that the Directors have established to ensure that internal controls are effective are commensurate with a group of this size, a key control procedure being the day-to-day supervision of the Directors and business by the Directors. Other internal control procedures and reviews for effectiveness by the Board Governance 2 include the following:
• preparation, maintenance and review of a Group risk register; Our results 3 • review of financial, operational and compliance reports from management; and
• review of any significant issues arising from the internal and external audits.
Following the publication of guidance for Directors, Internal Control: Guidance for Directors on the Combined Code, the Board confirms that there is an ongoing process for identifying, evaluating and managing any significant risks faced by the Group. The strategic and operations risks facing the Group in each country of operation have been identified and the appropriateness of the associated direct controls and indirect controls have been assessed. This risk matrix is reviewed and updated on a regular basis. This process has been in place during the period ended 31 January 2011 and up to the date of approval of the accompanying Report and Accounts by the Board. The process is regularly reviewed by the Board and accords with the Turnbull Guidance on Internal Control.
The Group has an internal audit function which focuses primarily on the control of cash and stock losses. All other aspects of our internal control framework, including risk management, process and controls are undertaken externally by KPMG. The Audit Committee consider the focus of the internal function and outsourced work to be appropriate for the business and operations of the Group.
The Audit Committee keeps the scope and cost-effectiveness of the external audit under review. The independence and objectivity of the external auditors is also considered on a regular basis, with particular regard to the level of non-audit fees. The split between audit and non-audit fees for the year under review appears in note 4 to the financial statements. The non-audit fees were principally paid in respect of tax compliance services and are considered by the Committee not to affect the auditors’ independence or objectivity.
Communication with shareholders The Company attaches importance to the effectiveness of its communications with shareholders. It publishes regular trading statements as well as a full Annual Report. The Company maintains a regular dialogue with institutional shareholders and the financial community. This includes presentations of the preliminary and interim results, regular meetings with major shareholders, participation in stockbrokers’ seminars and site visits. The Group holds a variety of investor and analyst meetings in order to improve the financial community’s understanding of the Group and to introduce investors to a broader range of management.
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All shareholders can gain access to these and other presentations, as well as to the Annual Report and other information about the Group, on the Investors area of the Company’s website, www.gamegroup.plc.uk. Holders of ordinary shares may attend the Company’s AGM at which the Company highlights key business developments during the year and at which shareholders have an opportunity to ask questions. The chairmen of the Audit, Remuneration and Nomination Committees are available to answer any questions from shareholders on the work of their committees.
The Company confirms that it sends the AGM notice and relevant documentation to all shareholders at least 20 working days before the date of the AGM. Responsibility for maintaining regular communications with shareholders rests with the executive management team led by the Chief Executive. However, the Board is informed on a regular basis of key shareholder issues, including share price performance, the composition of the shareholder register and City expectations. Independent research is commissioned annually into institutional shareholder perceptions of the Group. The Chairman, the Senior Independent Director and the Non Executive Directors make themselves available to meet with shareholders as required.
Going concern The Directors have reviewed the financial position of the Group and of the Company and have concluded that there is a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements. The GAME Group plc Annual Report & Accounts 2010-2011 45
Report of the Directors
Our performance 1 The Directors have pleasure in presenting their Report on the affairs of the Group, together with the audited financial statements, for the period ended 31 January 2011. Directors and Governance Principal activities 2 The Group is Europe’s leading specialist pc and video games retailer trading via retail outlets and ecommerce sites. The Parent Company, The GAME Group plc, is an investment holding company. Our results 3 Business review As at 31 January 2011 the Group operated in the UK and the Republic of Ireland and five international territories, with 639 stores throughout the United Kingdom and the Republic of Ireland, 197 in France, 287 in Iberia, 65 in Scandinavia, 31 in the Czech Republic and 94 (including one franchise) in Australia, as well as operating a global online operation with sites including game.co.uk, gameplay.co.uk and gamestation.co.uk.
A more detailed review of the business for the period ended 31 January 2011 and future developments is set out in the Chairman’s statement on pages 6 to 7, the Chief Executive’s review on pages 8 to 20 and the Operational review on pages 22 to 29, which are incorporated into this Report of the Directors by reference.
Results and dividends The consolidated profit after taxation was £15.7 million (2010: £60.5 million), on turnover of £1,625.0 million (2010: £1,772.4 million). This profit represents basic earnings per share of 4.51p (2010: 17.45p).
The Directors recommend a final dividend of 3.90p (2010: 3.90p) per share. This, when taken with the interim dividend of 1.88p (2010: 1.88p) per share, gives a total dividend of 5.78p (2010: 5.78p) per share for the period ended 31 January 2011.
Directors The Directors of the Company during the year were as follows:
Peter Lewis Ian Shepherd (appointed 28 June 2010) Ben White Christopher Bell Dana Dunne Ishbel Macpherson David Mansfield (appointed 16 April 2010) Lisa Morgan (resigned 21 April 2010) Terry Scicluna (resigned 30 June 2010)
Ian Shepherd was appointed to the Board since the last Annual General Meeting and will therefore retire, in accordance with the articles of association, and a resolution proposing his election will be put to shareholders at the next Annual General Meeting. Subsequent to the adoption of a policy to require each Director to submit her/himself for annual re-election, all other Directors will also retire and offer themselves for re-election. This policy supports provision B.7.1 of the UK Corporate Governance Code.
Details of Directors’ service contracts and interests in the share capital of the Company are given in the Directors’ Remuneration Report on pages 52 to 62. Biographies of the Directors are set out on pages 36 to 37.
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Corporate governance The Company’s compliance with corporate governance is disclosed in the Corporate governance statement on pages 38 to 44, and this is incorporated into the Report of the Directors by reference.
Conflicts of interest From 1 October 2008, there has been a requirement that directors must avoid a situation where they have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the company’s interests. Directors of public companies may authorise conflicts and potential conflicts, where appropriate, if a company’s articles of association permit and shareholders have approved appropriate amendments. At the Company’s Annual General Meeting in 2008, the shareholders gave this approval.
Procedures are in place for the disclosure by Directors of any such conflicts and also for the consideration and authorisation of these conflicts by the Board. These procedures allow for the imposition of limits or conditions by the Board when authorizing any conflict, if they think this is appropriate. These procedures were duly followed to approve appropriate conflicts following the enactment of the conflict provisions in October 2008, and are now included as a regular standing item for consideration by the Board at its meetings.
Charitable and political donations The Group made charitable donations of £173,000 including £168,000 to the Group’s UK charity partner, Children’s Hospices UK and £5,000 to Children’s Sunshine Hospices in Ireland. The Group also donated computer games and software to charities and community groups across the UK. The Group does not make donations to any political party (including non-EU political parties) or organisation or to independent election candidates.
Creditor payment policy The Group’s policy for the period ended 31 January 2011, for all suppliers, was to agree terms of payment when establishing the terms of each business transaction and to abide by the agreed terms of payment. The Group had an average 40 days’ purchases (2010: 32 days) included in trade creditors at the year end. The Company had no trade creditors.
Financial instruments The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks. Further details on the Group’s financial instruments can be found in the Statement of Accounting Policies set out on pages 76 to 78 and notes 16 and 17 to the financial statements.
Corporate responsibility The Group recognises that to remain successful over the longer term the business must take an open, honest and responsible approach towards all of its key stakeholders – employees, customers, investors and the wider community. The full report is set out on pages 34 to 35.
Employees Our employees share in the benefits of our success and we offer a variety of financial rewards across the business. A number of awards are offered, which are designed to recognise and reward employees for length of service. The Group also operates a scheme of sales incentives and management bonuses that focus employees on the achievement of key objectives. The Group Performance Share Plan aims to aid retention and align the objectives of our senior managers with those of our shareholders and a tax efficient sharesave scheme is offered to all our permanent employees to allow them to share in the success of the business. Full details of these plans can be found in the Remuneration Report on pages 52 to 62.
Employee communication and engagement GAME seeks to keep employees up to date with regular business briefings, annual conferences, written communications and regular regional meetings. The Group recognises that communication is a two way The GAME Group plc Annual Report & Accounts 2010-2011 47
Our performance 1 process and positively encourages engagement with employees including weekly feedback on operational aspects which is published to relevant departments by central operations. The Group’s “Bright Ideas” scheme, Directors and which has been in operation since June 2007, demonstrates a commitment to listening to employees by Governance 2 encouraging and rewarding employees for coming up with ideas that will enhance the working environment and operating performance. During the year a new one-to-one review process was also developed and rolled Our results out at head office along with a quarterly review to ensure both store support centre teams and store teams 3 are regularly reviewed and provided with guidance and support.
Employment policies The Group is committed to treating each employee fairly and reasonably and all our employment decisions, policies and practices are made without reference to an individual’s gender, race, colour, religion, creed, sexual preference or national origin. The Group also ensures the provision of equal opportunities for all disabled persons who are able to discharge the job duties and functions required as part of employment in the Group. Should an employee’s circumstances change, GAME is committed to explore all reasonably practicable solutions to assist the employee to be able to continue working. Any acts of sexual or racial discrimination for any reason at any level of the organisation shall not be tolerated.
Principal risks and uncertainties The principal risks and uncertainties facing the Group are Technology, Competition, Reputational, Major Business Interruption, People and Change. These are discussed in greater detail, together with mitigation activities which seek to explain how these principal risks and uncertainties are managed, on pages 32 to 33.
Significant agreements – change of control Under existing borrowing arrangements, the £160m Facilities Agreement dated 16 February 2011 between the Company and a syndicate of six banks, contains a provision such that, upon a change of control event, the facilities under the Facilities Agreement will be cancelled and all outstanding utilisations under the Facilities Agreement (whether direct drawings or utilisations under ancillary facilities), together with accrued interest and all other amounts accrued under the Finance Documents will become immediately due and payable.
A change of control will be deemed to have occurred if any person or persons acting in concert (as defined in the City Code on Takeovers and Mergers) at any time is/are or become interested in more than 50 per cent of the issued ordinary share capital of the Company.
The Company does not have agreements with any director or employee that would provide compensation for loss of office or employment resulting from a takeover except that provisions of the Company’s share schemes and plans may cause options and awards granted to employees under such schemes and plans to vest on a takeover.
Share capital Details of changes in share capital during the period ended 31 January 2011 are set out in note 20 to the financial statements.
As at 31 January 2011, the Company had an unexpired authority to repurchase shares up to a maximum of 34,665,916 shares. No shares were purchased in the market for cancellation during the year.
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Rights and obligations attaching to the Ordinary Shares This section summarises certain provisions in the Company’s Articles of Association relating to the Ordinary Shares of the Company, and forms part of the Report of the Directors.
Share capital The Company has a single class of share which is divided into ordinary shares of 5p each.
