GMD.L Regulatory News (GMD)

23 March 2016

GAME DIGITAL PLC

Interim results for the 26 weeks ended 23 January 2016

GAME Digital plc ("GAME" or the "Group") today announces its interim results for the 26 week period ended 23 January 2016 (the "period"). All comparator periods are for the 26 weeks ended 24 January 2015 unless otherwise stated.

Financial and Operational Headlines

Martyn Gibbs, Chief Executive Officer, said:

"Operating in the fast-paced video games industry continues to present both opportunities and challenges to our business. Market dynamics in the UK were challenging during our peak trading period, although sales trends improved in the last week of December and first three weeks of January.

"In January we launched a review of the UK business and are committed to rapidly implementing measures to respond to current market trends. As well as pursuing commercial opportunities we are focussed on driving improvements in the consumer proposition and realising operational efficiencies to improve our performance. In Spain the Group delivered another strong performance in the first half, with increased sales, profits and market share.

"I remain confident in the prospects for the Group. We are making good progress driving retail and business diversification, with strong growth delivered in higher margin categories such as preowned phones and tablets, PC accessories and licensed merchandise. In addition, sales of digital content were up almost 10% and our customer engagement metrics remain positive. At the same time we expect the impact of falling legacy software sales to lessen in the future.

"Increasing engagement with gaming communities and broadening our offer, both within and beyond retail, sits at the heart of our strategy. We are committed to investing in our teams and core foundations to support our plans for the business. The development of our competitive gaming, eSports and gaming events continue to progress rapidly at Multiplay, and we are looking to develop similar activities in Spain through the acquisition of SocialNAT. I also believe that the potential for Clanforge, our consumer and enterprise server management software, will continue to grow as we engage with our broad supplier base. I remain excited by our plans for the business and the opportunities ahead of us."

Current Trading and Outlook

Trading in the second half of the year has been in line with our expectations and the Group expects to deliver a small, positive EBITDA for the 27 week period ending 30 July 2016.

The Board is committed to the financial investment required to effect change and deliver consistent, sustainable earnings growth. At the same time, the Group is focussed on optimally managing its core retail cost base and improving operational efficiency to partially offset this planned investment.

The Board will announce its full year results for the 53 weeks ending 30 July 2016 in October 2016.

Results presentation

Management will be hosting a presentation for analysts and investors at 9.30 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:

1. 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 (see note 1). Gross Transaction Value provides the most reliable measure of activity in an environment where more sales are expected to move from physical to digital.

2. Adjusted EBITDA is a non-IFRS measure defined by the Group as operating profit before tax, depreciation, amortisation, net finance costs, exceptional and adjusting items (see note 1).

3. The calculations of Adjusted profit before tax excludes all exceptional and adjusting items (see note 3)

4. Adjusted basic earnings per share is calculated as set out in note 7.

5. Market share is calculated by dividing the total value of GAME's retail sales of mint hardware, software, console digital content and accessories for the 26 weeks ended 23 January 2016 by the comparative figure for the UK and / or Spanish market respectively (Source: GfK Chart-Track).

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.

Notification of Home Member State

Following changes made to the Disclosure Rules and Transparency Rules ("DTR") as a result of the Transparency Directive Amending Directive (2013/50/EU), the Company is required to disclose its Home State. Accordingly, pursuant to DTR 6.4.2, the Company announces that its Home State is the United Kingdom.

Notes to editors

GAME Digital plc is dedicated to delivering an authoritative range of specialist gaming products and services to the gaming communities of the UK, Spain and beyond. 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, an omni-channel offer including the multi-award winning GAME App, and a reach of more than 18 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 and SocialNAT businesses, delivers unique and memorable 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 visit www.gamedigitalplc.com, www.multiplay.com or www.socialnat.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.

SUMMARY OF FINANCIAL RESULTS

1. 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 1). Gross Transaction Value provides the most reliable measure of activity in an environment where more sales are expected to move from physical to digital.

2. Adjusted EBITDA is a non-IFRS measure defined by the Group as profit before tax, depreciation, amortisation, net finance costs, exceptional and adjusting items (see note 1).

3. Adjusted profit before tax is a non-IFRS measure defined by the Group as profit before exceptional and adjusting items (see note 3).

