GMD.L Regulatory News (GMD)

15 October 2015

GAME DIGITAL PLC

Full year results for the 52 weeks ended 25 July 2015

POSITIVE H2 PERFORMANCE; CONTINUED STRATEGIC PROGRESS

GAME Digital plc ("GAME" or the "Group") today announces its full year results for the 52 weeks ended 25 July 2015. All comparator periods are for the 52 weeks ended 26 July 2014 unless otherwise stated.

BUSINESS HIGHLIGHTS

· Positive second half performance resulting in year-on-year sales and margin growth; driven by the growing installed base of Xbox One and PlayStation 4 console owners, a strong exclusive product offering and the continued diversification of our product range

· Retail, digital and diversification strategies continue to progress well:

o Retail market share5 maintained in the UK at 33%; increased 3ppts in Spain to 38% (benefiting from the addition of 44 GameStop stores in October 2014)

o Positive digital performance, with GTV up 28% year-on-year

o Significant growth in preowned mobile phone and tablet sales, up 100%

o Developing eSports & Events and Digital Solutions divisions to support future growth

o Successful integration and development of Multiplay; largest ever Insomnia (I55) held in August

o Strong customer engagement

§ 1 million new customers signed up to loyalty programmes in the UK and Spain

§ Registered App users doubled to over 1.5 million

§ Over 550,000 registered GAME Wallet customers

· Management team strengthened, including the appointment of Mark Gifford as Group CFO, effective 1 October 2015

FINANCIAL HIGHLIGHTS

· GTV growth of 2.3% compared to an aggregated market decline (UK and Spain) of -1.3%6

· Gross profit increased 8.7% in the second half and 1.9% in the year driven by our Content, Preowned and Accessories, Toys-To-Life & Other (AT&O) categories

o Total Content, Preowned and AT&O gross profit grew 10.0% in H2 and 7.5% in the year

· Adjusted EBITDA declined to £46.9 million (2014: £51.3 million) with improved gross profit offset by higher operating costs

· Adjusted basic EPS rose 5.6% to 18.8p (2014: 17.8p), benefiting from previously unrecognised tax losses

· The Group ended the year in a strong financial position, with net cash of £63.0 million

o £30 million revolving credit facility signed post the year-end for the Group's UK business, replacing the Group's £25 million asset backed lending facility

o Renewed and increased €38.5 million revolving credit facility for the Group's Spanish business

· Proposed final dividend per share of 7.35 pence (£12.5 million), taking the total for the year (including the special dividend of £24.9 million announced at the half year results) to 29.4 pence per share (£49.7 million)

Martyn Gibbs, Chief Executive Officer, said:

"GAME had a strong second half to the year and delivered sales and profit growth for the full year as we capitalised on our leading positions in the fast-moving video games industry.

"As we expected, the market has developed as a result of the growing population of Xbox One and PlayStation 4 console owners which has created a positive environment for GAME. We have captured growth opportunities and grown sales of higher margin products to next generation console owners.

"At the same time we have delivered strong increases in sales of other higher margin categories such as preowned phones and tablets, driven our digital sales and expanded into eSports, gaming events and online games hosting with the acquisition of Multiplay.

"Over the last twelve months, our customers and publisher partners have responded positively as we have driven forward our strategy, enhancing our customer and community engagement and broadening our offer beyond pure retail to the places and ways in which our customers play games.

"Looking forward, with the growth opportunities available, particularly in Multiplay, we are committed to growing our businesses and increasing our investment in both capital projects and our operating cost base. We believe we are well prepared for Black Friday and the peak Christmas season, with a strong, specialist customer offer across all product categories.

"GAME is a fantastic business, underpinned by passionate and knowledgeable colleagues, with a clear purpose: to build the most valuable community of gamers, and I remain excited in our future prospects."

Current Trading and Outlook

Group trading so far this year has been in line with our expectations. The UK business is outperforming the market although the market is currently down on the prior year largely due to lower hardware sales. The Group's Spanish business continues to perform strongly and is trading ahead of the market which has seen good growth in the year to date. Multiplay has also started the year well, holding its largest ever Insomnia convention in August and signing a major contract for its server hosting business.

As expected the margin profile of the business continues to improve as the sales contribution from higher margin categories (Content, Preowned and Accessories, Toys-To-Life & Other) grows, whilst the contribution from the lower margin Hardware category falls.

A growing population of Xbox One and PlayStation 4 owners combined with the highly-anticipated line-up of new game releases due in the coming months provides a supportive market backdrop from which to grow content sales over the course of the year. Within this we expect demand for Xbox One and PlayStation 4 physical and digital content to continue to grow strongly, whilst demand for prior generation games will decline further. Aligned to this the Group also anticipates further good growth in its 'Accessories, Toys-To-Life & Other' category this year.

We are well prepared for Black Friday and the peak Christmas season and the business is also already well progressed in its plans for the first half of the next calendar year, with further key new releases scheduled as well as many other new developments planned for, including the expected launch of several virtual reality devices.

We are very focused on driving new and growing categories and have planned further investment in capital expenditure and revenue costs this year to support these areas aligned with the Group's omni-channel growth plans further future-proofing our business. Furthermore, to support the anticipated growth of Multiplay, the Group is committed to investing in its cost base to accelerate top line sales and future profitability.

Overall, given positive market dynamics together with the increased investment in the business, at this early stage in the year the Board expects the Group to achieve growth in the year ahead in line with expectations.

Results presentation

Management will be hosting a presentation for analysts and investors at 10:30 a.m. today at Citigate Dewe Rogerson, 3 London Wall Buildings, London Wall, EC2M 5SY. A live audio webcast of the presentation will be available via the Company's website at www.gamedigitalplc.com/investor-relations. A recording of the presentation will be made available on www.gamedigitalplc.com later today.

Enquiries

Notes:

Forward Looking Statements

This announcement contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events.

Notes to editors

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

You can view or download copies of this announcement and the latest Half Year and Annual Report & Accounts from the Group's corporate website at www.gamedigitalplc.com or request free printed copies by corporate@game.co.uk.

A copy of this year's Annual Report and Accounts will be made available to shareholders in due course either by post or online at www.gamedigitalplc.com and will be available to the general public online or on written request to the Company's registered office at GAME Digital plc, Unity House, Telford Road, Basingstoke, RG21 6YJ.

SUMMARY OF FINANCIAL RESULTS

Chairman's Statement

GAME Digital plc has just completed its first full year as a public company, a year where we have taken key steps forward in delivering the Group's strategy. This positions GAME well and provides a strong platform for future growth. As our industry continues to rapidly change, I am confident that we have the right people and strategy to help transform the business over the coming years.