Voting In accordance with the Company’s Articles of Association, each share (other than those held in treasury) entitles the holder to one vote, at general meetings of the Company on votes taken on a poll. On a show of hands at a meeting, every member present (not being present by proxy) and entitled to vote has one vote and every proxy present who has been duly appointed by a member entitled to vote on the resolution has one vote. No member is entitled in respect of a share held by him to be present or to vote, either in person or by proxy, at a general meeting or at a separate meeting of the holders of class of shares or on a poll, or to exercise other rights conferred by membership in relation to the meeting or poll, if a call or other amount due and payable in respect of the share is unpaid.
Transfers The Board may refuse to register a transfer of shares in certain circumstances.
Dividends Subject to the provisions of the Companies Act 2006, the Company may by ordinary resolution declare a dividend to be paid to the members according to their respective rights and interests, but no dividend may exceed the amount recommended by the Board. The Directors may also declare and pay interim dividends if they consider that the financial position of the Company justifies it. Subject to shareholder approval, the Directors may pay dividends by issuing shares credited as fully paid up in lieu of cash dividends. No dividend carries a right to interest from the Company unless specified by the rights attaching to the share. If dividends remain unclaimed for 12 years they are forfeited and revert to the Company.
Variation of rights The rights attached to shares can only be varied with the consent in writing of the holders of at least 75 per cent of the nominal amount of the issued shares of that class (excluding any share of that class held as treasury shares) or with the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of that class in accordance with the provisions of the Companies Act 2006.
Partly paid shares The Company has a first and paramount lien on all partly paid shares for an amount payable in respect of the share, whether the due date for payment has arrived or not. The lien applies to all dividends from time to time declared or other amounts payable in respect of such shares.
Sanctions Unless the Board decides otherwise, if a shareholder is given a notice that he has failed to provide information required in relation to any shares pursuant to a notice under section 793 of the Companies Act 2006, that member will be unable to vote those shares both in general meeting and at a meeting of shareholders of that class. If such shareholder holds more than 0.25 per cent or more of the issued shares of a class (excluding treasury shares) and is in default of a section 793 notice, the Directors may also state in the notice that: (i) the payment of any dividend shall be withheld; and (ii) that there can be no transfer of the shares held by such shareholder.
Amendment of the Company’s Articles of Association Any amendments to the Company’s Articles of Association may be in accordance with the provisions of the Companies Act 2006 by way of special resolution. The GAME Group plc Annual Report & Accounts 2010-2011 49
Our performance 1 Appointment and removal of Directors The Company may by ordinary resolution appoint a director to the Board. The Company may also by ordinary Directors and resolution remove a director from the Board. Governance 2
Liquidation On a voluntary winding up of the Company the liquidator may, on obtaining any sanction required by law, Our results 3 divide among the members in kind the whole or any part of the assets of the Company, whether or not the assets consist of property of one kind or of different kinds, and vest the whole or any part of the assets in trustees upon such trusts for the benefit of the members as he shall determine.
Substantial shareholdings As at 31 March 2011, the Board had been notified of, or was otherwise aware of, the following holdings of 3 per cent or more of the Company’s share capital.
Number of ordinary shares % holding Franklin Templeton 29,746,224 8.56 Aberforth Partners LLP 25,894,593 7.45
Ameriprise Financial Inc. 17,014,609 4.90 Wells Capital Management Inc. 14,302,232 4.12 Liberty Square Asset Management, LLC 12,981,086 3.74 Legal & General Investment Management Limited 12,038,999 3.46 Capital Research Global Investors 12,034,000 3.46 M&G Investment Management Limited 11,556,860 3.33 Toscafund Asset Management LLP 10,495,818 3.02
Annual General Meeting (“AGM”) Full details of the Annual General Meeting of The GAME Group plc to be held on 15 June 2011 at 10.00 a.m. at Unity House, Telford Road, Basingstoke, Hampshire RG21 6YJ, together with explanations of the resolutions to be proposed at the AGM, are set out in the AGM notice accompanying this Report.
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.
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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.
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. The GAME Group plc Annual Report & Accounts 2010-2011 51
Our performance 1 Directors’ responsibility statement pursuant to DTR4 The Directors confirm to the best of their knowledge: Directors and Governance • The Group financial statements have been prepared in accordance with International Financial Reporting 2 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. Our results 3 • 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.
Treasury risk management Group treasury matters are governed by policies and procedures approved by the Board of Directors. The Group monitors and reviews treasury matters on a regular basis. A written summary of major treasury activity is presented to each Board meeting. The Group’s treasury policies are set out in the Statement of Accounting Policies.
Disclosure of information to auditors So far as each Director at the date of approval of this Report is aware, there is no relevant audit information of which the Company’s auditors are unaware and the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.
Directors’ indemnification provisions The Directors have the benefit of ‘qualifying third-party indemnity provisions’ for the purposes of sections 232 and 234 of the Companies Act 2006 pursuant to the Company’s Articles of Association. A copy of the Articles of Association is available for inspection at the Company’s registered office.
Auditors A resolution to reappoint BDO LLP as auditors will be proposed at the forthcoming Annual General Meeting.
By order of the Board
Vivienne Hemming ACIS Company Secretary
Unity House Telford Road Basingstoke RG21 6YJ
27 April 2011
GAME: Dedicated to gaming 52
Directors’ Remuneration Report
It is the principal aim of the Committee to ensure that remuneration rewards the successful delivery of Group strategy. Executive remuneration packages are structured to encourage exceptional performance and retain key individuals,
David Mansfield, Chairman, taking into account employment Remuneration Committee conditions at all levels.
Remuneration policy The Committee’s policy, for current and future years, is to remunerate the Group’s Executive Directors and management fairly in such a manner as to facilitate the recruitment, retention and motivation of suitably qualified personnel.
Statement of compliance As well as complying with the provisions of the Combined Code as disclosed in the Corporate governance statement and with Schedule 8 of the Large and Medium Sized and Groups (Accounts and Reports) Regulations 2008, the Company has applied the principles relating to directors’ remuneration as described below.
Remuneration Committee The Remuneration Committee comprises David Mansfield as Chairman, together with Christopher Bell, Ishbel Macpherson and Dana Dunne, all independent Non Executive directors. The Chief Executive and Group Finance Director attend the Remuneration Committee meetings when required and the Company Secretary attends meetings as Secretary to the Committee.
The Remuneration Committee is formally constituted with written terms of reference. A copy of those terms is available on the Investors area of the Company’s website, www.gamegroup.plc.uk. The Committee met six times during the year.
The Board has overall responsibility for Directors’ remuneration, but has delegated this responsibility to the Committee. The Committee is responsible for all aspects of remuneration for the Executive Directors and for determining the policy of the remuneration of the Directors of the principal operating subsidiaries. The remuneration of the Chairman is determined by the Board, excluding the Chairman.
The remuneration of the Non Executive Directors is determined by the Board. No Director plays a part in any decision about his or her own remuneration.
The measurement of their performance and the determination of the annual remuneration package of the Executive Directors is undertaken by the Remuneration Committee who utilise the services of external professional advisers to assist them in this area and take into account the annual remuneration packages of executives within the Company’s peer group. The GAME Group plc Annual Report & Accounts 2010-2011 53
Our performance 1 The Remuneration Committee may seek external advice generally and may also call on specialist advice on areas such as pensions. During the period ended 31 January 2011, the Committee engaged Deloitte to advise Directors and on the joining benefits awarded to Ian Shepherd on his appointment as Chief Executive. The Committee also Governance 2 sought the advice of the Company Secretary on various aspects of the share schemes currently deployed within the Group. Since his appointment in November 2010, the Group HR Director has regularly advised the Our results Committee on various aspects of remuneration. 3
During the year, the Committee has made changes to the performance related bonus scheme and to salary levels for the Executive Directors. Further details are provided on pages 55 and 61. The Remuneration Committee will continue to monitor and review the remuneration policy and remuneration arrangements to ensure that the structure and associated performance measures remain appropriately aligned with the Company’s strategic objectives. The individual salary, bonus and benefit levels of the executive Directors are, and will continue to be, reviewed annually by the Committee.
Balance of fixed and variable remuneration components The main elements of the remuneration package are basic salary, benefits, performance related bonus, pension contributions and share based long term incentives. Part of the remuneration policy is to ensure that a significant proportion of overall remuneration is performance related. The balance of components coupled with measures linked to both individual and company performance ensures that GAME encourages and rewards excellent business performance and shareholder returns. The following diagrams illustrate the balance between fixed and variable remuneration based on the remuneration policy for 2010/11:
33 35 Base Salary and Pension Contributions Performance Related Bonus (max 50% cash element) Long term incentive (max %) Chief Group Finance Executive Director % % 20 18 47 47 Ian Shepherd Ben White
Base salaries The Remuneration Committee aims to pay competitive salaries having regard to market practice, internal relativities, performance and affordability. Salaries for senior management below main Board level are benchmarked against appropriate market comparisons and taken into account by the Committee when it is considering the remuneration of the Executive Directors. The Committee also remains sensitive to the pay and employment conditions elsewhere in the Group, especially when determining base salary increases.
Each element of remuneration payable to Executive Directors is discussed in more detail below. The Non Executive Directors receive a fee for their services (see table on page 61), they do not have service contracts and are not eligible for share awards or pension benefits.
Ex-gratia payments In November 2010 Christopher Bell was awarded an ex gratia payment of £182,500 in recognition of his contribution to the Company in his role as Director, following the departure of Lisa Morgan and up until the appointment of Ian Shepherd. On 19 May 2010, the Committee awarded Ben White a discretionary, one off, cash payment of £50,000 to recognise his increased responsibility and outstanding performance during the same period.
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Directors’ Remuneration Report continued
Basic salary and benefits Basic salaries for all Executive Directors are reviewed annually by the Committee. In addition to basic salary, each Executive Director is entitled to the following main benefits:
• 25 days’ holiday per annum;
• fully expensed company car or cash equivalent;
• critical illness cover and permanent health insurance;
• health cover for themselves, their spouse and minor children; and
• life assurance cover equal to four times basic salary.
Subject to approval by the Board, Executive Directors are permitted to accept outside appointments. On appointment, Ian Shepherd was given permission to keep an external consultancy position he holds with Finsphere Corporation, a US corporation. Under the terms of the consultancy, Mr Shepherd, provides occasional telephone and email advice amounting to no more than five hours per month. Compensation for services takes the form of non statutory stock options which the Board has allowed Mr Shepherd to keep.
Performance related bonus – principal features of the scheme in place during the year ended 31 January 2011 As referred to above, part of the Remuneration Committee’s policy on remuneration is to ensure that a significant proportion of overall remuneration is performance related. In the year ended 31 January 2011, the executive bonus scheme had the following principal features:
• the potential bonus opportunity for all Executive Directors was restricted to 125 per cent and for Ian Shepherd 150 per cent of base salary;
• 50 per cent of the bonus opportunity was determined by reference to stretching profit targets, with the other 50 per cent being determined by reference to clear objectives set for each Executive Director; and
• to align further the interests of Executive Directors with those of shareholders, only the first half of the maximum bonus potential would be paid in cash, with any excess deferred into contingent shares for three years, in line with the rules of The GAME Group plc Deferred Bonus Scheme 2004. During this period, the Executive would not be entitled to receive dividends on those shares and they will be subject to forfeiture if the Executive voluntarily resigns or is dismissed. There are, however, no further performance targets attached to the award.