4. Adjusted basic EPS is calculated as set out in note 7.

CHIEF EXECUTIVE'S STATEMENT

Summary of Group Results

Group GTV of £608.0 million was down 5.6% on the prior period and down 3.6% on a constant currency basis, with Group gross profit down by 3.3% on a reported basis and down 1.2% on a constant currency basis due to the stronger Pound relative to the Euro. Total operating costs of £107.9 million rose by 6.1% reflecting the first time inclusion of Multiplay within the business, with core operating costs (excluding Multiplay, depreciation and amortisation) up 3.6%, from £92.2 million to £95.5 million.

Group earnings before adjusting and exceptional items, finance costs, depreciation and amortisation ("Adjusted EBITDA") were £33.1 million, which compares with £43.0 million in the prior period. Profit before tax, adjusting and exceptional items was £27.7 million (2015: £38.9 million) and earnings per share before non-recurring items were 12.2p (2015: 17.8p), down 28.8% and 31.5% respectively.

Cash generated from operating activities of £66.6 million was positive and above the prior year level of £64.9 million. Our balance sheet remains strong, with no long term debt. Group net cash at the end of the period was £120.2 million (2015: £140.4 million), after factoring in positive operating cash generation before the payment of a special dividend last year of £24.8 million from surplus cash.

The Board has approved an interim dividend of 1.67 pence per share (2015: 7.35 pence), representing approximately a third of the expected full year dividend. This will be paid on 5 August 2016 to shareholders on the register at the close of business on 1 July 2016, with the ex-dividend date of 30 June 2016.

Group Operational and Strategic Review

Note:

1) Source: GfK Chart-Track; based on value of retail sales of console hardware, software, digital and accessories for 26 weeks ended 23 January 2016

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 26 weeks ended 23 January 2016

Figures in brackets denote January 2015 comparatives

UK

UK Multichannel

As previously announced, trading conditions in the UK video games market in the first half were challenging. The switch over from the older gaming formats to PlayStation 4 and Xbox One ("New Format") software impacted profitability across the market and the effect of this switch over was further compounded by lower year on year high street and shopping centre footfall in key Christmas trading weeks. Overall the UK retail market (Console Hardware, Software, Accessories and Digital) fell 12.8% in the first half of the year with hardware sales falling 28% and software sales down 8%.

Against this backdrop the Group's UK GTV declined 9.6% to £451.6 million. UK gross profit fell 5.6% to £96.9 million (2015: £102.7 million). The Group's UK console sales of £117.7 million were down 28.7%, but given the low margin of this category the impact on gross profit was modest.

Though overall sales declined in the first half, the UK business delivered significant growth in a number of areas, including New Format software (up 20% across mint and preowned combined) as well as newer categories such as preowned mobile phones and tablets, PC gaming (hardware, accessories and content) and licensed merchandise. Whilst we are pleased with strong growth in our newer products, this has not been sufficient to offset the margin decline from sales of Xbox 360, PlayStation 3 and other older format software.

The increased contribution from higher margin categories resulted in a 100 basis point improvement in the UK Gross Margin rate in the period, to 23.8%. However lower sales combined with higher costs resulted in a decline in Adjusted EBITDA to £21.5 million (2015: £31.9 million) in the period.

Operating costs before depreciation and amortisation and adjusting and exceptional items increased £2.2 million or 3.2%, reflecting higher distribution costs and cost investment to support new growth categories.

In January a comprehensive UK action plan was implemented to respond rapidly to the change in market dynamics. This plan is progressing well and includes the pursuit of new commercial opportunities, improvements to the consumer proposition and the delivery of further operational efficiencies.

Actions include, amongst other things:

Multiplay

Multiplay delivered sales of £3.9 million in the first half (Multiplay sales are included within the UK's 'Accessories, Toys-To-Life & Other' category) (2015: Nil). Delivery against our strategic and operational plans for Multiplay are progressing well. Business highlights in the half included:

The Insomnia Gaming Festival & Gaming Events

After reaching capacity at the Ricoh Arena in Coventry, the Group hosted its first Insomnia Gaming Festival (Insomnia 56) at Birmingham's NEC in December 2015, achieving record attendance for a winter event. Advance ticket sales for Insomnia 57 over Easter are also significantly above last year's level and will set a new record for an Easter event. Plans to host the first Insomnia events in Scotland and Ireland in 2016 have been announced and arrangements are progressing well.

eSports and Competitive Gaming

The Group ran its first professional-tier eSports event at Insomnia 56 (The $30,000 Insomnia Truesilver Championship). The tournament was broadcast in 26 territories and surpassed its targeted global online viewing figures. The Group will host an equivalent eSports tournament at Insomnia 57 and has secured new sponsorship revenue as its reputation and audience grows. This activity remains in its infancy but the growth opportunities remain significant.