Market

As anticipated, with well over 30 million Xbox One and PlayStation 4s now sold globally, the new generation of games consoles is reaching a critical mass for the development of new blockbuster games titles. As a result, we are selling consoles at lower values, but achieving greater sales of higher margin software. Combined with the impact of growing digital download sales, where we see a shift from sales to commission based revenue, overall we are experiencing an improvement in the gross profit of our business which will continue as we grow these categories further.

Other key structural changes are happening across the market that present new opportunities for the Group, including the rapid growth of eSports and gaming events. We are closely monitoring other market dynamics and see further opportunities to continue to reshape and future-proof our business.

Results

Although our peak period was impacted by significant promotional activity, most notably on consoles, the Group nevertheless delivered further growth for the year. The Group's Gross Transaction Value increased by 2.3% to £962.4 million. However, given the competitive environment over the peak Christmas period and higher costs, the Group's Adjusted EBITDA fell to £46.9 million from £51.3 million in 2014. After adjusting items and the improved effective tax rate, Adjusted basic earnings per share increased by 5.6% to 18.8 pence.

The Group's Profit before tax increased to £25.8 million (2014: £7.3 million), with the prior year impacted by IPO related exceptional costs totalling £8.4 million. In the current year the Group has benefited from the reduction in interest costs as a result of the balance sheet restructuring undertaken at the time of the IPO, which saw the removal of all debt from the Group.

The Group has maintained its strong balance sheet and flexible lease profile whilst retaining a disciplined approach to capital allocation, with a total of £50 million of dividends announced or paid to shareholders during the year (including the proposed final dividend). The Board is recommending a final dividend of 7.35 pence per share, taking the total for the year to 29.4 pence per share, including the special dividend of 14.7 pence per share declared alongside our interim dividend in April. The Board remains committed to maintaining a progressive dividend policy.

Strategy

We offer our customers a unique and differentiated proposition, we have leading market positions and maintain strong relationships with our suppliers. We have a highly recognisable brand, a broad customer base and one of the largest and most generous loyalty schemes of its kind, and we will continue to build on these strengths and further develop the business as digital and online trading becomes an increasing part of our international retailing offer.

To support our strategy and build on our solid foundations, we have been able to make investment decisions from a position of financial strength. The acquisition of Multiplay in March added an entirely new dimension to the line-up of products and services we can provide to gamers and publishers. Multiplay has successfully grown its business over recent years and we plan to leverage our strengths and relationships to significantly accelerate this growth. Our acquisition of Multiplay is indicative of the kind of investment we will look to make as we seek to further modernise our business and develop our digital future.

Through Multiplay we now hold live gaming events for tens of thousands of gamers at major public venues. We also now provide online hosting services for both consumers and game developers for popular game titles on a worldwide basis.

Board

At our Interim results announcement, Benedict Smith announced he would step down from the Board. I would like to thank Benedict for his contribution to GAME and particularly for his involvement in the Group's successful IPO last year. Benedict has been succeeded by Mark Gifford, who joined the Board on October 1 as Chief Financial Officer. Mark brings valuable experience of the retail sector, financial management and strategic thinking.

People

I would like to pay tribute to our people, who make GAME the business it is. Our colleagues are our greatest asset. With their talent and dedication, they remain central to GAME's success. On behalf of the Board, I would like to thank all of our colleagues, including those who have recently joined us from Multiplay, for their hard work and commitment to the business over the past 12 months.

Our values are more important than ever and our priority is to ensure we put the customer at the heart of our business and focus on building and engaging with the gaming communities of the UK, Spain and elsewhere. This makes good business sense and also gives us real competitive advantage.

David Hamid

Chairman

Chief Executive Officer's Report

SUMMARY OF GROUP RESULTS

The year ended 25 July 2015 saw continued developments within our markets as the latest console cycle entered its second full year post launch. Revenues excluding hardware grew 3.3% over the year, with growth across higher margin categories (Content, Preowned and Accessories, Toys-To-Life & Other) accelerating to 11.2% in the second half. As expected after the initial surge in sales following the launches of Xbox One and PlayStation 4 in the prior year, Hardware revenues were lower as a result of reduced average selling prices, falling by 5.4% over the year.

These dynamics resulted in overall Group revenues growing 0.6% in the year to £866.6 million (2014: £861.8 million), whilst the Group's Gross Transaction Value1, a better measure of underlying retail activity as it includes gross digital receipts, grew by 2.3% to reach £962.4 million (2014: £940.5 million).

Group gross margins increased by 40 basis points to 24.7%, resulting in a 1.9% increase in gross profit to £213.7 million (2014: £209.7m). Gross margins benefited from the shift in sales mix to higher margin content and preowned category sales, with content margins benefiting from the higher contribution from digital sales, rising by 250 basis points to 30.5% (2014: 28.0%). Hardware margins fell over the year from 7.6% to 4.1%.

Adjusted EBITDA1 was £46.9 million (2014: £51.3 million) reflecting a higher cost base, including revenue investments made to support the business's strategic initiatives and increased central overhead costs as a result of the Group's IPO.

Statutory operating profit increased from £24.8 million to £26.2 million. Profit before tax increased from £7.3 million to £25.8 million, due to the balance sheet restructuring undertaken at the time of the IPO, which saw the removal of debt and the related interest burden from the Group and the elimination of any exceptional costs. Last year's results included £8.4m of exceptional costs mainly in relation to costs associated with the IPO.

Adjusted basic earnings per share increased 5.6% to 18.8 pence (2014: 17.8 pence) largely as a result of a lower effective tax rate.

Group inventory and capital expenditure continued to be actively managed, although the planned levels of additional stock to support appropriate availability of new releases around our year-end, as well as better preowned and GAMEtronics availability, led to a 16.0% increase in inventories on the prior period. Cash flow performance was robust, with free cash flow2 of £32.0 million against £30.9 million in the prior year. After the interim and special dividend payments of 7.35 pence per share and 14.7 pence per share respectively, as well as the acquisition of Multiplay, the Group maintained a strong net cash positon at the end of the year of £63.0 million (2014: £83.7 million).

It is the Group's policy to maintain the disciplined allocation of capital between growth and returns.