The bonus opportunity for subsidiary company Directors did not exceed that of the Executive Directors and may be subject to similar deferral arrangements.
Performance related bonus – agreed bonus levels for the year ended 31 January 2011 The Remuneration Committee has reviewed the Executive Directors’ performance during the year and the financial performance of the Company. After taking into account current market conditions and the pay and conditions of other employees in the Group, the Executive Directors informed the Committee that they waived their right to any bonus deemed payable. It was therefore agreed by the Remuneration Committee that no bonuses would be awarded to the Executive Directors for the year ended 31 January 2011. The GAME Group plc Annual Report & Accounts 2010-2011 55
Our performance 1 Performance related bonus
Total Total Directors and Governance Cash Deferred bonus bonus 2 payment shares 2010/11 2009/10
£ £ £ £ Our results 3 Ian Shepherd – – – – Ben White – – – 130,000
Performance related bonus – principal features of the scheme put in place for the year ending 31 January 2012 The principal features of the bonus scheme for the present financial year are as follows:
• the potential bonus opportunity for Executive Directors will be restricted to 150 per cent and 125 per cent of base salary for the Chief Executive and Group Finance Director, respectively;
• 50 per cent of the bonus opportunity will be determined by reference to stretching profit targets, with the other 50 per cent being determined by reference to clear objectives set for each Executive Director;
• the three key metrics, aligned with the new strategy and against which the Executive Directors’ objectives are set as part of the non-profit targets attached to the performance related bonus are:
• operating efficiency;
• market share; and
• online and digital revenue growth
• to align further the interests of Executive Directors with those of shareholders, only the first half of the maximum bonus potential will be paid in cash with any excess to be deferred into contingent shares for three years, in line with the rules of The GAME Group plc Deferred Bonus Scheme 2004. During this period, the Executive will not be entitled to receive dividends on those shares and they will be subject to forfeiture if the executive voluntarily resigns or is dismissed. There will be, however, no further performance targets attached to the award.
Directors’ pension policy The Executive Directors are entitled to receive company contributions to their defined contribution pension schemes at a prescribed percentage rate of basic salary, which in 2011 is 20 per cent. This will remain unchanged in the present financial year.
Long-term incentives The Committee believes that share ownership by Executive Directors strengthens the link between their personal interests and those of shareholders.
The Performance Share Plan (the “Plan”) was introduced in 2004 to replace the 1998 Executive Share Option Scheme (“the 1998 Scheme”). Following the introduction of the Plan, no further grants of options to the Executive Directors were made under the 1998 Scheme.
The following disclosures (up to and including page 60) on Directors’ remuneration have been audited, as required by Part 3 of Schedule 8 of the Large and Medium-sized Companies & Groups (Accounts and Reports) Regulations 2008.
Performance Share Plan Under the Plan, eligible employees may receive a conditional award of shares, which will normally be released on the third anniversary after the grant, subject to continued employment and the achievement of challenging performance conditions, based on earnings per share (“EPS”). This measurement was chosen as representing the most appropriate basis as EPS growth should lead to an improvement in share price for the benefit of all
GAME: Dedicated to gaming 56
Directors’ Remuneration Report continued
shareholders. The targets range from EPS growth at the rate of RPI + 15 per cent over a fixed three year period (at which 25 per cent of any Award will vest) increasing on a straight-line basis to full vesting for EPS growth of at least RPI + 30 per cent. No consideration was paid for the grant of any of the below Awards.
The Committee attached more challenging vesting criteria to Mr Shepherd’s award over 1,301,518 shares on 29 September 2010. This award will be released on the fourth anniversary of Mr Shepherd joining the Board, subject to continued employment and the achievement of challenging performance conditions which are:
• That the award will vest in full if the Company’s average share price over the 60 day period prior to the fourth anniversary of Mr Shepherd’s appointment is at or above 300p. This represents a more than threefold increase in the share price from the price prior to the announcement of his appointment of 88p.
• That there will be threshold vesting of 20% of the award for an average share price of 200p, representing a price in excess of double the share price at the announcement of his appointment.
• That for an average share price in between 200p and 300p, vesting will be calculated on a straight line basis.
• In addition, the Remuneration Committee of the Board of Directors retained the discretion to reduce the vesting of the award to remove any unnatural fluctuations in the share price it believes do not reflect the true underlying performance and value of the company.
The Executive Directors have Awards under the Plan as follows:
Performance Share Plan
At At date of 01 Feb 2010 cessation of Market Market (or date of Awarded Lapsed appointment Exercised value of value of Earliest Date of appointment during during (where during At 31 Jan share at share at date of Expiry Name grant if later) the year the year applicable) the year 2011 grant exercise exercise date Ian Shepherd1 29-Sep-10 – 1,301,5184 – N/A – 1,301,518 60.0p – 28-Jun-14 28 June-15
Ben White 25-May-07 23,578 – – N/A 23,5785 – 179.0p 60.0p 25-May-10 25-Nov-10 29-May-08 17,575 – – N/A – 17,575 288.5p – 29-May-11 29-Nov-11 14-Jul-09 179,309 – – N/A – 179,309 145.0p – 14-Jul-12 14-Jul-13 29-Sep-10 – 185,109 – N/A – 185,109 0.60p – 29-Sep-13 29-Sep-14
Lisa Morgan2 25-May-07 190,211 – – 190,211 190,2116 – 179.0p 74.0p 25-May-10 20-April-11 29-May-08 155,957 – – 155,957 – 155,9577 288.5p – 29-May-11 29-Nov-11 14-Jul-09 305,999 – 102,000 305,999 – 203,9997 145.0p – 14-Jul-12 14-Jul-13 Terry Scicluna3 03-Nov-08 215,384 – 215,3848 – – – 130.0p – 03-Nov-11 03-May-12 14-Jul-09 224,137 – 224,1378 – – – 145.0p – 14-Jul-12 14-Jul-13
Notes 1 Ian Shepherd was appointed on 28 June 2010. 2 Lisa Morgan stepped down as CEO and resigned as a Director on 21 April 2010 and her employment ended on 20 October 2010. 3 Terry Scicluna stepped down as COO and his employment ended on 30 June 2010. Ian Shepherd 4 The award was made on 29 September 2010 and will vest, subject to performance conditions, on 28 June 2014. Ben White 5 Ben White made a gain of £6,931.83 net of deductions for any applicable tax and national insurance contributions on the exercise of his award on 29 September 2010. The GAME Group plc Annual Report & Accounts 2010-2011 57
Our performance Notes to the Performance Share Plan (continued) 1 Lisa Morgan 6 Under the rules of the Plan, a proportion of the awards held at that date were capable of vesting, subject to achievement of Directors and Governance the relevant EPS performance conditions. Accordingly, 100 per cent in respect of award made on 25 May 2007 vested and 2 was exercised on 29 July 2010. The total gain net of deductions for any applicable tax and national insurance contributions was £68,970.51. 7 100 per cent of the award made on 29 May 2008 and 66.66 per cent of the Award made on 14 July 2009, equating to Our results 3 203,999 shares, are capable of vesting. Terry Scicluna 8 Under the rules of the Plan these Awards lapsed when he left the Company.
The exercise price for the above awards is £1 for the entire amount of the ordinary shares to which an Award relates. The Awards are not subject to retesting and awards granted before 2 July 2009 will normally expire six months after the earliest exercise date. Awards granted after 2 July 2009 will normally expire 12 months after the earliest exercise date.
Any ordinary shares required to fulfil entitlements under the Plan are provided by the Employee Benefit Trust. As at 31 January 2011, the Employee Benefit Trust held 3,297,275 ordinary shares (2010: 2,368,001 ordinary shares).
1998 Executive Share Option and Sharesave Schemes The market price of an Ordinary Share at the end of the financial year was 67.0p. The highest share price during the year was 103.1p and the lowest price was 58.5p.
No consideration was paid for the grant of any of the below options.
In 2008/09, the Group modified the process for the exercise of unapproved share options which means the employees have a choice of settlement. The employee is able to settle their options by receiving shares or cash. There has been no change in the fair value of these awards as a result of these changes.
As at 6 April 2011, there are outstanding options under the 1998 Scheme to subscribe for 377,409 ordinary shares pursuant to employees’ share schemes, which represent 0.11 per cent of the issued share capital. If the authority to purchase ordinary shares were used in full, the options would represent 0.12 per cent of the issued share capital.
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Directors’ Remuneration Report continued
1998 Executive Share Option and Sharesave Schemes Under these schemes, the following options, held by Executive Directors during the period, are outstanding:
At date of cessation Exercised Earliest At 1 Feb of appoint- during the At 31 Jan Exercise date of Expiry Name Type 2010 ment year 2011 Price exercise Date Lisa Morgan1 Approved 18,900 18,900 – 18,9004 138.0p 01-May-05 20 Oct 11 Unapproved 401,700 401,700 401,7002 – 56.0p 07-May-06 20 Oct 11 Unapproved 378,100 378,100 378,1003 – 59.5p 14-May-06 20 Oct 11
1 Lisa Morgan stepped down as CEO and resigned as a Director on 21 April 2010 and her employment ended on 20 October 2010. 2 401,700 options were exercised on 14 May 2010 in accordance with the Rules of the 1998 Executive Share Option Scheme. The share price on the date of exercise was 96p. Lisa Morgan made a gain of £78,733,20 net of deductions for any applicable tax and national insurance contributions. 3 145,555 options were exercised on 14 May 2010, the share price on the date of exercise was 96p. The total gain net of deductions for any applicable tax and national insurance contributions was £26,032.51. The remaining 232,545 options were exercised on 29 July 2010 in accordance with the Rules of the 1998 Executive Share Option Scheme. The share price on the date of exercise was 72p. The total gain net of deductions for any applicable tax and national insurance contributions was £14,214.88. 4 18,900 options remain exercisable until 20 October 2011 in accordance with the Rules of the 1998 Executive Share Option Scheme.
Restricted Share Plan On 24 March 2010, the Board of Directors adopted The GAME Group plc Restricted Share Plan (the “Restricted Plan”). The principal features of the Restricted Plan are as follows:
• The Restricted Plan rules specifically exclude any Statutory Director of the Company from receiving an award and awards cannot be satisfied by the Company issuing new shares, instead any awards can only be satisfied by shares already in issue.
• Participants are not required to pay for the making of an award to them and awards constitute a restricted share award over ordinary shares in the Company;
• The restriction attaching to an award will ordinarily be limited to an employee remaining employed by the Company on the second anniversary of grant (at which point 1/3 of an award will vest) and the third anniversary of grant (at which point any remaining amount of the award will vest);
• Participants are not entitled to dividends and voting rights during the period in which the shares are restricted;
• Should an employee voluntarily cease employment with the Company or is dismissed, then the unvested portion of any awards will automatically lapse, and;
• The maximum market value of awards that could be made to a participant in any one year is 100 per cent of salary in that year.