Digital Division: Clanforge

The Group had significant contract success with Clanforge, the Group's proprietary enterprise middleware for server management, in the first half. Publisher interest in Clanforge remains high with a number of contract discussions underway.

The Group continues to invest in the cost base to support its ambitious growth plans, with an increase in headcount of 29 across all Multiplay teams (Insomnia & Gaming Events, eSports & Competitive Gaming and Digital), taking the total number of employees to 91. Key appointments included new Directors of both the Insomnia Gaming Festival and the Digital division, which oversees the development and growth of Clanforge.

Spain Multichannel

The Spanish business delivered a strong performance in the first half of the year, with total GTV up 17.5% on a local currency basis against the Spanish market which grew 11.1%. On a like-for-like basis (after adjusting for the additional 44 Gamestop stores transferred to the Group in October 2014), sales grew 16.1%.

GAME grew both sales and market share in all categories (Hardware, Software, Accessories and Digital), with the Group's market share of the Spanish retail market rising by approximately two percentage points to 38%.

In local currency terms, GAME's Content GTV grew 10.2%, with New Format software sales up more than 76% and higher margin preowned sales growth of 11.0%. Sales in the Accessories, Toys-To-Life & Other category rose 19.4% and Hardware sales rose 32.7%.

In total, after the effects of a weaker Euro, which depreciated approximately 8% against Sterling, Spanish GTV rose 8.4% in the first half and gross profit increased £1.3 million or 4.0% to £33.8 million due to mix effects resulting from the strong growth in lower margin hardware sales.

Operating costs before depreciation, amortisation and adjusting and exceptional items rose £0.8 million or 3.7%, resulting in an Adjusted EBITDA of £11.6 million (2015: £11.1 million).

The Group closed five stores in Spain during the half, ending the period with 270 stores, of which just three were loss making (2015: 7).

Group Strategy Update

The Group is focussed on putting customers and communities at the heart of the business, maintaining strong relationships with its supplier partners and identifying and developing exciting and relevant new business opportunities both within and outside of retail. Through this we aim to broaden and deepen our large and loyal customer relationships, build on the Group's established positions and effect the transition to consistent, sustainable earnings growth.

Specialist Retail

Across the UK and Spanish retail businesses the Group's strategy is focussed on maximising sales from its core console markets, expanding into new markets and delivering a truly multichannel proposition and customer experience. We have entered attractive new categories such as preowned mobile phones and tablets, PC gaming hardware and accessories, digital content, licensed merchandise and Virtual Reality products. The Group is also focussed on driving significant growth of its relatively new business initiative, Marketplace.

Alongside product innovation and development the Group is expanding and enhancing the services it offers to consumers including online trade-in, consumer finance (UK and Spain), the UK gift card programme, product repairs (UK and Spain) and product protection plans. The Group has also recently started offering broadband, mobile and TV packages in UK stores and in Spain the business has recently begun offering a 'build your own PC' service for PC gamers.

Gaming Events, eSports and Local Competitive Gaming

Beyond retail, the Group is planning material investment to deliver significant growth in revenue over the next three years from gaming events, esports and local competitive gaming. Direct revenue streams include ticket sales, advertising and sponsorship deals and the Group expects to benefit further from a growing audience of engaged and loyal gamers.

Future plans include a focus on the expansion of the number and size of Insomnia Gaming Festivals hosted in the UK and internationally, growth in the number of white label gaming events organised on behalf of the publishers, as well as the further development of the Group's professional and amateur eSports tournaments. In February the Group announced the acquisition of SocialNAT in Spain to support these plans.

Digital Solutions: Clanforge

The further development and roll-out of Multiplay's Clanforge product, which provides scalable and cost effective consumer and enterprise server hosting solutions for online gaming, is a key strategic priority for the Group. The Group is investing heavily in the required resource and infrastructure to support the significant future growth anticipated.

Conclusion

The video games industry continues to evolve, presenting opportunities and risks to the business. Though recent dynamics in the UK console market resulted in a challenging trading environment in the first half, GAME continues to retain a highly differentiated and valuable position at the heart of gaming communities across the UK and Spain.

We anticipate further declines in older format software, however the impact to the business will lessen as these categories become a smaller proportion of the Group's sales. At the same time we expect new format software (PlayStation 4 and Xbox One) and the Group's newer, growth categories (for example preowned mobile phones and tablets) to continue to increase their contribution.