1 As defined in note 2

2 Free cash flow is calculated by deducting capital expenditure from Cash generated from operating activities (Group capital expenditure amounted to £11.3m in 2015 and £11.4m in 2014)

OPERATIONAL AND STRATEGIC UPDATE

Operational Highlights

Note:

1 Source: GFK Chart-Track

2 Converted into Sterling equivalent

3 UK and Spanish markets combined

4 Source: GFK Chart-Track. Market share based on value of retail sales of hardware, software, digital and accessories for 52 weeks ended 25 July 2015

Figures in brackets denote 2014 comparatives

We are committed to putting our customers and communities at the heart of our business and building on our established market positions to drive customer recruitment and lifetime value.

To drive operational and strategic delivery and following the Group's acquisition of Multiplay in March we announced our intention to realign the business into three divisions (Retail, eSports & Events and Digital Solutions). This recognises that in order to deliver on our strategic priorities we need to build a business that reaches beyond pure retail, to the places and ways in which gamers play games. Each of the divisions will be focused on supporting the delivery of the Group's strategy.

An update on the key developments and initiatives delivered under each of the Group's strategic priorities is provided below.

1. BUILD ON OUR POSITION AS THE #1 DESTINATION FOR GAMERS

Range development and product innovation

This year we launched GAME Marketplace in the UK, a major online initiative which has allowed us to add a significant number of new brands and new product ranges. Marketplace is still in its infancy from a revenue generating perspective but we have already added over 100 vendor partners and over 100,000 new products to our range. These products are delivered direct from the vendor to the customer, without GAME needing to hold the inventory. In 2016 we will be trialling in store digital solutions to allow us to promote the full Marketplace range in stores.

The Group continues to work closely with its supplier partners to secure exclusives on all key titles. In 2015, GAME secured exclusive editions on 25 of the biggest video game titles of the year. In addition, the Group has been working to increase the number of Xbox One and PlayStation 4 hardware and accessory exclusives to complement our software exclusives. In total our exclusives numbered more than 100 products across the UK and Spain.

Our preowned offering is extensive and growing and now encompasses a wide range of smartphone and technology products under our GAMEtronics brand. We have rolled out more GAMEtronics cabinets across the store estate this year, centralised distribution and increased the amount of stock we purchase from third parties to improve product availability on popular lines. These initiatives contributed to the impressive 100% uplift in GAMEtronics sales.

Planned UK initiatives for 2016 include the re-launch of our own-label GAMEware branded accessory products, a greater allocation of space to both the 'Toys-To-Life' (Activision Skylanders, Disney Infinity, Nintendo Amiibo and Lego Dimensions) and PC categories (including a range of PC gaming accessories and physical and downloadable games) as well as an increased focus on the ranging and merchandising of collectables, clothing and other licensed products.

Finally, preparations are underway across the Group in anticipation of the launch of the various virtual reality products and peripherals due for release in 2015/16.

Reward Schemes

Our loyalty scheme members numbered over 17 million at year-end, having added one million new customers over the period. In the UK over half of all transactions (approximately two-thirds by value) were linked to a Reward account (via a Reward card or GAME Wallet) in the last 12 months whilst in Spain the figures are 74% and 79% respectively. A key focus of the Group is increasing reward sign-ups and usage and increasing UK swipe rates to the levels achieved in Spain.

In 2015/16 we will be launching a number of further innovations to develop our loyalty programmes including dynamic accolades on our App, integration into our social platforms, geo-location offers, the introduction of more GAME clubs and the launch of GAME VIP, an enhanced reward programme for our most valuable customers.

Service

We have significantly expanded our central and online customer services teams in the last 12 months. We are currently implementing technology and infrastructure enhancements to further support these teams and drive improvements in service levels during this year's peak trading season.

Community Engagement

We continue to host regular store-based events, including early access 'lock-ins', launch parties, local gaming tournaments, fundraising events and nationwide midnight openings for major new releases. Alongside this our social media channels continue to grow in their importance as a medium for communication and engagement. Using the expertise gained from Multiplay, in 2015/16 we plan to trial more non-traditional use of our retail space including a greater number of grassroots eSports events. We are also investing in our social and events team to support more local events and the re-launch of our YouTube channel.

2. DRIVE DIGITAL GROWTH

We are a leading player in the sale of digital console content, with a retail share of approximately 60% in both of our key markets.

In the UK, more than two thirds of our Xbox One and PlayStation 4 customers have now purchased digital content with us, and in total over 1.5 million customers have purchased a digital product from us in the last 12 months, up 19% on last year.

We are focused on growing digital sales by allocating more space to digital products within our stores and improving the way we promote and retail digital products across all of our channels. We are also working with our supplier partners to grow our range of both console and non-console content. In addition, we are exploring ways in which we can use Codebank, our digital distribution platform, to partner with others to grow digital sales in existing and new territories.

3. OPTIMISE THE OMNI-CHANNEL JOURNEY

Store footprint optimisation

Effective management of our store estate remains a key focus of the Group. Following the transformation of the UK store base in the two prior years, the UK saw relatively limited activity in 2014/15, with two store openings, two relocations and four closures.

In Spain, the estate saw far greater activity, taking on 44 stores in October 2014 from GameStop (which has discontinued operations in Spain). In addition, the Spanish business opened two stores, closed nine and relocated one store.

Overall, the Group finished the year with 319 stores in the UK and 275 in Spain.

We had no loss-making stores in the UK as measured for the 12 month period for the year ended 25 July 2015, whilst the number of loss-making stores in Spain was reduced from five to three.

The Group continues to maintain a highly flexible lease profile, with an average break clause of just 2.1 years in the UK and 1.2 years in Spain, providing us with the ability to proactively manage our store portfolio.

Our stores are relatively small, with an average store footprint of 1,226 square foot in the UK and just 802 square foot in Spain. Space is therefore at a premium, and as a result we closely monitor category contribution, reallocate space and refresh merchandising to ensure sales densities are optimised.

In the year ahead we will continue to rationalise and optimise our footprint and are looking to open a small number of new stores in attractive locations where we are under-represented. We are also planning on trialling some new, larger formats in key locations to provide expanded areas for a wider range and more store events, increasing community interaction. These larger footprint stores are located in major regional shopping centres where we have either closed two stores in exchange for one larger unit or where our current store is too small.

Store improvements

Last year all of our UK stores were fitted with interactive Xbox One and PlayStation 4 bays to support the launch of the new consoles and this year we are investing in additional digital screens across the entire UK store estate. The screens will improve our in store marketing capabilities and enhance the store environment, whilst allowing us to promote a greater number of products and show rich media content. They will also allow us to more efficiently implement nationwide promotions.

Last year we also installed digital bays in over 100 of our largest stores on key franchises such as FIFA and Call of Duty, and will be rolling out more of these bays in the year ahead. The bays increase customer engagement and education and support franchise sales, particularly digital.