Awards over 1,083,334 shares are currently outstanding. No awards under the Restricted Plan will be granted in 2011. The GAME Group plc Annual Report & Accounts 2010-2011 59
Our performance 1 Directors’ interests in shares The interests of the Directors, and their connected persons, at 31 January 2011 in the share capital of the Directors and Company and options to purchase such shares were as follows: Governance 2
31 January 2011 (or date of 31 January 2010 (or date of Our results cessation of appointment if earlier) appointment if later) 3
Share options, Share options, Performance Performance Share plan Share plan awards and awards and Deferred Bonus Deferred Bonus Ordinary Shares awards Ordinary Shares awards Peter Lewis 66,666 – 66,666 – Ian Shepherd1 25,000 1,301,578 – – Ben White 33,578 514,578 10,000 220,462 Christopher Bell – – – – Ishbel Macpherson 33,200 – 33,200 – David Mansfield2 – – – – Dana Dunne – – – – Lisa Morgan3 600,488 1,743,623 600,488 1,743,623 Terry Scicluna4 10,000 – 10,000 439,521
1 Ian Shepherd was appointed on 28 June 2010. 2 David Mansfield was appointed 16 April 2010. 3 Lisa Morgan stepped down as CEO and resigned as a director on 21 April 2010 and her employment ended on 20 October 2010. 4 Terry Scicluna stepped down as COO and his employment ended on 30 June 2010.
There have been no changes to this information during the period 1 February 2011 to 27 April 2011.
Executive Director shareholding requirements The Remuneration Committee has confirmed to the Executive Directors that in order further to align their interests with those of the shareholders, it is desirable for them to hold shares to the value of at least 100 per cent of salary. This shareholding should be achieved over a three year period. The deferred share element of Executive Directors’ bonuses, which are held in trust, are taken into account when calculating the value of the shares the Executive Directors hold.
Total value of shares Total Shares Value at Shares Value at held at value as a held 27 April held in 27 April 21 April percentage directly 2011 Trust 2011 2010 of salary Ian Shepherd¹ 25,000 £12,562 – – – 3% Ben White 33,578 £16,872 132,585 £66,623 £8,925 27%
1 Ian Shepherd was appointed on 28 June 2010.
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Directors’ Remuneration Report continued
Directors’ emoluments The emoluments of the Directors were as follows:
Perfor- Comp- mance ensation Pension Basic related Benefits Ex-gratia for loss Total emoluments contributions salary bonus in kind Benefits Fees payments of office 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Executive Ian Shepherd1 268 – – 12 – – – 280 – 54 – Ben White 310 – – 20 – 50 – 3805 366 62 37 Lisa Morgan2 319 – 18 – – – 285 622 535 64 89 Terry Scicluna3 151 – 10 – – – – 161 356 27 65 Non Executive Peter Lewis – – 5 – 150 – – 155 155 – – Christopher Bell – – – – 45 183 – 2286 45 – – Dana Dunne – – – – 40 – – 40 2 – – Ishbel Macpherson – – – – 50 – – 50 46 – – David Mansfield4 – – – – 32 – – 32 ––– Total 1,048 – 33 32 317 233 285 1,948 1,505 207 191
1 Ian Shepherd was appointed on 28 June 2010. 2 Lisa Morgan stepped down as CEO and resigned as a Director on 21 April 2010 and her employment ended on 20 October 2010. 3 Terry Scicluna stepped down as COO and his employment ended on 30 June 2010. 4 David Mansfield was appointed on 16 April 2010. 5 Includes ex-gratia payment of £50,000 paid to Ben White for increased responsibility and outstanding performance during the period immediately following the departures of the previous Chief Executive and Chief Operating Officer and salary of £310,000. 6 Includes ex-gratia payment of £182,500 paid to Christopher Bell recognition of his contribution to the Company in his role as Director, following the departure of Lisa Morgan up until the appointment of Ian Shepherd and fees of £45,000.
All pension contributions are to defined contribution pension schemes.
Benefits incorporate all assessable tax benefits arising from employment by the Company, which relate mainly to the provision of a company car.
There are no contractual retirement dates included within the Executive Directors’ service contracts.
Termination arrangements The Company paid Lisa Morgan the following amounts after her contract terminated on 20 October 2010:
£ Compensation for loss of office 54,317 Payment in Lieu of Notice (pursuant to Lisa Morgan’s contract of employment) 230,261 Total 284,578 The GAME Group plc Annual Report & Accounts 2010-2011 61
Our performance 1 Details of the option exercises under the 1998 Share Option Scheme and release of shares under the Performance Share Plan for Lisa Morgan are set out above in the notes under the summary table for the Directors and Scheme and plan respectively. Governance 2
Terry Scicluna stepped down as COO and his employment ended on 30 June 2010. He received no compensation for loss of office. Our results 3 Service contracts Ian Shepherd and Ben White are employed under service agreements dated 28 June 2010 and 2 July 2009 respectively. These agreements are subject to 12 months’ notice of termination on either side. Under the contracts the Company has reserved the right to terminate by paying a sum in lieu of notice equal to annual basic salary. This sum can be paid as a lump sum or in 12 instalments, at the Company’s discretion. There is no other provision for compensation payable on early termination of these contracts.
Current terms of employment of Executive Directors The current terms of appointment of the Executive Directors are as follows:
Date of original Notice Basic salary appointment Contract Term Date of contract period £ p.a. Ian Shepherd 28 June 2010 Rolling 28 June 2010 12 months’ notice 450,000 Ben White 17 October 2005 Rolling 2 July 2009 12 months’ notice 310,000
Current terms of appointment of Non Executive Directors The current terms of appointment of the Non Executive Directors are as follows:
Date of original Date of next Annual fee appointment Date of contract Expires election £ p.a. Peter Lewis 28 November 1995 1 December 2009 1 December 2012 2011 AGM 155,000¹ Christopher Bell 27 January 2003 28 January 2009 27 January 2012 2011 AGM 45,000² Dana Dunne 1 February 2010 1 February 2010 1 February 2013 2011 AGM 40,000 Ishbel Macpherson 3 October 2005 3 October 2008 3 October 2011 2011 AGM 45,000³ David Mansfield 15 April 2010 15 April 2010 15 April 2013 2011 AGM 45,000³
1 Includes £5,000 in respect of Chairmanship of a Board committee and £5,000 contribution to office expenses. 2 Includes £5,000 as Senior Non Executive Director. 3 Includes £5,000 in respect of Chairmanship of a Board committee.
There are no provisions for compensation payable upon early termination of any of the above appointments.
The following graph compares the total return on the Company’s shares with that of general retailers in the FTSE All-Share Index over the last five years. This index has been chosen as it is considered the most likely benchmark by which the majority of shareholders would want to assess their investment in a company the size of The GAME Group plc.
GAME: Dedicated to gaming 62
Directors’ Remuneration Report continued
Performance growth – Five years from 31 January 2006 to 31 January 2011
350
300
250
200
150
100
Rebased to GAME (GBp) 50
0 Jan -06 Jan -07 Jan -08 Jan -09 Jan -10 Jan -11
The GAME Group Plc FTSE All-Share General Retailers
Annual General Meeting In accordance with the requirements of s.439 of the Companies Act 2006, a resolution will be proposed at the forthcoming Annual General Meeting to approve this Directors’ Remuneration Report.
On behalf of the Board
David Mansfield Chairman, Remuneration Committee 27 April 2011 The GAME Group plc Annual Report & Accounts 2010-2011 63
Our results
Our performance 1
Directors and Governance 2
Our results 3
64-116 Our results
64 Independent Auditor’s Report
66 Consolidated Statement of Comprehensive Income
67 Consolidated Balance Sheet
68 Statement of Changes in Equity
69 Consolidated Statement of Cash Flows
70 Statement of Accounting Policies
79 Notes to the Financial Statements
107 Company Balance Sheet
108 Notes to the Company Balance Sheet
114 Five-Year Summary
115 Shareholder Information
GAME: Dedicated to gaming 64
Independent Auditor’s Report to the members of The GAME Group plc
We have audited the financial statements of The GAME Group plc for the year ended 31 January 2011 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Parent Company Balance Sheet and the related notes. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and the Parent Company’s affairs as at 31 January 2011 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the Group financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006 In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. The GAME Group plc Annual Report & Accounts 2010-2011 65
Our performance 1 Matters on which we are required to report by exception We have nothing to report in respect of the following: Directors and Governance Under the Companies Act 2006 we are required to report to you if, in our opinion: 2
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit Our results have not been received from branches not visited by us; or 3
• the Parent Company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ statement in relation to going concern;
• the part of the corporate governance statement relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review; and
• certain elements of the report to shareholders by the Board on Directors’ remuneration.
Mr David Eagle (Senior Statutory Auditor) For and on behalf of BDO LLP, statutory auditor London United Kingdom 27 April 2011
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
GAME: Dedicated to gaming 66
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. The notes on pages 70 to 106 form part of these financial statements. The GAME Group plc Annual Report & Accounts 2010-2011 67
Consolidated Balance Sheet as at 31 January 2011 Registered no. 875835 Our performance 1 Restated Restated 2011 2010 2009 Directors and Note £’000 £’000 £’000 Governance 2 Non-current assets
Property, plant and equipment 11 109,122 128,588 134,141 Our results 3 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
The notes on pages 70 to 106 form part of these financial statements.
GAME: Dedicated to gaming 68
Statement of Changes in Equity for the year ended 31 January 2011
Capital Shares Foreign Share Share redemption held in Merger Retained exchange capital premium reserve Trust reserve earnings reserve Total £’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 on translation of foreign currency net investment in subsidiaries – – – – – – 3,920 3,920 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 on translation of foreign currency net investment in subsidiaries – – – – – – 2,921 2,921 Income tax on share-based payments – Deferred tax – – – – – 370 – 370 – Current tax – – – – – 37 – 37
Net income recognised directly in equity – – – – – 407 2,921 3,328 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. The GAME Group plc Annual Report & Accounts 2010-2011 69
Consolidated Statement of Cash Flows for the year ended 31 January 2011 Our performance 1 Restated 2011 2010 Directors and Note £’000 £’000 Governance 2
Cash flow from operating activities Operating profit 28,475 88,590 Our results 3 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
The notes on pages 70 to 106 form part of these financial statements.
GAME: Dedicated to gaming 70
Statement of Accounting Policies
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 29 January 2011.
The consolidated financial statements have been prepared on a historical cost basis with the exception of derivative financial instruments which have been measured at fair value.
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.