The Board foresees a number of strategic opportunities and growth areas across the business and is committed to the necessary investment to capitalise on these. The Group is confident that by organising itself effectively and building ever stronger and more collaborative partnerships with its key suppliers, it is well positioned to execute its strategy and deliver long-term sustainable growth.

FINANCIAL REVIEW

Group Results

Group revenue for the 26 week period ended 23 January 2016 declined by 6.3% to £549.2 million (2015: £585.9 million) with strong sales growth in Spain more than offset by a challenging period for the UK retail market. On a constant currency basis the Group's Gross Transaction Value (GTV), a better measure of underlying retail activity as it includes the gross value of digital receipts, decreased by 3.6%, however reported Group GTV in the first half was down 5.6% to £608.0 million (2015: £644.1 million) due to the stronger pound relative to the Euro.

The trends seen in the second half of last year continued into the first half of this year, with the pace of the market's transition to the latest generation of consoles (PlayStation 4 and Xbox One) accelerating. GTV excluding hardware (physical and digital Content, Preowned, Accessories, Toys-To-Life & Other) grew by 0.9% in the half, whilst Hardware GTV fell 20.4% as a result of reduced average selling prices compared with the same period last year and lower volumes. Within the Content category, sales of New Format physical software (PlayStation 4 and Xbox One) were strong, up 25% in the half. However, this growth was more than offset by the fall in Old Format software sales (PlayStation 3 and Xbox 360), down 58.5%, as consumer demand for these products declined. Similar trends were seen within the Preowned category, with New Format software sales up 40% compared with a 37% fall in Old Format software sales.

Group gross margins (as a percentage of revenue) increased by 70 basis points in the half to 23.8%. Gross margins benefited from the shift in sales mix to higher margin categories (Preowned and Accessories, Toys-To-Life & Other category (including Multiplay)). Hardware margins remained stabled in the half, at 3.4%.

The Group delivered an Adjusted EBITDA of £33.1 million in the half (2015: £43.0 million), impacted by the reduction in gross profit as well as £5.4 million of cost growth across the business. The increase in underlying operating costs was explained by the acquisition of the Multiplay business in March 2015 as well as modestly higher operating costs within the Group's UK and Spanish businesses.

Group operating profit was £22.8 million (2015: £33.5 million), similarly explained by lower gross profit generation and higher operating expenses, including a £1.6 million increase in depreciation and amortisation.

Adjusted profit before tax in the year was £27.7 million (2015: £38.9 million). Tax on adjusted earnings was £7.1 million (2015: £8.7 million) with the increase in effective tax rate due to the impact of a higher mix of profits arising in Spain which has a higher tax rate, as well as certain costs charged in the consolidated statement of comprehensive income for which no tax deduction is available, predominantly the post-acquisition remuneration for Multiplay.

Segmental results

UK

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

2. Calculated as a % of revenue

The UK business, including Multiplay, saw Gross Transaction Values decline by 9.6% and revenue by 9.7% in the half.

UK GTV excluding Hardware was flat at £333.8 million (2015: £334.6 million). A strong performance in the Accessories, Toys-To-Life & Other category, which grew 29.6% to £60.4 million, was offset by a 7.0% fall in Content sales, explained by a 63.9% decline in Old Format (PlayStation 3 and Xbox 360) software.

The Preowned category GTV of £76.0 million was up 0.5% in the half. Strong preowned technology sales were delivered, up 101.0% and New Format sales were also up 31.4%. Stronger overall GTV growth was held back by the 45.4% decline in Old Format sales.

In line with the UK market, Hardware GTV was down 28.7% in the half, with sales continuing to be impacted by the reduction in average selling prices of the latest generation of consoles versus a year ago and lower volumes.

The increased sales mix of higher margin categories resulted in a 1.0 percentage point improvement in the UK Gross Margin rate in the first half, to 23.8%. UK operating costs excluding depreciation, amortisation and adjusting and exceptional items rose 6.5% to £75.4 million (2015: £70.8 million) explained by the first time inclusion of Multiplay, increased delivery costs as a result of higher online sales and investment to support the Group's growth initiatives. This increase in costs, together with the decline in sales resulted in a 32.6% decline in Adjusted EBITDA to £21.5 million (2015: £31.9 million) for the half.

The number of stores in the UK at 23 January 2016 was unchanged from last year, at 319.

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.

The Spanish market grew by 11.1% on a local currency basis in the first half. GAME continued its outperformance of the market, delivering GTV growth of 17.5% in local currency terms. On a like-for-like local currency basis revenue rose 16.1% for the first half. The Group ended the year with 270 stores compared with 280 at 24 January 2015.