2015/16 will see further refurbishment and refreshment of the estate to improve the shopping environment and customer experience and we will also be rolling out a range of new merchandising solutions for digital products, PC accessories, collectables, clothing and other new ranges.

eCommerce, mCommerce and App developments

Our UK website has recently undergone a major upgrade and continues to be subject to a rolling programme of design, layout, navigation and functionality improvements. Since its upgrade, average monthly website traffic has increased 20%.

We have also recently launched a new Click and Collect service, which, when combined with our 'Endless Range' in store proposition, means customers can now order online or in store, for delivery to home, or to store.

In the coming months we plan to launch an upgraded version of our dedicated mobile website, a tablet optimised site and a new redesigned version of our popular mobile App. We also plan to enhance our delivery proposition including the introduction of the Collect+ service, delivering to thousands of independent stores nationwide.

Ways to Pay

Our Trade-in arrangement remains a core attraction for many of our customers and we will soon be launching an online Trade-in service to enhance our proposition.

Following the launch of a successful consumer finance programme in Spain last year we plan to launch a similar option for UK customers in the coming months. In addition, our gift card service has been re-launched in the UK, giving better functionality for customers and broadening our reach.

4. EXPAND BEYOND RETAIL

We continue to drive engagement through our stores, but we are also expanding beyond our shopfronts. The acquisition of Multiplay in March, leading to the formation of our eSports & Events division, was an important step forward in our community strategy. Multiplay runs Insomnia, the UK's largest gaming festival, three times a year, as well as organising dozens of live gaming events on behalf of third parties. Examples include the management of Warner Brothers' UK tour of their number 1 selling title Mortal Kombat X, and the production of Minecon 2015, the record breaking community event held for 10,000 Minecraft fans on behalf of the game's developer, Mojang.

The most recent Insomnia gaming festival held in August 2015 was the largest ever event. Over 36,000 tickets were sold and hundreds of thousands more viewed the event online. Following its success we have signed a multiyear contract with the National Exhibition Centre (NEC) in Birmingham, the UK's largest exhibition centre, to facilitate future growth. In addition, the Group is planning to launch Insomnia festivals in territories outside the UK in 2016, including Spain and Eire.

We are focused on materially expanding our eSports & Events division's activity in 2015/16 and expect this business to grow significantly over the next three years.

5. DEVELOP AND CHAMPION NEW TECHNOLOGIES

We are committed to leveraging the specialist skills, technology and infrastructure of the Group to enhance the experience for our customers as well as providing services to our supplier partners and other third parties to support their digital ambitions within gaming and commerce. These services include:

Clanforge Server Hosting

Following the acquisition of Multiplay, the Group now provides state of the art consumer and enterprise server hosting solutions for online gaming. Developed from the ground up for games, Clanforge is an innovative and powerful B2B and B2C middleware platform for online multiplayer gaming.

Digital Code Distribution

We are exploring opportunities to integrate our digital architecture with third parties to broaden the distribution of digital content in existing and new territories.

GAME Wallet

We continue to develop the functionality of GAME Wallet, our universal e-payment, e-wallet and reward platform. A 'one-step' payment is to be implemented for in-App purchases, improving customer convenience, and we are exploring opportunities to integrate GAME Wallet as a payment method into our suppliers' networks and other third party websites. GAME Wallet sign-ups and usage have continued to grow and now number over 550,000 customers.

GAME App and Scan It

The number of customers registered with the GAME App has doubled to over 1.5 million in the last year. We are currently working on a major upgrade to the App, which will provide users with enriched content, an enhanced consumer experience and additional functionality.

In September 2014, GAME launched 'Scan It' within the App. Scan It is an innovative customer engagement tool that uses AR technology to bring images to life on a mobile phone, allowing customers to discover interactive and rich product information. In March 2015, GAME acquired a minority stake and signed an 18 month global exclusivity arrangement with Ads Reality, the technology provider behind Scan-It. GAME is working with Ads Reality on the roll-out of further key developments for the technology for use both within Scan-It, and for licensing to third parties for their own applications.

Mobile Games Platform

We are in the process of developing a mobile games platform for android phones to augment the sale of mobile POSA cards (such as iTunes and Google Play) in our stores. The platform will be integrated with GAME Wallet, providing customers with a convenient way to access a selected range of premium and freemium mobile games as well as make in game purchases with Reward points, gift cards, top-up and trade-in credit.

SUMMARY

The video games industry is changing incredibly quickly, presenting opportunities and challenges to our business. We are focused on maximising the potential from the current console cycle, growing our preowned businesses and benefiting from the opportunities arising as a result of market developments including digital content growth, eSports, virtual reality, licensed merchandise, Toys-To-Life, and new games devices.

Martyn Gibbs

Chief Executive Officer

FINANCIAL REVIEW

Group results

Note:

* Gross Transaction Value is a non-IFRS measure defined as total retail receipts excluding VAT and before the deduction of revenue deferral relating to reward points. Gross Transaction Value reflects the full sales value of digital sales, agency sales (including sales by business partners on GAME's Marketplace website), warranties and other similar arrangements and thereby includes the publishers' and sellers' shares of those transactions (note 2).

** Adjusted EBITDA is defined as operating profit before depreciation and amortisation, exceptional and adjusting items (note 2).

*** The calculations of Adjusted Profit Before Tax excludes all exceptional and adjusting items (note 4).

**** Adjusted basic EPS is calculated as set out in note 6.

Group revenue for the year ended 25 July 2015 grew by 0.6% to £866.6 million (2014: £861.8 million), whilst the Group's Gross Transaction Value (GTV), a better measure of underlying retail activity as it includes the gross value of digital receipts, grew by 2.3% to reach £962.4 million (2014: £940.5 million).

The year ended 25 July 2015 saw the continued development of the video games market as the latest console cycle entered its second full year post launch. GTV excluding hardware grew by 5.2% over the year, with growth across these categories (physical and digital Content, Preowned, Accessories, Toys-To-Life & Other) accelerating to 7.4% in the second half. As expected, Hardware GTV, after the initial surge in sales following the launches of Xbox One and PlayStation 4 in the prior year, was lower as a result of reduced average selling prices, falling by 4.7% over the year.

Group gross margins (as a percentage of revenue) increased by 40 basis points to 24.7%, resulting in a 1.9% increase in gross profit to £213.7 million (2014: £209.7 million). Gross margins benefited from the shift in sales mix to higher margin Content and Preowned category sales, with underlying content margins benefiting from the higher contribution from digital sales, rising by 250 basis points to 30.5% (2014: 28.0%). Hardware margins fell over the year from 7.6% to 4.1%.