Estimates and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Significant items subject to such assumptions and estimates include the useful lives of assets, the measurement and recognition of provisions, the recognition of deferred tax assets and liabilities for potential corporation tax. The most critical accounting policies in determining the financial condition and results of the Group are those requiring the greatest degree of subjective or complex judgements. These relate to Droit au Bail; lease costs; the valuation of goodwill and acquired intangible assets; share-based payments and taxation. These also relate to inventory valuation where the most complex area of judgement is in respect of any obsolescence provision required. These are assessed based on the stock of each item compared to demand.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
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. The GAME Group plc Annual Report & Accounts 2010-2011 71
Our performance 1 Adoption of new and revised standards Standards and interpretations effective in the current period Directors and Governance In the current period the Group has adopted the following standards: 2
International Accounting Standards (IAS/IFRS) Effective Date Our results 3 IAS 39 Financial Instruments: Recognition and measurement: Eligible Hedged Items 01/07/2009 amendment IAS 32 Financial instruments: presentation amendment 01/02/2010 IFRS 1 Additional exemptions for First Time adopters amendments 01/01/2010 IFRS 2 Group Cash-settled Share-based payment Transactions amendments 01/01/2010 Improvements to IFRSs Various
There has been no effect on the results, cash flows, financial position of the Group or their presentation as a result of the adoption of these standards.
Five interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current year as follows:
International Financial Reporting Interpretations Committee (IFRIC) Effective Date IFRIC 16 Hedges of a Net Investment in a Foreign Operation 01/01/2009 IFRIC 9 Embedded derivatives amendments 30/06/2009 and IAS 39 IFRIC 15 Agreements for the Construction of Real Estate 01/01/2009 IFRIC 17 Distributions of Non-cash assets to owners 01/07/2009 IFRIC 18 Transfers of assets from customers 01/07/2009
The adoption of these Interpretations has not led to any changes in the Group’s accounting policies.
Standards and Interpretations in issue not yet adopted The International Accounting Standards Board and the International Financial Reporting Interpretations Committee have issued the following standards and interpretations to be applied to financial statements with periods commencing on or after the following dates:
International Accounting Standards (IAS/IFRS) Effective Date IFRS 1 First-time adoption of IFRS amendment 01/07/2010 IAS 24 Related Party Disclosures amendment 01/01/2011 IFRS 7* Disclosure of transfers of financial assets amendment 01/07/2011 IFRS 1* Severe hyperinflation and removal of fixed dates for first-time adopters 01/07/2011 amendment IAS 12* Deferred tax: recovery of underlying assets amendment 01/01/2012 IFRS 9* Financial Instruments 01/01/2013 Improvements to IFRSs Various
GAME: Dedicated to gaming 72
Statement of Accounting Policies (continued)
International Financial Reporting Interpretations Committee (IFRIC) Effective Date
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments 01/07/2010 IFRIC 14 The limit on a defined benefit asset, minimum funding requirements and 01/01/2011 and IAS 19 their interaction amendment
*These standards and interpretations are not endorsed by the EU at present.
The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application.
Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain the benefits from its activities.
The results of the subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.
All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation. A list of the principal subsidiaries is included in Note 15 to the Company Financial Statements.
Revenue Revenue comprises the value of sales (excluding VAT and similar taxes, trade discounts and intra-Group transactions) of goods provided in the normal course of business. Revenue is recognised at the point of sale, for high street retailing, to the extent that it is probable that the economic benefits will flow to the Group. Online revenue is recognised when the goods are despatched.
Non-recurring costs The Group presents as “Non-recurring costs” on the face of the income statement those costs which, because of the nature and expected infrequency of events giving rise to them, merit separate presentation to allow shareholders to better understand the financial performance in the year. The Group’s policy is to expense these costs in the period in which they are incurred.
Non-recurring costs include the costs of restructuring businesses.
Loyalty card scheme The Group operates a loyalty card scheme which allows members to accumulate points on purchases, get exclusive offers and other special benefits. The value of points issued is deferred and recognised as revenue on redemption of the points by the customer. The GAME Group plc Annual Report & Accounts 2010-2011 73
Our performance 1 Gift vouchers Revenue from gift vouchers and gift cards sold by the Group is recognised on the redemption of the gift Directors and voucher or gift card. Monies received are shown as deferred revenue prior to redemption. Governance 2
Foreign currencies The functional and presentational currency of the Group is pounds sterling. Our results 3 Foreign currency transactions of individual companies are translated at the exchange rates ruling when they occurred. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet dates.
The results of overseas operations are translated at the average rates of exchange during the year and their balance sheets translated into sterling at the rates of exchange ruling on the balance sheet dates. Foreign exchange differences arising on translation of the opening net assets of foreign subsidiary undertakings and from translating the profit and loss account at an average rate are taken to reserves.
On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss on disposal.
Goodwill arising on the acquisition of a foreign operation and fair value adjustments are treated as assets/ liabilities of the foreign operation and are expressed in the functional currency of the foreign operation. Goodwill and fair value adjustments are translated at the closing rate in the same manner as any other assets and liabilities. The Group has taken advantage of the provisions under IFRS 1 to avoid applying this to acquisitions made before the transition date (1 February 2004).
Interest Interest payable is charged to the income statement as incurred.
Dividends The annual final dividend is not provided for until approved at the Annual General Meeting, whilst interim dividends are charged in the period they are paid.
Goodwill and other intangibles Goodwill arising on the acquisition of a subsidiary undertaking is the difference between the fair value of the consideration paid and the fair value of the assets and liabilities acquired.
Goodwill is recognised as an asset and reviewed for impairment at least twice a year. The impairment review is assessed by reference to the value-in-use, using internal forecasts and a discount rate based on the Group’s weighted average cost of capital. The use of this method requires the estimation of future cash flows and the choice of a suitable discount rate in order to calculate the present value of these cash flows. Any impairment is recognised immediately in the income statement and is not subsequently reversed.
The valuation of intangible assets acquired through business combinations is based on assumptions and the Directors draw upon a variety of external sources to aid them in the determination of appropriate data to use such valuations. Brands acquired through business combinations are amortised on a straight-line basis over their expected useful life. Amortisation is charged to the operating expenses line in the Consolidated Statement of Comprehensive Income.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRS (1 February 2004) has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date.
GAME: Dedicated to gaming 74
Statement of Accounting Policies (continued)
Other intangible assets including Droit au Bail (a type of French key money) are not amortised as the assets are assessed as having indefinite useful lives. These assets are subject to annual impairment reviews. An indefinite useful life is deemed appropriate for these assets as their value does not diminish systematically over time and they can normally be re-sold.
Impairment of Tangible and Intangible Assets excluding Goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value-in-use. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.
Property, Plant and Equipment Property, Plant and Equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is provided to write off the cost less estimated residual values of all property, plant and equipment, on a straight-line basis, over their expected useful lives at the following annual rates:
Short leasehold property – over period of lease Improvements to leasehold property – 10% Freehold land – 0% Freehold property – 1% to 5% Fixtures, fittings and equipment – 20% to 33%
The residual values of Property, Plant and Equipment are re-assessed on an annual basis.
Computer Software and Web Development Computer software and web development are accounted for as intangible assets where the criteria of IAS 38 “Intangible Assets” has been met. Intangible assets are valued at cost and are amortised on a straight-line basis over five years. Amortisation is charged to the operating expenses line in the Consolidated Statement of Comprehensive Income. Intangible assets with finite lives are reviewed for impairment if there is any indication that the carrying value may not be recoverable.
Leased assets Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged The GAME Group plc Annual Report & Accounts 2010-2011 75
Our performance 1 directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs. Directors and Governance Rentals payable under operating leases are charged to income on a straight-line basis over the term of the 2 relevant lease. Our results Premiums paid or received on the acquisition of short leasehold properties are transferred to the income 3 statement on a straight-line basis over the length of the lease.
Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated to include, where applicable, duties, handling, transport and other directly attributable costs.
Net realisable value is based on estimated normal selling prices less further costs expected to be incurred in selling and distribution.
Provisions A provision is recognised when the Group has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, expected future cash flows are discounted using a current pre-tax rate that reflects the risks specific to the liability. Calculations of these provisions require judgements to be made, which include forecast consumer demand and inventory loss trends.
Taxation The tax expense represents the sum of the tax currently payable and deferred tax.
Current Tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from the net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred Tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
GAME: Dedicated to gaming 76
Statement of Accounting Policies (continued)
Pension contributions The Group makes payments to a number of defined contribution pension schemes. The assets of these schemes do not form part of the assets of the Group. The pension cost charge represents contributions payable during the year.
Share-based payments Share-based incentive arrangements are provided to employees under the Group’s share option, incentive and sharesave schemes. Share options granted to employees and share-based arrangements are valued at the date of grant or award using an appropriate option pricing model and are charged to the income statement over the performance or vesting period of the scheme. The annual charge is modified to take account of shares forfeited by employees who leave during the performance or vesting period and, in the case of non-market related performance conditions, where it becomes unlikely that the option will vest.
When shares and share options are awarded to employees a charge is made to the income statement. The associated deferred tax is charged to the income statement with any excess deferred tax being recorded directly in reserves in accordance with IAS 12.
The Directors are of the opinion that the Black-Scholes model is the most appropriate due to its simplicity and is deemed the most accurate when taking into account the expected timing of the exercise of options. The options model requires highly subjective assumptions to be made and the Directors draw upon a variety of external sources to aid them in the determination of appropriate data to use in such calculations. During the vesting period of share options, an assessment is required of the likelihood of whether non-market performance conditions will be met, which affects the estimate of the number of share options that will vest, and hence the amount charged to the income statement.
Employee Benefit Trust The cost of the Company’s shares held by the Employee Benefit Trust is deducted from the shareholders’ funds in the Group balance sheet. Any cash received by the Trust on disposal of the shares it holds is also recognised directly in shareholders’ funds. Other assets and liabilities of the Trust (including borrowings) are recognised as assets and liabilities of the Group.
Any shares held by the Trust are treated as cancelled for the purposes of calculating earnings per share.
Financial risk management The Group’s treasury function provides a centralised service for the provision of finance and the management and control of liquidity, foreign exchange and interest rates. The function operates as a cost centre and manages the Group’s treasury exposures to reduce risk in accordance with policies approved by the Board.
The Group’s principal financial instruments comprise bank loans, overdrafts, finance leases, cash and short-term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial instruments such as trade receivables and trade payables which arise directly from its operations. The Group also enters into interest rate swap derivative transactions. Their purpose is to assist in the management of the Group’s financial risk. These instruments are also used, where appropriate, to generate the desired effective interest rate profile. The Group hedge accounts for commercial purposes and not for accounting purposes.
It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised on the next page: The GAME Group plc Annual Report & Accounts 2010-2011 77
Our performance 1 Interest rate risk The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s long-term Directors and debt obligations and deposits. The Group’s policy is to manage its interest cost using interest rate swaps. Governance 2
Foreign currency risk Due to the international nature of its activities, the Group’s reported profits, net assets and gearing are all Our results 3 affected by foreign exchange movements.
Although the Group carries out operations through a number of foreign enterprises, Group exposure to currency risk at a transactional level is minimal. The day to day transactions of overseas subsidiaries are carried out in local currencies.