On a reported basis, after the effects of a weaker Euro, Spanish GTV rose 8.4% in the first half. The Adjusted EBITDA for the period was £11.6 million (2015: £11.1 million). In local currency terms Adjusted EBITDA increased 13.5% to €16.0 million (2015: €14.1 million).

GAME grew share in all categories (Hardware, Software, Accessories and Digital) in the half, with total market share of the Spanish mint market rising by over 200 basis points, to 38%.

Gross Transaction Value (GTV) and Revenue

Note: A reclassification of £3.8m has been made between revenue and cost of sales in the period ended 24 January 2015 to restate the accounting for Digital commission revenue within the Content category.

Group Gross Transaction Value (GTV) fell 5.6% over the first half to £608.0 million (2015: £644.1 million). Foreign exchange rates negatively impacted the reported GTV during the half. On a constant currency basis GTV fell by 3.6%.

Content GTV, which includes both boxed and digital game content, fell by 4.9% in the year. GTV of physical content for Xbox One and PlayStation 4 formats continues to exhibit strong growth, increasing by 25%. However this growth was more than offset by the decline in physical sales for older formats, in particular PlayStation 3 and Xbox 360, which fell 58.5% in the first half.

Within Content GTV, total digital sales continued to grow, rising 9.2% to £62.8 million in the half. After adjusting for the impact of one-off digital bundling activity in 2015, amounting to approximately £5 million, which was not repeated in 2016, underlying digital sales growth was approximately 17%.

Average selling prices of Hardware were lower than in the same period last year resulting in a decline in Hardware GTV of 20.4% in the half.

GTV from preowned products increased by 2.3% to £104.8 million. GTV growth was driven by an increase in sales of preowned PlayStation 4 and Xbox One hardware and software products, up 44%, as well as further strong growth in the value of preowned GAMEtronics sales (mobile phones and tablets), which grew 93% in the half to £23.1 million. Stronger overall GTV growth was held back due to the 36.6% decline in Old Format sales.

GTV from the Accessories, Toys-To-Life & Other category increased by £15.6 million or 24.7% to £78.8 million, benefitting from £3.9 million in Multiplay sales, together with strong growth within the accessories, Toys-To-Life and licensed product sub-categories.

On a statutory basis, Group revenue declined 6.3% in the first half to £549.2 million (2015: £585.9 million).

Gross profit

Gross profit fell by 3.3% to £130.7 million (2015: £135.2 million). Foreign exchange rates negatively impacted the reported gross profit during the half, with the euro c.8% weaker against sterling in the 26 weeks ended 23 January 2016. This accounted for a year-on-year reduction in gross profit of c.£2.8 million. On a constant currency basis total gross profit decreased by 1.2% to £133.5 million.

Gross profit by category is analysed in the table below.

Note: Gross profit calculated as a % of revenue

The content gross profit rate decreased 1.6 percentage points to 28.4% in the half due to the mix of physical and digital product sales.

Hardware margin rates remained stable compared with the same period last year, at 3.4%.

Preowned margin rates fell 1.6 percentage points mainly as a result of the increasing mix of technology product sales. Underlying margins on preowned software sales improved during the half in both the UK and Spain.

The gross margin of Accessories, Toys-To-Life & Other rose 1.0% to 34.6%.

Operating expenses

Continuing operating expenses before exceptional and adjusting items, comprising selling and distribution and administrative expenses, increased by £6.7 million or 7.0% to £102.7 million.

Operating expenses included costs of £2.2 million for Multiplay (2015: Nil). Operating expenses excluding Multiplay were £100.5 million, 4.7% higher than last year. Operating expenses excluding depreciation and amortisation and Multiplay of £95.5 million, were 3.6% higher than the equivalent costs last year. Given increases in distribution costs of £1.5 million relating to higher online sales, core underlying cost inflation was less than two percent.

In the 26 weeks ended 23 January 2016 selling and distribution costs before adjusting items increased by £1.5 million, or 1.9%, to £79.4 million, largely down to higher distribution costs as mentioned above. Selling and distribution costs includes rent which declined £0.6 million year-on-year to £17.1 million (2015: £17.7 million), representing 3.1% of revenue (2015: 3.0%) in the half, more than offsetting a £0.5 million rise in store payroll across the Group.