Profit before tax increased from £7.3 million to £25.8 million, benefiting from 1) the balance sheet restructuring undertaken at the time of the IPO, which saw the removal of all debt and related interest burden from the Group and 2) the £nil costs of exceptional items (2014: £8.4 million, primarily incurred in relation to the Company's IPO).

The Group delivered an Adjusted EBITDA of £46.9 million (2014: £51.3 million), with an increase in gross profit more than offset by cost increases across the business. The significant cost increases include higher net marketing costs (up £2.8 million), higher store payroll costs (up £2.1 million) and increased central overhead costs (up £3.2 million) mainly as a result of the Group becoming publicly listed and following the acquisition of Multiplay.

Group operating profit increased 5.6% or £1.4 million to £26.2 million (2014: £24.8 million), explained by higher gross profit; higher operating expenses in 2014/15 offset by the movement in exceptional items (exceptional items £nil (2014: £8.4 million)).

Adjusted basic earnings per share increased 5.6% to 18.8 pence (2014: 17.8 pence). Adjusted profit before tax in the year was £38.0 million (2014: £39.8 million). Tax on adjusted earnings was £6.5 million (2014: £9.6 million) with the change in effective tax rate explained by recognising in the current year benefits from previous unrecognised deferred tax assets.

Segmental results

UK

1. Source: GfK Chart-Track. Market comprises retail sales of mint hardware, boxed content, console digital content and gaming accessories.

The UK retail market (Hardware, Software, Accessories and Digital) grew 1.4% over the year. Against this backdrop, the UK business grew Gross Transaction Values by 3.6% and revenue by 1.7% in the year. UK Gross Transaction Values excluding Hardware were up over 7.1% in the year. This was driven by the growth in Content, up 2.9% to £309.4 million, Preowned, up 13% to £139.2 million, and Accessories, Toys-To-Life & Other, which grew 15% to £76.5 million.

Although the number of hardware units sold in the year increased, Hardware GTV was down 4.3% over the year, driven by a reduction in average selling prices of the latest generation of consoles. Importantly, the increasing penetration of new generation consoles into the market provides the Group with the opportunity to sell higher margin Content, Accessories and linked products to a growing population of more engaged customers.

Our share of the retail market over 2015 was stable at 33%. GAME grew share in the mint software, digital and accessories categories whilst our share of the mint hardware market fell slightly, driven by the greater supply of Xbox One and PlayStation 4 consoles compared with the prior year.

Our UK operations continue to generate the majority of the Group's sales and profits, contributing 75.7% and 78.0% of Group revenue and Adjusted EBITDA respectively.

Overall, the UK business saw a 9.9% reduction in Adjusted EBITDA over the year to £36.6 million (2014: £40.6 million). The first half of the year saw significant sales activity but at lower margins than anticipated due to greater promotional activity experienced between the Black Friday and Christmas selling period. These sales dynamics, combined with higher costs, resulted in a first half decline in EBITDA to £31.9 million (2014: £38.8 million). Conversely, the EBITDA generation from the UK operation in the second half was much stronger than last year, up 161% at £4.7 million (2014: £1.8 million), driven by the stronger margin performance, with gross profit up 8.2%, as well as good cost control.

The number of stores in the UK at 25 July 2015 was 319 (2014: 321).

Spain

Note:

1. Source: GfK Chart-Track. Market comprises retail sales of mint hardware, boxed content, console digital content and gaming accessories

^ LC currency basis (LC). Calculated based on original Euro amounts.

Having declined by 7.6% in the first half of our financial year, the Spanish market returned to growth in the second half, expanding by 7.0% on a local currency basis and resulting in an overall decline of 3.2% in 2015. GAME performed strongly, delivering revenue growth (on a constant currency basis) of 25.2% in the second half and 5.4% for the year as a whole, benefiting from the addition of 44 GameStop stores transferred to the business in October 2014. On a like-for-like local currency basis revenue rose 1.3% for the year as a whole. The Group ended the year with 275 stores compared with 236 at 26 July 2014.

On a reported basis, after the effects of a weaker Euro, Spanish revenue rose 12.7% in the second half, resulting in a 2.9% decrease for the full year. The Adjusted EBITDA for the period was £10.3 million (2014: £10.7 million). In local currency terms Adjusted EBITDA increased 1.6% to €13.1 million.

As a result of a strong underlying performance and expanded store base, our share of the Spanish mint market increased by over 300 basis points in the year to 38%, with our share in the second half improving by 600 basis points to 42%. The Spanish business grew share in the Hardware, Software and Digital categories over the year.

Gross Transaction Value (GTV) and Revenue

Note: The allocation of revenue between categories has been restated in the prior year to reflect consistency across the UK and Spanish businesses and to bring in line with current management reporting. 

Group Gross Transaction Value (GTV) grew 2.3% over the year to £962.4 million (2014: £940.5 million). Foreign exchange rates negatively impacted the reported GTV during the year. On a constant currency basis GTV grew by 4.3%.

Content GTV, which includes both boxed and digital game content, grew by 2.2% in the year. GTV of physical content for Xbox One and PlayStation 4 formats continues to exhibit strong growth, increasing by 137% and offsetting the decline in physical sales for older formats.

Within Content GTV, total digital sales grew strongly, rising 28.1% to £95.4 million. Underlying this improvement, console digital sales increased by 23.4% whilst non-console digital sales rose 44.3%. Approximately £5 million of the £21 million increase was driven by the addition of a digital full game download provided with certain console hardware bundles during 2015 which may not reoccur in 2016.

As expected, Hardware GTV, after the initial surge in higher priced sales following the launches of Xbox One and PlayStation 4, was lower primarily due to lower average selling prices. Strong sales volumes in the first half more than compensated for the price declines, with GTV rising a modest 0.8%; however lower volumes in the second half saw Hardware GTV decline 19.0% in the period, resulting in an overall GTV decline of 4.7% over the year.

GTV from preowned products increased by £14.5 million or 8.5% to £185.9 million. GTV growth was driven by an increase in sales of preowned PlayStation 4 and Xbox One hardware and software products as well as further strong growth in the value of preowned GAMEtronics sales (mobile phones and tablets), which doubled in the year to £26.9 million.

GTV from Accessories, Toys-To-Life & Other increased by £11.1 million or 12.0% to £103.7 million. The increase in GTV was explained both by the sales contribution from Multiplay following the company's acquisition in March 2015, together with the growth within the accessories, Toys-To-Life and licensed product sub-categories.