Credit risk The Group trades only with recognised, creditworthy third parties. The Group does not enter into derivatives to manage its credit risk. At the balance sheet date there were no concentrations of credit risk.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and derivative instruments, the Group’s exposure to credit risk arises from default of the counter party with a maximum exposure equal to the carrying amount of these instruments. Derivative counterparties and cash transactions are limited to high credit-quality financial institutions. The Group has policies that limit the amount of credit exposure to any one financial institution. Cash surpluses are placed on deposit only with financial counterparties whose credit ratings exceed the Group’s threshold and managed by specific counter-party limits for each institution.
Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of borrowings with a range of maturities. The Group’s policy on liquidity is to ensure that there are sufficient medium and long-term committed borrowing facilities to meet the medium-term funding requirements.
To achieve this it seeks to maintain cash balances to meet expected requirements for a period of at least 60 days. The liquidity risk for each country is managed centrally. Budgets are set locally but agreed by the Board in advance to enable the Group’s cash requirements to be anticipated.
Financial assets Financial assets are classified into the following specified categories: “financial assets at fair value through profit or loss (“FVTPL”), and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The Group does not hold any “held-to- maturity” investments or “available for sale” financial assets.
Financial assets at FVTPL This category comprises only in-the-money derivatives (see financial liabilities section for out-of-money derivatives). They are carried in the balance sheet at fair value with changes in fair value recognised in the consolidated income statement in finance income or expense line. The Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.
Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables.
Trade and other receivables are initially recognised at fair value and subsequently carried at amortised cost, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. This provision represents the difference between the asset’s carrying amount and the present value of estimated future cash flows. The amount of the provision is recognised in the income statement.
GAME: Dedicated to gaming 78
Statement of Accounting Policies (continued)
Cash and cash equivalents include cash in hand, deposits at call with banks, bank overdrafts and unpresented cheques. Bank overdrafts where there is no right of set off are shown within borrowings in current liabilities on the balance sheet.
Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Financial liabilities and equity instruments Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements. Financial liabilities are classified as either financial liabilities at fair value through profit or loss (FVTPL) or “other financial liabilities”.
Financial liabilities at FVTPL This category comprises only “out of the money” derivatives.
The Group uses derivative financial instruments such as interest rate swaps to hedge its risks associated with foreign exchange or interest fluctuations. Such derivative financial instruments are initially recognised at fair value with subsequent movements in fair value taken to the income statement.
Net interest arising on interest rate agreements is taken to the income statement.
Other than these derivative financial instruments, the Group does not have any liabilities held for trading nor has it designated financial liabilities as being at fair value through profit or loss.
The fair value for the Group’s interest rate swaps derivatives is based on broker quotes for similar instruments.
Other financial liabilities Trade and other payables are recognised on the trade date of the related transactions. Trade payables are not interest-bearing and are stated at their nominal value.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, with any difference between the proceeds (net of transaction costs) and the redemption value recognised in the income statement over the period of the borrowings using the effective interest method.
Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from 2010.
In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. In order to achieve this objective, the Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through altering its dividend policy, new share issues, or the reduction of debt, the Group considers not only its short-term position but also its long-term operational and strategic objectives.
The GAME Group plc Annual Report & Accounts 2010-2011 79
Notes to the Financial Statements for the year ended 31 January 2011 Our performance 1 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 Directors and operations are organised and managed by geographic location only. Management consider the reportable Governance 2 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 Our results the Group. 3
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 International Global stores stores 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)
GAME: Dedicated to gaming 80
Notes to the Financial Statements (continued) for the year ended 31 January 2011
1 Revenue, profit and net assets (continued) United Kingdom and Ireland International Global stores stores 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 goodwill – – – –
Share-based payment expense 2,391 – – 2,391 The GAME Group plc Annual Report & Accounts 2010-2011 81
Our performance 1 1 Revenue, profit and net assets (continued) Directors and 2011 2010 Governance 2 Total % of Total % of
£’000 Total £’000 Total Our results 3 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 % of Total % of £’000 Total £’000 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
GAME: Dedicated to gaming 82
Notes to the Financial Statements (continued) for the year ended 31 January 2011
1 Revenue, profit and net assets (continued)
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
Stores by territory Number Number 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
Trading square footage by territory Sq ft Sq ft
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 The GAME Group plc Annual Report & Accounts 2010-2011 83
Our performance 1 2 Other operating expenses 2011 2010 Directors and £’000 £’000 Governance 2 Selling and distribution 316,078 324,198
Administrative expenses 82,843 79,904 Our results 3 398,921 404,102
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 £8.5 million of non-cash items including the write-off of goodwill in respect of Australia, together with the write-off off certain assets. The remaining £6.2 million 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.
GAME: Dedicated to gaming 84
Notes to the Financial Statements (continued) for the year ended 31 January 2011
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.
Details of Directors’ remuneration are included within the Directors’ Remuneration Report on pages 52 to 62. The GAME Group plc Annual Report & Accounts 2010-2011 85
Our performance 1 8 Taxation Directors and (a) Analysis of charge in the year Governance 2 2011 2010 £’000 £’000 Our results 3 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) Change in tax rates 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.
GAME: Dedicated to gaming 86
Notes to the Financial Statements (continued) for the year ended 31 January 2011
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 share Basic 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
The total potentially dilutive share options are disclosed in Note 20d. There are 475,452 anti-dilutive share options in the current year (2010: 648,948). The GAME Group plc Annual Report & Accounts 2010-2011 87
Our performance 1 11 Property, plant and equipment Short Directors and Freehold leasehold Improvements Fixtures, Governance 2 land and land and to leasehold fittings and property property property equipment Total £’000 £’000 £’000 £’000 £’000 Our results 3 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 46,362 128,588
At 31 January 2009 18,951 12,333 57,841 45,016 134,141
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.
GAME: Dedicated to gaming 88
Notes to the Financial Statements (continued) for the year ended 31 January 2011
12 Intangible fixed assets Computer Goodwill Brands software Droit 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 32,533 212,668
At 31 January 2009 160,452 15,888 5,927 31,468 213,735
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 The GAME Group plc Annual Report & Accounts 2010-2011 89
Our performance 1 12 Intangible fixed assets (continued) For the purposes of impairment testing, the goodwill is allocated to the lowest levels for which there are Directors and separately identifiable cash flows, known as cash-generating units. The carrying amount of goodwill allocated Governance 2 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 Our results International are made up of a number of cash-generating units which are individually, and in aggregate, 3 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: UK and Ireland International 2011 % % Pre-tax discount rate 12.3 12.0-13.5 Long-term growth rate 3.0 3.0
UK and Ireland International 2010 % % 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 programme 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 £3.4 million.
The carrying value of goodwill includes an amount of £6 million acquired goodwill in France. An increase in the discount rate to 13% or reduction in forecast profit of 20% would cause an impairment of £1 million 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.
GAME: Dedicated to gaming 90
Notes to the Financial Statements (continued) for the year ended 31 January 2011
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 The GAME Group plc Annual Report & Accounts 2010-2011 91
Our performance 1 15 Trade and other payables (continued) Trade payables are non-interest bearing and are normally settled on 30 days following the end of the month Directors and of receipt. Governance 2
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 Our results 3 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 Present Payments Interest 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
GAME: Dedicated to gaming 92
Notes to the Financial Statements (continued) for the year ended 31 January 2011
16 Borrowings (continued) Minimum Lease Present Payments Interest 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 Financial risk management Details of the Group’s financial risk management objectives, including interest rate risk, foreign currency risk, credit risk and liquidity risk management, are disclosed in the Statement of Accounting Policies on page 76.
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 The GAME Group plc Annual Report & Accounts 2010-2011 93
Our performance 1 17 Financial instruments (continued) Financial liabilities Directors and measured at Governance 2 amortised cost 2011 2010 Our results Financial liabilities £’000 £’000 3 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 326,004 299,472
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.
GAME: Dedicated to gaming 94
Notes to the Financial Statements (continued) for the year ended 31 January 2011
17 Financial instruments (continued)
(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). The GAME Group plc Annual Report & Accounts 2010-2011 95
Our performance 1 17 Financial instruments (continued) Directors and (d) Fair value of borrowings and financial assets Governance 2 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. Our results 3 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
(i) Debt is defined as current and non-current portion of long-term debt, as detailed in Note 16.
GAME: Dedicated to gaming 96
Notes to the Financial Statements (continued) for the year ended 31 January 2011
17 Financial instruments (continued) 2011 2010 £’000 £’000 Equity(ii) 326,994 331,555
Capital and net debt 501,755 544,899
Gearing ratio 35% 39%
(ii) Equity includes all capital and reserves of the Group.
18 Deferred taxation (Charged) / (Charged) / Credited to Credited to Asset Liability Net profit or loss 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
(Charged) / (Charged) / Credited to Credited to Asset Liability Net profit or loss 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) The GAME Group plc Annual Report & Accounts 2010-2011 97
Our performance 1 18 Deferred taxation (continued) 2011 2010 Directors and £’000 £’000 Governance 2 At 1 February 3,614 4,004 Deferred tax (charge)/credit in the income statement for the year (Note 8) (337) 690 Our results 3 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).
GAME: Dedicated to gaming 98
Notes to the Financial Statements (continued) for the year ended 31 January 2011
20 Called-up share capital (continued)
(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).
(d) Share options After taking account of options that have lapsed, the following options over shares were outstanding at 31 January 2011: Exercise Exercise period Number of price Schemes shares Pence From To 1998 executive share option scheme 22,700 132.00 15.11.04 14.11.11 Approved 18,900 138.00 01.05.05 20.10.11 99,000 107.00 19.07.05 18.07.12 58,450 62.25 09.06.06 08.06.13
1998 executive share option scheme 27,300 132.00 15.11.04 14.11.11 Unapproved 46,729 107.00 19.07.05 18.07.12 104,330 62.25 09.06.06 08.06.13
Sharesave schemes 17,616 65.80 01.07.11 30.06.12 (a) 5,717 136.16 01.10.10 31.12.12 107,705 215.52 01.07.11 31.12.13 147,401 157.56 01.07.12 31.12.14 628,507 77.13 01.07.13 31.12.15
1,284,355
(a) Certain participants have opted to delay maturity for six months.
During the year ended 31 January 2009 the Group modified the process for satisfying the exercise of unapproved share options. Employees now have a choice of settlement on exercise and can either pay for, and receive, the full number of shares under option, or can use a net settled cashless exercise facility, run by the Company, which results in a lower number of shares being issued than are under option. There has been no change in the fair value of these awards as a result of these changes and no material liability arises. The GAME Group plc Annual Report & Accounts 2010-2011 99
Our performance 1 20 Called-up share capital (continued) Directors and (e) Equity-settled Executive Share Option Plan Governance 2 The Group Executive Share Option plan provides for a grant price equal to the average quoted market price of the Group shares on the date of grant. The options will vest after three years subject to meeting the following Our results performance conditions. Furthermore, options are forfeited if the employee leaves the Group before the 3 options vest.