Administrative costs before exceptional and adjusting items increased by £5.2 million, or 28.7%, to £23.3 million. The major elements of the increase are explained by the inclusion of Multiplay's operating costs (excluding depreciation and amortisation) of approximately £2.1 million, increased central costs in the UK and Spain totalling some £1.7 million (of which £0.7 million is attributed to the setting up of the Digital Solutions division) and £1.3 million of additional depreciation and amortisation charges.

Exceptional and adjusting items

Exceptional income of £0.4 million (2015: nil) was recognised in the period relating to the release of provisions associated with the former GAME Group plc. No exceptional items were incurred in the previous period.

The adjusting items before tax as detailed in note 3, are as follows:

Amortisation charges increased by £0.3 million in the year as a result of the acquisition of Multiplay in March 2015. The share based payment credit arose following a reassessment of the probability of awards vesting and the associated national insurance provision required thereon. The post-acquisition remuneration of £1.2 million relates to future amounts of cash and shares payable to certain Multiplay shareholders. Other adjusting costs in 2015 of £0.2 million, comprising legal and professional fees, were incurred in relation to the transfer of Spanish stores from GameStop in October 2014.

Adjusted EBITDA

Note: EBITDA margin calculated as a % of revenue

Adjusted EBITDA (EBITDA less exceptional and adjusting items) of £33.1 million (2015: £43.0 million) fell by £9.9 million in the year of which the majority related to the UK retail business.

Financing costs

Net financing costs totalled £0.3 million in the half (2015: £0.3 million).

Profit before tax

Profit before tax for the year amounted to £22.5 million (2015: £33.2 million).

Taxation 

The effective tax rate (defined as the accounting tax charge divided by the accounting profits before tax) was 27.6% (2015: 23.2%) with the increase due to the impact of a greater profit contribution from Spain (where there is a higher tax rate) and certain costs charged in the consolidated statement of comprehensive income for which no tax deduction is available, predominantly the post-acquisition remuneration for Multiplay.

Earnings per share 

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

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

The Group delivered Adjusted basic earnings per share of 12.2p (2015: 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 £70.7 million, £4.0 million higher than last year, benefiting from £36.6 million of working capital generation (2015: £23.8 million). After finance costs and corporation tax payments, cash generated from operating activities was £66.6 million (2015: £64.9 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 £6.9 million in the half (2015: £6.4 million), representing 21% of Adjusted EBITDA (2015: 15%) and 1.3% of revenue (2015: 1.1%).

Capital expenditure was incurred in the half on investment in the UK and Spanish operations (expenditure on a small number of new stores and relocations and further upgrade and maintenance capital expenditure particularly focussed on existing store environment, core IT systems and in the distribution centre). In addition, capital expenditure was incurred on the Group's online and digital infrastructure, comprising further developments to the Group's e-commerce sites, the GAME App, GAME Wallet, Codebank (the Group's platform for digital code distribution), Clanforge (the Group's server hosting technology), and new servers for Clanforge.

Dividends

The Board will target a progressive dividend 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. Following a review of the Group's cash and working capital requirements, the Board intends to move from its existing policy of an annual payment split equally between the interim and final dividend to an approximate one-third: two-thirds split between interim and final dividends, respectively.

Accordingly, the Board has approved an interim ordinary dividend payment to shareholders of 1.67 pence per share (2015: 7.35 pence). The interim ordinary dividend will be paid on 5 August 2016. The ex-dividend date will be 30 June 2016 so the dividend will be paid to those shareholders on the register at the close of business on 1 July 2016.

Cash Resources and Financing

The Group currently has aggregate available facilities of approximately £60 million comprising a secured revolving credit facility provided by Barclays Bank PLC and HSBC Bank plc for an aggregate amount of £30 million and short-term financing facilities with Spanish banks BBVA and Banco Santander amounting to €38.5 million.

As at 23 January 2016, the UK business had drawn £25 million of the £30 million facility whilst the Spanish facilities were undrawn.

Game Stores Iberia SLU is currently going through its annual process of renewing and potentially increasing its short-term financing arrangements, currently €38.5 million. In addition, Game Retail Limited is currently exploring more flexible forms of funding to better manage its working capital requirements. These include discussions with Elliott International LP ('Elliott') who have offered to provide GAME with an asset backed lending facility of up to £100 million. The Group is also in discussions with other third party financing providers regarding the provision of funding arrangements similar to those offered by Elliott. Further details are in Note 14 to the financial statements.

Working capital

Net investment in trade working capital decreased by £1.0m, or 4.3%, to £22.0m (2015: £23.0m).