On a statutory basis, following a 0.7% decline in the first half, Group revenue grew 3.3% in the second half, resulting in a 0.6% increase over the year to £866.6 million (2014: £861.8 million). Underlying this performance, Group revenue excluding hardware rose 3.3%, with the combined growth across these categories (Content, Preowned and Accessories, Toys-To-Life & Other) accelerating to 11.2% in the second half.

Gross profit

Gross profit increased by 1.9% to £213.7 million (2014: £209.7 million). Foreign exchange rates negatively impacted the reported gross profit during the year, with the euro c.9% weaker against sterling in the 52 weeks ended 25 July 2015. This accounted for a year-on-year reduction in gross profit of c.£4.5 million. On a constant currency basis total gross profit increased by 4.1% to £218.2 million.

Gross profit by category is analysed in the table below.

Note: Gross profit calculated as a % of revenue

The content gross profit rate increased 2.5 percentage points to 30.5%. The category continued to benefit from an increase in mix from higher margin Xbox One and PlayStation 4 content and a lower contribution from lower margin older-format content. Content margin also benefited from an increasing proportion of digital sales mix. This served to increase the reported content percentage margin (as digital revenue is accounted for as commission revenue with no associated cost of sale).

Hardware margin rates decreased in the year as a consequence of the new consoles no longer being under any supply constraints. As a result, promotional activity across the market increased, most notably in the UK, leading to lower percentage margins achieved on hardware.

Preowned margin rates fell 0.8 of a percentage point as a result of the increasing proportion of sales of technology products in the mix. Underlying margins on the core preowned business (console hardware, software and accessories) were stable.

The gross margin of Accessories, Toys-To-Life & Other remained at 32.6%.

Operating expenses

Continuing operating expenses before adjusting items, comprising selling and distribution and administrative expenses, increased by £10.1 million or 6.1% to £175.3 million.

Selling and distribution costs before adjusting items increased by £6.9 million, or 5.2%, to £140.3 million, predominantly driven by an increase in store payroll costs to £54.6 million from £52.5 million, a £2.8 million increase in net marketing costs and a £1.4 million increase in depreciation and amortisation charges. The depreciation and amortisation increase is partly as a result of IT development undertaken during the course of the year on digital and online initiatives such as GAME Wallet and Marketplace. Selling and distribution costs also includes rent which declined £2.6 million year-on-year to £33.2 million (2014: £35.8 million), representing 3.8% of revenue (2014: 4.2%).

Administrative costs before exceptional and adjusting items increased by £3.2 million, or 10.0%, to £35.0 million. The major elements of the increase are explained by the inclusion of Multiplay's operating costs of £1.1 million and the first full year of costs operating as a publicly listed business.

Adjusted operating expenses excluding depreciation and amortisation increased from £158.4 million to £166.8 million, up 5.3%. Equivalent costs are forecast to increase around 5% next year before the full year impact of Multiplay, the Spanish stores transferred from GameStop, plus additional investment planned to support further growth in the Group's eSports & Events and Digital Solutions divisions. Included in the increase in the Retail division will be the part-year impact of the introduction of the living wage from April 2016, which is expected to add at least £0.3 million in 2015/16.

Exceptional and adjusting items

Exceptional items were £nil (2014: £8.4 million). The prior year exceptional items of £8.4 million primarily related to costs incurred in relation to the IPO.

The adjusting items before tax as detailed in note 4, are as follows:

Amortisation charges increased by £0.2 million in the year as a result of the acquisition of Multiplay in March. The increase in IPO-related share-based payment compensation to £2.2 million reflects the full year impact of these costs. The post-acquisition remuneration of £1.0 million relates to cash and shares payable to certain Multiplay shareholders. Other adjusting costs in 2014/15 of £0.5 million, comprising legal and professional fees, were incurred in relation to the transfer of Spanish stores from GameStop and the acquisition of Multiplay.

Costs of £2.7 million in the prior year related to the change in business structure comprising advisory, investment monitoring fees and other holding company costs.

Adjusted EBITDA

Note: EBITDA margin calculated as a % of revenue

Adjusted EBITDA (EBITDA less exceptional and adjusting items) of £46.9 million (2014: £51.3 million) fell by £4.4 million in the year of which the majority related to the UK retail business.

Financing costs

Net financing costs totalled £0.4 million relating to the Asset Backed Lending (ABL) facility (now terminated) in the UK and the RCF and overdraft in Spain and after the interest received on bank deposits. In 2014, net financing costs were £17.5 million of which £16.3 million related to interest and fees payable to related parties for loans and facilities which were fully capitalised or cancelled as part of the reorganisation, implemented ahead of the IPO. Finance costs relating to the establishment of the ABL facility at the time of the IPO amounted to £0.8 million.

Profit before tax

Profit before tax for the year amounted to £25.8 million (2014: £7.3 million). The prior year profit is impacted by the high level of exceptional costs mainly associated with the IPO and financing costs as described above.

Taxation 

The effective tax rate (defined as the accounting tax charge divided by the accounting profits before tax) was 17% (2014: 62%). In the current year the Group has utilised previously unrecognised deferred tax assets which have decreased the tax charge by £1.3 million and hence led to the low effective rate for the year. The high level of IPO-related and other non-deductible costs in the previous year leads to a non-standard effective rate for that year.

Earnings per share 

The earnings used for the calculation of Adjusted basic EPS is as follows:

* Basic shares outstanding excludes shares held in trust (EBT and SIP)

The Group delivered Adjusted basic earnings per share of 18.8p (2014: 17.8p). In order to give a better view of underlying earnings, adjustments to earnings per share have been made to remove exceptional and adjusting items.

Cash flow

Cash generated from operations

Cash generated from operations amounted to £46.9 million, broadly in line with last year, and benefited from £3.7 million of working capital generation (2014: £7.5 million). After finance costs and corporation tax payments, cash generated from operating activities was £43.3 million (2014: £42.3 million).

Note: Working capital generation ratio calculated as working capital generated as a % of net cash from operating activities

Capital Expenditure

Group capital expenditure amounted to £11.3 million in 2015 (2014: £11.4 million), representing 24% of Adjusted EBITDA (2014: 22%) and 1.3% of revenue (2014: 1.3%).

Capital expenditure was incurred in the year on investment in UK stores to refurbish the existing estate and support the roll-out and growth of GAMEtronics and on the store estate in Spain. Continued investment in the website and digital infrastructure of the Group saw the launch of GAME Marketplace in February 2015 and further developments to the GAME App, GAME Wallet, Codebank and the customer insight programme.