For awards up to 100 per cent of salary awards are subject to achieving an Earnings Per Share (EPS) growth of at least RPI +9 per cent over three years. This condition may be re-tested at the end of years four and five, where EPS growth must be at least RPI +12 per cent and RPI +15 per cent respectively over the period since grant. For awards between 100 per cent and 200 per cent of salary awards are subject to achieving EPS growth of 15 per cent. This may be re-tested in years 4 and 5 with RPI +20 per cent and RPI +25 per cent respectively. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. 2011 2010 Weighted Weighted average average exercise exercise Options price (in £) Options price (in £) Outstanding at beginning of period 947,400 0.59 1,004,275 0.59 Granted during the period – – – – Lapsed during the period – – – – Exercised during the period (784,620) 0.58 (56,875) 0.64
Outstanding at the end of the period 162,780 0.62 947,400 0.59
Exercisable at the end of the period 162,780 0.62 947,400 0.59
No options were granted during this year or last year.
(f) Equity-settled Sharesave The Group Sharesave scheme is an all employee plan whereby participants receive an option to purchase shares in the Group. Participants are offered an exercise price discounted by 20 per cent to the average of the mid-market share price on the five dealing days preceding the date of invitation. Fair values have been calculated for saving contracts of both three and five years. 2011 2010 Weighted Weighted average average exercise exercise Options price (in £) Options price (in £) Outstanding at beginning of period 834,880 1.65 918,143 1.46 Granted during the period 765,576 0.77 493,497 1.58 Lapsed during the period (675,909) 1.46 (320,013) 1.82 Exercised during the period (17,601) 0.64 (256,747) 0.63
Outstanding at the end of the period 906,946 1.07 834,880 1.65
Exercisable at the end of the period 1,388 1.36 41,634 0.65
GAME: Dedicated to gaming 100
Notes to the Financial Statements (continued) for the year ended 31 January 2011
20 Called-up share capital (continued) The inputs into the Black-Scholes model for contracts with a three year term are as follows:
2011 2010 Weighted average share price (£) 0.81 1.76 Weighted average exercise price (£) 0.77 1.58 Expected volatility (%) 54.5 57.5 Expected life (years) 3.33 3.33 Risk free rate (%) 1.65 3.09 Expected dividends (%) 5.40 2.94 Weighted average fair value (£) 0.25 0.70
The inputs into the Black-Scholes model for contracts with a five year term are as follows:
2011 2010 Weighted average share price (£) 0.81 1.76 Weighted average exercise price (£) 0.77 1.58 Expected volatility (%) 48.6 53.7 Expected life (years) 5.33 5.33 Risk free rate (%) 2.47 2.77 Expected dividends (%) 5.40 2.94 Weighted average fair value (£) 0.24 0.74
Expected volatility was determined by calculating the forward weighted historical volatility of the Group’s share price over a period equal to the expected life. The expected life used in the model is the midpoint of the exercise period.
(g) Equity-settled Long-Term Incentive Scheme (LTIP) The Group long-term incentive scheme has a vesting period of three years from grant, and must be exercised in the six month period following vesting. Furthermore, shares are forfeited if the employee leaves the Group before the awards vest. 25 per cent of awards vest if EPS grows by RPI +15 per cent over the performance period, 100 per cent of the award vests if EPS grows by RPI +30 per cent. The award vests on a pro-rata basis between these points.
2011 2010 Weighted Weighted average average exercise exercise Options price (in £) Options price (in £) Outstanding at beginning of period 4,180,037 – 4,355,643 – Granted during the period 3,693,130 – 2,171,988 – Lapsed during the period (1,176,088) – (135,761) – Exercised during the period (777,970) – (2,211,833) –
Outstanding at the end of the period 5,919,109 – 4,180,037 –
Exercisable at the end of the period – – – – The GAME Group plc Annual Report & Accounts 2010-2011 101
Our performance 1 20 Called-up share capital (continued) The inputs into the Black-Scholes model are as follows: Directors and 2011 2010 Governance 2 Weighted average share price (£) 0.94 1.74 Weighted average exercise price (£) 0.00 0.00 Our results 3 Expected volatility (%) N/A N/A Expected life (years) 3 3 Risk free rate (%) N/A N/A Expected dividends (%) 5.29 2.94 Weighted average fair value (£) 0.80 1.59
As the awards under both the Executive Share Option Scheme and the Long-Term Incentive Scheme are subject to the satisfaction of EPS performance conditions, the total charge is calculated based on the fair value of the options and the total number of options expected to vest based on the Company’s estimate of meeting the performance conditions. The charge is also adjusted for management’s judgements in relation to the number of leavers.
(h) Restricted Share Plan (RSP) The Group has granted restricted shares whereby the restriction attaching to an award is limited to an employee remaining employed by the Company on the second anniversary of grant (at which point 1/3 of an award would vest) and the third anniversary of grant (at which point any remaining amount of the award would vest). Once the shares vest, they will be delivered to the participants and the amount to be paid to the Company by participants to obtain the shares at vesting is zero. Until the shares are delivered, the shares are held in Trust and the participants will not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares.
2011 2010 Weighted Weighted average average exercise price exercise price Options (in £) Options (in £) Outstanding at beginning of period – – – – Granted during the period 1,300,000 – – – Lapsed during the period (216,666) – – – Exercised during the period – – – –
Outstanding at the end of the period 1,083,334 – – –
Exercisable at the end of the period – – – –
GAME: Dedicated to gaming 102
Notes to the Financial Statements (continued) for the year ended 31 January 2011
20 Called-up share capital (continued) The inputs into the Black-Scholes model for contracts with a two year term are as follows: 24 March 2010 grant: 2011 2010 Weighted average share price (£) 0.93 – Weighted average exercise price (£) 0.00 – Expected volatility (%) N/A – Expected life (years) 2 – Risk free rate (%) N/A – Expected dividends (%) 4.84 – Weighted average fair value (£) 0.85 –
27 April 2010 grant: 2011 2010 Weighted average share price (£) 0.93 – Weighted average exercise price (£) 0.00 – Expected volatility (%) N/A – Expected life (years) 2 – Risk free rate (%) N/A – Expected dividends (%) 5.10 – Weighted average fair value (£) 0.84 –
The inputs into the Black-Scholes model for contracts with a three year term are as follows:
24 March 2010 grant:
2011 2010 Weighted average share price (£) 0.93 – Weighted average exercise price (£) 0.00 – Expected volatility (%) N/A – Expected life (years) 3 – Risk free rate (%) N/A – Expected dividends (%) 4.84 – Weighted average fair value (£) 0.81 – The GAME Group plc Annual Report & Accounts 2010-2011 103
Our performance 1 20 Called-up share capital (continued) 27 April 2010 grant: Directors and Governance 2011 2010 2 Weighted average share price (£) 0.93 – Our results Weighted average exercise price (£) 0.00 – 3 Expected volatility (%) N/A – Expected life (years) 3 – Risk free rate (%) N/A – Expected dividends (%) 5.10 – Weighted average fair value (£) 0.79 –
Given the above assumptions, the Group recognised total income of £2,006,611 (2010: expense £2,391,304) related to equity-settled share-based payment transactions during the year (see Note 7).
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).
GAME: Dedicated to gaming 104
Notes to the Financial Statements (continued) for the year ended 31 January 2011
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. The GAME Group plc Annual Report & Accounts 2010-2011 105
Our performance 1 27 Principal risks and uncertainties Risk at GAME Directors and Our Board believes that recognising and managing risks is the key to an effectively run business. The Governance 2 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 Our results risk reports on all operating matters being sent from each territory, and top down, with senior management 3 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 The digital world is evolving We are investing in the mobile and growth of technology in the quickly. If we do not adapt to the and digital future to ensure market place. changes we run the risk of failing we can serve our customers in to deliver a truly multichannel whichever medium they wish to offering to our customers. purchase games, be that digital download, web or in store.
Competition – The pc and video If we are unable to compete We use a suite of specialist tools games market continues to be an we run the risk of losing our to give customers great value. attractive place to do business. customers and our market share. We recognise that this is not Our competition comes in many always direct price cuts. guises. A relatively new entrant to the games market is found in the This is where our position as a mobile operators selling directly specialist in the market place to consumers whilst supermarkets must give us the edge. We strive continue to discount heavily or run to find exclusive offerings for our short-term loss leading campaigns customers that they cannot get on newly released products. We anywhere else. Our preowned also have our more traditional offerings, trade-in promotions competition from other specialists and the use of loyalty card points and online players. as currency allows our customers to enjoy popular and new products at great value.
GAME: Dedicated to gaming 106
Notes to the Financial Statements (continued) for the year ended 31 January 2011
27 Principal risks and uncertainties (continued) Risk Type Impact Risk Mitigation Reputational – We have built up Damage to our reputation could We protect our reputation by customer loyalty over many years. lead to loss of revenue and ensuring that our staff are highly GAME and Gamestation are trusted shareholder value. trained and know their brands. obligations to protect and respect our customers. Our customers demand that we stock the broadest range of products We demand that our teams but trust us to sell those products follow regular rigorous training appropriately. Some of our video programmes, and adhere to games, for instance, are age strict policies and procedures restricted and mis-selling is illegal. relating to age-rated products, and data protection. 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.
Major business interruption Like all businesses any disruption All parts of our business, in every to our capacity to do business territory, have put together will affect our profitability. 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 Every aspect of the Group’s reward delivered if we fail to attract, and development programmes is develop and retain the right regularly reviewed to ensure that people in the right roles. 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. The GAME Group plc Annual Report & Accounts 2010-2011 107
Company Balance Sheet as at 31 January 2011 Our performance 1 2011 2010 Note £’000 £’000 Directors and Governance 2 Fixed assets Investments in subsidiaries 5 159,338 161,345 Our results 3 Current assets Debtors 6 60,076 65,648 Cash 72,035 11,521
132,111 77,169 Creditors: amounts falling due within one year 7 213,996 139,061
Net current liabilities (81,885) (61,892)
Total assets less current liabilities 77,453 99,453 Creditors: amounts falling due after more than one year 8 15,559 23,782
Net assets 61,894 75,671
Capital and reserves Share capital 9 17,373 17,333 Share premium account 10 47,086 46,662 Capital redemption reserve 12 2,248 2,248 Shares held in Trust 12 (3,629) (3,395) Merger reserve 12 76 76 Profit and loss account 13 (1,260) 12,747
Shareholders’ funds 11 61,894 75,671
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
The notes on pages 108 to 113 form part of these financial statements.
GAME: Dedicated to gaming 108
Notes to the Company Balance Sheet as at 31 January 2011
1 Basis of accounting The financial statements have been prepared under the historical cost convention, in accordance with applicable accounting standards and the Companies Act 2006, except for the fair valuing of certain financial instruments.
The required consolidated cash flow statement has been included within the consolidated accounts of the Group.
As permitted by FRS 8 no related party disclosures for the Company have been included for transactions with its wholly owned subsidiaries.
As permitted by FRS 29 no financial instrument disclosures for the Company have been included.
2 Summary of significant accounting policies Investments Investments held as fixed assets are stated at cost less provision for any impairment.