The Group was carrying higher stock balances of £103.9 million at the end of the financial year, up 39% on last year with greater stock investment put into software following the agreement of extended payment terms from certain suppliers; additional stock investment in the growth AT&O category as well as growth of GAMEtronics stock levels to support the current sales demand.

The trade receivables balance has decreased to £17.7 million compared to £34.7 million in 2015. This decrease is due to the earlier settlement and offset of SOAs compared to the prior year following a focus on working capital during the period. The acquisition of Multiplay by the Group has resulted in an additional £0.4 million of trade receivables.

The increase in available supplier credit contributed 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.

Going concern

The Directors have a reasonable expectation that the Group and the Company has adequate financial resources together with a profitable and cash generative business model to ensure it continues to operate for the foreseeable future. The Directors have formed their view based on prudently prepared forecasts, the Group's cash and the available credit facilities. Furthermore, the Directors have also assessed reasonably de-risked scenarios and other relevant business risks and potential mitigating actions in forming their views. On that basis they continue to adopt the going concern basis of accounting in preparing the condensed financial statements.

Principal risks and uncertainties

The Board has considered the principal risks and uncertainties for the remaining six months of the financial year and determined that the risks presented in the 2015 Annual Report, described as follows, also remain relevant to the rest of the financial year: Strategic risk and sustainable business model, competitive environment and consumer behaviour, financial management, people and capability, dependence on key suppliers, reputation and brand, business systems and infrastructure, technology and intellectual property, data protection and IT security, business disruption and crisis management.

Responsibility Statement

The Directors confirm, to the best of their knowledge and belief, that this condensed consolidated set of interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the group and that the interim management report herein includes a fair review of the information required by the DTR 4.2.7 and DTR 4.2.8 namely:

A copy of the Company's 2015 Annual Report and Accounts is available on GAME's website www.gamedigitalplc.com

This responsibility statement was approved by the board of directors on 23 March 2016 and is signed on its behalf by:

Condensed Consolidated Statement of Financial Position

As at 23 January 2016

All results relate to continuing operations.

* Refer to Note 1 for details of revenue and cost of sales restatement in the prior period.

Condensed Consolidated Statement of Changes in Equity

For the 26 weeks ended 23 January 2016

During the period ended 24 January 2015 £0.7m was transferred from retained earnings to the merger reserves in order to correctly allocate a bonus share issue that was recognised in Game Digital Holdings Limited in the period ended 26 July 2014.

Condensed Consolidated Statement of Cash Flows

For the 26 weeks ended 23 January 2016

Notes to the Condensed Set of Financial Statements

For the 26 weeks ended 23 January 2016

General information

The information for the 52 weeks ended 25 July 2015 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Basis of preparation

Game Digital plc (the "Company") is a company domiciled in England. The condensed consolidated interim financial statements of the Company for the 26 week period ended 23 January 2016 comprise the Company and its subsidiaries (together referred to as the "Group"). The condensed interim financial statements have been prepared using accounting policies set out in the Annual Report and Accounts 2015 and in accordance with IAS 34. They are unaudited but have been reviewed by the Company's auditor. The results for the 52 weeks ended 25 July 2015 and the statement of financial position as at that date are abridged from the Annual Report and Accounts 2015 which have been delivered to the Registrar of Companies.

Accounting policies

The accounting policies adopted in the preparation of the condensed consolidated financial statements are the same as those set out in the Group's annual financial statements for the 52 weeks ended 25 July 2015. The condensed financial statements have been prepared on the historical cost basis except for the revaluation of certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period.

Going concern

The Directors have a reasonable expectation that the Group and the Company has adequate financial resources together with a profitable and cash generative business model to ensure it continues to operate for the foreseeable future. The Directors have formed their view based on prudently prepared forecasts, the Group's cash and the available credit facilities. Furthermore, the Directors have also assessed reasonably de-risked scenarios and other relevant business risks and potential mitigating actions in forming their views. On that basis they continue to adopt the going concern basis of accounting in preparing the condensed financial statements.

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.

1 Operating segments

The Group's operating segments have been determined based on the management information reviewed by the Board. The performance of operating segments is assessed based on Gross Transaction Value ('GTV'), Revenue and Adjusted EBITDA defined as follows:

The activities and products of the operating segments are detailed on pages 110 and 111 of the Group's latest Annual Report and Accounts.