Future capital expenditure is planned for further development of the Group's websites, other IT developments and digital infrastructure initiatives. Further investment in the existing store estate is planned (for example, to support the roll-out of digital display screens in stores) as well as capital expenditure on a small number of new stores and relocations and further maintenance capital expenditure particularly focused on core IT systems.

Dividends

The Group paid an interim and special dividend in the year totalling 22.05 pence per share (£37.2 million) and is proposing a final dividend of 7.35 pence per share (£12.5 million) leading to total ordinary dividends of 14.7 pence per share in the year (£24.9 million), and total ordinary and special dividends in the year of 29.4 pence per share (£49.7 million). The final dividend will be proposed by the Directors at the 2015 AGM. The ex-dividend date will be 14 January 2016 and, if approved at the Company's forthcoming AGM, will be paid to shareholders on 5 February 2016 to those shareholders on the register at the close of business on 15 January 2016.

The Board has a progressive dividend policy which reflects the cash flow generation and long-term earnings potential of the Group, whilst retaining sufficient capital to fund investment to grow the business.

Acquisition of subsidiary

The Group acquired 100% of Multiplay in March 2015 for an initial cash consideration of £12.6 million and at the date of acquisition also bought in £0.2 million of cash. Further payments will be made to certain selling shareholders of up to £7.4 million over the three year period from the date of acquisition, of which £5.0 million will be satisfied through the issue of shares in GAME Digital plc, with the balance in cash.

Cash Resources and Financing

The UK business refinanced upon IPO in June 2014 with a short-term asset-based revolving lending facility of up to £50 million (reduced to £25 million in February 2015 following a review of the working capital requirements of the business) with HSBC Invoice Finance (UK) Limited. These funds were undrawn at the year-end. Subsequent to the year-end on 14 October 2015, the UK business has refinanced this asset-based facility with a secured revolving credit facility agreement with Barclays Bank PLC and HSBC Bank plc for an aggregate amount of £30 million. The cost to the Group of this facility is an arrangement fee of £0.2 million, a commitment fee of 0.8% on the available facility per annum, an agency and security fee totalling £0.1 million per annum and interest on drawn funds of 2.0% above LIBOR.

The Group's Spanish subsidiary renewed short-term financing facilities with Spanish banks BBVA and Banco Santander amounting to €38.5 million on 30 July 2015 and 10 September 2015 respectively. The cost to the Group of these facilities is an arrangement fee of between 0.08% and 0.15%; a commitment fee of 0.10% per annum and interest on drawn funds of between 2.0% and 3.0% per annum above Euribor 90.

Following the signing of the new facility in the UK, the Group has aggregate available facilities of approximately £59 million.

The combination of these facilities and the level of Group cash means that the Group has further strengthened its financial position as it enters the period of peak trading and the peak working capital requirement.

Working capital

Net investment in trade working capital increased by £4.4m, or 13%, to £36.0m (2014: £31.6m).

The Group is carrying higher stock balances of £66.8 million at the end of the financial year, up 16% on last year in part due to the timing of new releases (Batman Arkham Knight was released four weeks before the year-end) and the growth of GAMEtronics in the year, where stock levels have increased by £5.2 million to support the current sales demand. Weeks' inventories on hand (defined as year-end inventory divided by cost of sales per week for the last 26 weeks) has increased by 22% from 7.3 weeks to 8.4 weeks.

The trade receivables balance has increased to £7.0 million compared to £6.1 million in 2014. The acquisition of Multiplay by the Group has resulted in an additional £0.9 million of trade receivables.

Following the IPO and the removal of all related-party debt from the UK business, leading credit insurance companies have helped to support the increase in available supplier credit, thereby contributing to the increase in trade payables balances. The Group has also benefited from commercial deals with suppliers allowing more stock to be bought on favourable terms.

Mark Gifford

Chief Financial Officer

RESPONSIBILITY STATEMENT

The responsibility statement below has been prepared in connection with the Group's full Annual Report and Accounts for the 52 weeks to 25 July 2015. Certain parts thereof are not included within this statement.

We confirm that to the best of our knowledge:

· the financial statements (on which this statement is based), prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

· the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

This responsibility statement was approved by the Board of Directors on 14 October 2015 and is signed on its behalf by:

Consolidated Statement of Comprehensive Income

For the 52 weeks ended 25 July 2015

Consolidated Statement of Financial Position

As at 25 July 2015

Consolidated Statement of Changes in Equity

For the 52 weeks ended 25 July 2015

Consolidated Statement of Cash Flows

For the 52 weeks ended 25 July 2015

NOTES

1. Basis of preparation

This statement is based on the Company's financial statements which are prepared in accordance International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and in accordance with the Companies Act 2006 applicable to companies reporting under IFRS.

With the exception of the new standards adopted in the year, as discussed below, there have been no significant changes in accounting policies from those set out in GAME Digital plc's Annual Report and Accounts 2014. The accounting policies have been applied consistently throughout the 52 week periods ended 26 July 2014 and 25 July 2015.

The financial information set out in this statement does not constitute the Group's statutory accounts for the 52 week periods ended 26 July 2014 and 25 July 2015 but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's Annual General Meeting. The auditor's reports on the 2014 and the 2015 accounts were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The following Standards with an effective date of 1 January 2014 have been adopted without any significant impact on the amounts reported in these financial statements:

Annual Improvements 2010 - 2012 Cycle

Annual Improvements 2011 - 2013 Cycle

Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures

Amendments to IFRS 11 Acquisitions of Interests in Joint Operations

Amendments to IFRS 12 Disclosure of Interests in Other Entities

Amendments to IAS 27 Consolidated and Separate Financial Statements

Amendments to IAS 32 Financial Instruments: Presentation

Amendments to IAS 36 Impairment of Assets

Amendments to IAS 39 Financial Instruments: Recognition and Measurement

This statement was approved by the Board of Directors on 14 October 2015.

Going concern

The Directors have considered the cash resources and financing facilities available to the Group and have reviewed budgets and forecasts including downside sensitivities. The Directors have a reasonable expectation that the Group and the Company has adequate financial resources together with a strong business model to ensure it continues to operate for the foreseeable future. On that basis they have adopted the going concern basis of accounting in preparing the financial statements.

2. Segmental information

The Group's Chief Executive Officer is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Chief Executive for the purposes of allocating resources and assessing performance.

The Group's Chief Executive Officer considers the business from a geographic perspective, namely the UK (including one store in the Isle of Man) and Spain. Such segments are separately managed. The Group's activities in both geographic segments involve the sale of hardware and software products via its stores and websites.