Foreign currencies Assets and liabilities in foreign currencies are translated into Sterling at year end rates of exchange. Gains and losses arising on equity investments denominated in foreign currencies are taken to reserves. Other exchange differences are taken to the profit and loss account.
Where foreign currency loans from the Company to a subsidiary are deemed to be as permanent as equity, they are recorded at the rate of exchange prevailing at the date they were deemed to be as permanent as equity.
Deferred taxation Deferred tax is recognised as an asset or liability, at appropriate rates, in respect of transactions and events recognised in the accounts of the current and previous periods which give the entity a right to pay less, or an obligation to pay more, tax in future periods. Deferred tax assets are only recognised to the extent it is probable that there will be suitable taxable profits from which they can be recovered.
No provision is made for any taxation on capital gains that would arise from the future disposal of any fixed assets shown in the accounts at valuation, except to the extent that at the balance sheet date there is a binding sale agreement.
Deferred tax balances are not discounted.
Employee benefit trust The cost of the Company’s shares held by the Employee Benefit Trust is deducted from the shareholders’ funds in the Company. Any cash received by the Trust on disposal of the shares it holds is also recognised directly in the shareholders’ funds. Other assets and liabilities of the Trust (including borrowings) are recognised as assets and liabilities of the Company.
Any shares held by the Trust are treated as cancelled for the purposes of calculating earnings per share.
Share-based payments The Company has a number of share-based payment plans that certain employees participate in. Accounting for these is in accordance with FRS 20 and is also in accordance with the Group accounting policy and the disclosures provided in Note 20 to the Group consolidated financial statements which have been prepared under IFRS 2, “Share-based payments”. The GAME Group plc Annual Report & Accounts 2010-2011 109
Our performance 1 3 Profit and loss account of the Parent Company As permitted by section 408 of the Companies Act 2006, the profit and loss account of the Parent Company Directors and has not been separately presented in these accounts. The Parent Company profit for the year ended was Governance 2 £9,764,972 (2010: profit £14,449,436). The profit for the year involves a charge of £32,831 (2010: £31,568) in respect of the audit of the Company. Our results 3 The Company had no employees in 2011 and 2010. Details of the remuneration of the Directors are included within the Remuneration Report on pages 52 to 62.
4 Dividends paid and proposed 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 will be paid on 15 July 2011 to shareholders on the register on 24 June 2011.
5 Fixed asset investments Long-term Investments loan Total £’000 £’000 £’000 At 31 January 2010 155,345 6,000 161,345 Share based payment credit (2,007) – (2,007)
At 31 January 2011 153,338 6,000 159,338
The subsidiary undertakings at 31 January 2011 which are all unlisted are set out in Note 15.
6 Debtors 2011 2010 £’000 £’000 Amounts falling due within one year: Trade debtors – 11 Amounts owed by subsidiary undertakings 58,962 64,492 Prepayments and accrued income 9 354 Corporation tax 1,105 791
60,076 65,648
GAME: Dedicated to gaming 110
Notes to the Company Balance Sheet (continued) as at 31 January 2011
7 Creditors: amounts falling due within one year 2011 2010 £’000 £’000 Amounts owed to subsidiary undertakings 197,854 120,603 Bank loan 15,727 15,736 Other creditors – 55 Accruals and deferred income 415 2,536 Dividends – 131
213,996 139,061
8 Creditors: amounts falling due after more than one year 2011 2010 £’000 £’000 Bank loans 15,559 23,782
15,559 23,782
The borrowing terms are disclosed in Note 16 to the Group accounts.
9 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
The movement in share capital and detail on the share scheme is disclosed in Note 20 to the Group accounts.
10 Share premium account
£’000 At 1 February 2010 46,662 Arising on issue of shares during the year (net of expenses) 424
At 31 January 2011 47,086 The GAME Group plc Annual Report & Accounts 2010-2011 111
Our performance 1 11 Reconciliation of movements in shareholders’ funds 2011 2010 Directors and £’000 £’000 Governance 2
Profit on ordinary activities after taxation 9,765 14,449 Dividends paid (20,073) (19,366) Our results 3 Issue of shares during the year 464 217 Purchase of shares for trust (1,926) (1,893) Share-based payment (credit)/expense (2,007) 2,391
Net (deductions)/additions to shareholders’ funds (13,777) (4,202) Shareholders’ funds at beginning of year as previously reported 75,671 79,873
Shareholders’ funds at end of year 61,894 75,671
12 Other reserves
£’000 Merger reserve At 1 February 2010 and 31 January 2011 76
Capital redemption reserve At 1 February 2010 and 31 January 2011 2,248
Shares held in Trust As at 1 February 2010 (3,395) Purchased during the year (1,926) Exercised during the year 1,692
As at 31 January 2011 (3,629)
Number of shares held at 31 January 2011 3,297,275
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, purchase the Company’s ordinary shares in the open market.
The details of the share option schemes are explained in Note 20 to the Group accounts.
GAME: Dedicated to gaming 112
Notes to the Company Balance Sheet (continued) as at 31 January 2011
13 Profit and loss account £’000
At 1 February 2010 12,747 Retained loss for the financial year (10,308) Exercise of shares (1,692) Share-based payment credit (2,007)
At 31 January 2011 (1,260)
14 Contingent liabilities The Company has guaranteed certain liabilities and bank borrowings of its subsidiary undertakings. At 31 January 2011 the liabilities covered by these guarantees amounted to £nil (2010: £1,128,244). In addition the Company has guaranteed certain operating leases of its subsidiary undertakings with an annual lease commitment of £1,409,130 (2010: £1,653,980). Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.
The Company has entered into standby letters of credit to the value of £2,029,205 (2010: £2,029,205). In this respect, the Company treats these letters of credit as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the terms of the letters. The GAME Group plc Annual Report & Accounts 2010-2011 113
Our performance 1 15 Subsidiary undertakings Country of Directors and Name incorporation Nature of business Governance 2 Game Stores Group Ltd* England Computer software and video game retailing
Gameplay (GB) Ltd* England Online computer software and video game business Our results 3 Games Station Limited* England Computer software and video game retailing Game Stores Group Sweden AB* Sweden Computer software and video game retailing Game Stores Iberia, S.L.U.* Spain Computer software and video game retailing ETS – Multimedia, Jogos E Software LDA Portugal Computer software and video game retailing Game FRANCE SA France Computer software and video game retailing TGW Pty Limited Australia Computer software and video game retailing Game Czech a.s.* Czech Republic Computer software and video game retailing Pure Unity Developments Limited* England Property development company Game Retail (UK) Ltd* England Non-trading Game (Stores) Limited England Non-trading Game Digital Ltd* England Non-trading Game Financial Services Limited* England Non-trading Blue 26 Limited England Non-trading Game Limited* England Non-trading Blue 25 Limited England Non-trading Pure Entertainment Stores Ltd* England Non-trading Toyplay Ltd England Non-trading Gamestation Limited England Non-trading
*Direct subsidiary of The GAME Group plc
The Company retains 100 per cent of the voting rights and ordinary share capital of all the above subsidiary undertakings.
GAME: Dedicated to gaming 114
Five-Year Summary
31 January 31 January 31 January 31 January 31 January 2007 2008 20091 2010 2011 £’000 £’000 £’000 £’000 £’000 Revenue 801,306 1,491,914 1,968,604 1,772,358 1,625,034 Gross profit 217,743 369,577 514,507 492,692 427,396 Operating profit before goodwill amortisation and non-recurring costs 32,965 82,340 130,881 94,789 43,208 Operating profit 32,965 75,192 124,293 88,590 28,475 Profit on ordinary activities before taxation 29,493 68,362 117,366 84,211 23,105 Profit on ordinary activities after taxation 21,140 47,179 83,650 60,467 15,653 Dividends per share 2.93p 4.40p 5.50p 5.78p 5.78p Earnings per share – basic 6.25p 13.79p 24.18p 17.45p 4.51p Earnings per share before non-recurring costs – basic 6.25p 15.88p 26.09p 19.24p 8.75p Number of owned stores at end of year (including concessions) 782 1,140 1,335 1,374 1,312 Average number of employees 5,148 7,959 10,450 10,592 10,218 Net assets 157,336 201,605 286,301 331,555 326,994 Cash generated from operations 43,596 191,973 155,584 54,680 131,483
1 53 weeks The GAME Group plc Annual Report & Accounts 2010-2011 115
Shareholder Information
Our performance 1 Share register information as at 31 January 2011 The tables below show the split of shareholders and size of shareholdings in GAME Group plc Directors and Number of % of Issued Governance 2 Range holding holders % of holders Holding share capital
1 – 5,000 3,425 84.61 4,060,182 1.17 Our results 3 5,001 – 50,000 417 10.30 5,760,589 1.66 50,001 – 100,000 39 0.96 2,930,380 0.84 100,001 – 500,000 80 1.98 20,595,358 5.93 500,001+ 87 2.15 314,114,879 90.40
Location of institutional holders % UK 45.83 North America 33.47 Europe (excl UK) 8.06 Asia 0.20
GAME: Dedicated to gaming 116
Directors and advisers
Directors Peter Lewis Non Executive Chairman Ian Shepherd Chief Executive Ben White ACA Group Finance Director Christopher Bell Senior Independent Director Ishbel Macpherson Non Executive Director Dana Dunne Non Executive Director David Mansfield Non Executive Director
Secretary Vivienne Hemming ACIS
Registered office Unity House, Telford Road, Basingstoke RG21 6YJ
Stockbrokers Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB Oriel Securities Limited, 125 Wood Street, London EC2V 7AN
Principal Bankers The Royal Bank of Scotland plc, Thames Valley Corporate Banking Centre, Abbey Gardens, 4 Abbey Street, Reading RG1 3BA
Independent auditors BDO LLP, 55 Baker Street, London W1U 7EU
Registrars and transfer office Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU
Corporate website www.gamegroup.plc.uk
Registered number 875835 Disclaimer The purpose of this Report is to provide information to the members of the Company. The Company, its Directors and employees, agents and advisers do not accept or assume responsibility other than to the members as a body and any responsibility to any other person is expressly disclaimed. This Report contains certain forward-looking statements with respect to the principal risks and uncertainties facing the Group. By their nature, these statements relate to events and depend on circumstances that may or may not occur in the future and there are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. No assurances can be given that the forward-looking statements are reasonable, as they can be affected by a wide range of variables. The forward-looking statements reflect the knowledge and information available at the date of preparation of this Report, and the Company accepts no obligation to update these forward-looking statements. Nothing in the Report should be construed as a profit forecast.
Designed and produced by MerchantCantos. www.merchantcantos.com Printed by Fulmar. The GAME Group Plc Shop with the GAME Group Unity House www.game.co.uk Telford Road www.gamestation.co.uk Basingstoke www.gameplay.co.uk Hampshire www.game.fr RG21 6YJ www.game.es Tel +44 (0)1256 784000 www.game.pt Fax +44 (0)1256 784093 www.game.se www.gamegroup.plc.uk www.game.no www.game.dk www.game.com.au www.gamecz.cz