The following is an analysis of the Group's GTV, revenue and Adjusted EBITDA by reportable segment:

A reclassification of £3.8m has been made between revenue and cost of sales in the period ended 24 January 2015 to restate the accounting for Digital commission revenue within the Content category. This adjustment does not impact on the gross profit or any other balances in the prior period and is consistent with the segment reporting in the financial statements for the 52 weeks ended 25 July 2015.

Adjustments made to reconcile from basic to adjusted earnings employed in the earnings per share calculation are detailed in note 7.

Segment assets

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

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, accessories 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.

2 Other operating expenses

3 Exceptional and adjusting items

The Group defines exceptional items as per the accounting policies in the Group's latest Annual Report and Accounts.

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 1) and Adjusted Earnings per Share (note 7).

The exceptional income of £0.4m in the period relates to the recalculation of the Virtual Loyalty Share Plan balances and the release of provisions relating to costs associated with the former GAME Group plc. No exceptional items were incurred in the previous period.

Adjusting items within operating profit 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. A credit has arisen for the 26 week period ended 23 January 2016 following a reassessment of the probability of awards vesting and the associated national insurance provision required thereon.

Post-acquisition remuneration relates to the future amounts of 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 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.

4 Operating profit

5 Finance costs

On 14 October 2015, the Company (as guarantor), its subsidiary Game Retail Limited (as borrower) and certain other subsidiaries of the Company (each as guarantors) entered into a secured revolving credit facility agreement with Barclays Bank PLC and HSBC Bank PLC (both as original lenders) and HSBC Corporate Trustee Company (UK) Limited (as security agent) in an aggregate amount of £30.0m. The cost to the Group of this facility is an arrangement fee of £0.2m, a commitment fee of 0.8% per annum on the available facility per annum, an agency and security fee totalling £0.1m per annum and interest on drawn funds of 2.0% per annum above LIBOR. The £30.0m facility was drawn down in December 2015, £5.0m repaid on 18 January 2016 and the remaining balance of £25.0m was repaid after the period end.

Prior to the signing of the revolving credit facility agreement, the Group had access to a £25.0m asset-based revolving loan facility with HSBC Invoice Finance (UK) Limited. This facility was terminated on 7 October 2015.

6 Taxation

Corporation tax for the period ended 23 January 2016 is charged at 26.8% (period ended 24 January 2015: 23.2%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the 26 week period. This rate is higher than the standard rate of corporation tax in the UK of 20% due to the impact of a higher tax rate in Spain and certain costs charged in the consolidated statement of comprehensive income for which no tax deduction is available.

The Group is also impacted by the uneven generation of taxable profits throughout the year as it typically generates profits in the first half of the year and losses in the second half. This has resulted in a corporation tax charge of £6.1m for the period (period ended 24 January 2015: £7.6m) and it is anticipated that this tax expense will reduce significantly in the full year results.

The movement on the balance sheet corporation tax liability from £3.2m as at 25 July 2015 to £5.7m at 23 January 2016 is primarily due to impact of the uneven profit generation and the timing of payments.

7 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 earnings per share

Diluted earnings per share

Adjusted earnings per share

8 Property, plant and equipment

During the period ended 23 January 2016, the Group spent £4.4m (period ended 24 January 2015: £3.8m) on additions and disposed of assets with a total carrying amount of £0.1m (period ended 24 January 2015: £nil).

On 10 September 2015 Game Retail Limited entered into a finance lease agreement with Samsung Electronics (UK) Limited in order to purchase digital advertising display screens for all UK stores. The additions under this agreement were £2.9m (period ended 24 January 2015: £nil).

9 Intangible assets

During the period ended 23 January 2016, the Group spent £2.5m (period ended 24 January 2015: £2.6m) on additions and disposed of assets with a total carrying amount of £nil (period ended 24 January 2015: £nil).

10 Financial instruments' fair value disclosures

The Group held the following financial instruments at fair value at 23 January 2016, further details of which can be found in the latest Annual Report and Accounts.

The cash-settled equity forward has been classified as a Level 1 financial asset in accordance with the fair value hierarchy. The cash ultimately to be received by the Group is derived from the Company's share price, which is publicly available and its shares are quoted on an active market. During the period a number of shares have been sold under the forward to match the cost of Virtual Loyalty Shares redeemed by customers. The forward has been revalued at the end of the reporting period to reflect the period end share price.

The Group had no financial instruments in the current or previous period with fair values that are determined by reference to significant unobservable inputs i.e. those that would be classified as level 3 in the fair value hierarchy, nor have there been any transfers between levels of the fair value hierarchy. There are no non-recurring fair value measurements.

11 Analysis of net funds