Multiplay (UK) Limited ("Multiplay") was acquired during the period and does not meet the quantitative thresholds required by IFRS 8 for reportable segments therefore has been included within the UK segment as it operates in the same geographical area as the UK retail business.

The Group's Chief Executive Officer assesses the performance of the operating segments based on Gross Transaction Value, Revenue and Adjusted EBITDA defined as follows:

· Gross Transaction Value is a non-IFRS measure defined as total retail receipts excluding VAT and before the deduction of revenue deferral relating to reward points. Gross Transaction Value reflects the full sales value of digital sales, agency sales (including sales by business partners on GAME's Marketplace website), warranties and other similar arrangements and thereby includes the publishers' and sellers' shares of those transactions. Gross Transaction Value provides the most reliable measure of activity in an environment where more sales are expected to move from physical to digital.

· Revenue is measured in a manner consistent with that in the statement of comprehensive income.

· The Group defines Adjusted EBITDA as operating profit before depreciation and amortisation, exceptional and adjusting items. Adjusted EBITDA is a supplemental measure of the Group's performance and liquidity that is not required to be presented in accordance with IFRS.

The segment information provided to the Chief Executive Officer for the reportable segments is as follows:

IPO-related share-based compensation of £2.2m (2014: £0.3m) includes the associated social security contributions and amounts in lieu of dividends payable in connection with the share options.

For the purposes of monitoring segment performance and allocating resources between segments, the Group's Chief Executive Officer monitors the non-current and current assets and current and non-current liabilities attributable to each segment. All assets and liabilities are allocated to reportable segments.

Other segment information

No impairment losses against property, plant and equipment and intangible assets have been recognised against any segment in either of the periods presented above.

Revenues from major products and services

The Group's revenues from its major products and services were as follows:

Content revenue includes income relating to the sale of gaming products for use on hardware platforms, including both physical and digital content. Digital content is reported on a commission basis and is recognised net of associated purchase costs. Hardware represents the sale of console platforms. Preowned includes the sale of preowned content, hardware and mobile devices. Accessories, Toys-To-Life & Other includes the sale of gaming accessories, Toys-To-Life and other products, DVDs (music and film), licensed merchandise and revenue from the organisation and management of events, hosting and subscription income. No single customer contributed more than 10% to Group revenue.

The allocation of revenue between categories has been restated in the prior year following a review of the classifications in Spain and to bring it in line with the UK retail business.

3. Other operating expenses

4. Exceptional and adjusting items

The Group defines exceptional items as per the accounting policy. Certain items that do not meet the definition of exceptional but, in management's view are not reflective of underlying trading, are presented as adjusting items when calculating non-GAAP performance measures, namely Adjusted EBITDA (note 2) and Adjusted Earnings per Share (note 6).

No exceptional costs have been incurred in the current year. The exceptional costs incurred in 2014 related to IPO costs and costs incurred with external advisers in strategically restructuring the business.

The prior year exceptional costs in relation to the IPO were £7.7m. These costs included the cost of preparing to become a listed company, cash payments under employee bonus arrangements and the cost of the Virtual Loyalty Share Plan offered to 20,000 of the Group's most loyal customers in the UK.

Other administration related costs in the prior year were the costs of settling acquired liabilities related to legal costs of litigation involving a number of institutional landlords and the administrators of the former GAME Group plc in relation to the payment of certain outstanding rent and other sums in place at the date of acquisition of the business. Game Retail Limited agreed to indemnify the former GAME Group plc and its administrators in relation to the payment of such sums, to the extent that they are held by the court to be payable as an expense of the administration.

Restructuring income associated with the administration of the former GAME Group plc in the prior year principally related to income and recoveries relating to VAT in respect of gift card liabilities.

Adjusting items in the period are as follows:

Brand amortisation arose in the UK on the purchase of the trade and assets from the former GAME Group plc and in Spain on consolidation of the company. Following the acquisition of Multiplay (UK) Limited, the separately identifiable intangible assets capitalised, including brand value, are amortised over their useful lives. These amortisation charges are recurring costs to the Group and therefore not classified as exceptional, however, as they are unusual, significant and are not reflective of the underlying trading of the business they are presented as adjusting items.

One-off awards of ordinary shares were made in conjunction with the IPO in June 2014. The share-based payments charge and associated costs in respect of these awards are presented within adjusting items due to the nature of the awards. Subsequent annual awards are included within operating expenses as they are a recurring cost to the Group.

Post-acquisition remuneration relates to cash and shares payable to certain selling shareholders agreed at the time of the acquisition of Multiplay (UK) Limited and this cost is in addition to recurring annual remuneration for these employees.

Legal and professional fees associated with the transfer of GameStop Spain store leases and stock to GAME Stores Iberia SLU and the costs of acquiring Multiplay (UK) Limited are not deemed significant enough to meet the definition of exceptional items. However, as the costs are acquisition related and not part of the underlying trading of the business they are classified as adjusting.

Costs relating to the change in business structure in the prior year related to advisory, investment monitoring fees and other holding company costs which the Group incurred in return for certain services received prior to the IPO under the former ownership and governance structure. These agreements were terminated upon IPO and no longer apply and are therefore not considered part of underlying trading.

5. Operating profit

6. Earnings per share

Earnings per share has been calculated by dividing the profit for the period by the weighted average number of ordinary shares in issue during the period.

Basic

Diluted

Adjusted earnings per share

IAS 33 Earnings per share requires that the number of shares used for basic and diluted earnings per share be calculated on the weighted average number of shares over the year. The corporate reorganisation and IPO took place between 6 June 2014 and 11 June 2014, shortly before the end of the financial year. Therefore the weighted average number of shares for the prior period is considerably lower than the 170 million shares in issue at the date of the IPO. For the purposes of presenting comparable adjusted basic earnings per share, the calculation below uses the number of shares immediately post the IPO:

7. Dividends

Amounts recognised as distributions to owners of the Company in the period:

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The GAME Digital plc Employee Benefit Trust has waived all dividends payable by the Company in respect of the ordinary shares held by it. The total dividends waived in the 52 weeks ended 25 July 2015 were £0.3m.

8. Business combinations

On 2 March 2015, the Group obtained control of Multiplay (UK) Limited by acquiring 100% of its issued share capital. Multiplay (UK) Limited is a community-based specialist gaming company and it was acquired to increase the Group's relevance and engagement across communities, and to accelerate the move into the rapidly growing world of eSports and multiplayer gaming. Goodwill of £8.5m arises from a number of factors including expected synergies through combining a highly skilled and knowledgeable workforce.

Recognised amounts of identifiable assets acquired and liabilities assumed: