GMD.L Regulatory News (GMD)

3 August 2016

GAME DIGITAL PLC

Pre-Close Trading Update

GAME Digital plc ("GAME" or the "Group") today provides an update on trading and the business for the 53 week period ended 30 July 2016. Second half figures provided are based on the 27 week period ended 30 July 2016 (unless otherwise stated) and are compared to the 26 week equivalent period in 2015.

GROUP TRADING PERFORMANCE

Note:

* Source: GfK Chart-Track; based on value of retail sales of console hardware, software, digital and accessories for 52 weeks ended 23 July 2016

** Converted into sterling equivalent

^ UK and Spanish markets combined

Figures in brackets denote July 2015 comparatives

Market trends experienced in the first half of the year have continued into our second half, with a challenging UK trading environment set against good growth in Spain. In response to the decline in the UK market the business has implemented a wide-ranging action plan to improve retail performance whilst driving forward the continued progress of strategic growth initiatives across the Group.

In total, the Group's Gross Transaction Value1 ("GTV") was broadly flat in the second half at £316.8 million (H2 2015: £318.3 million), resulting in a total GTV for the 53 week period of £924.8 million (2015: £962.4 million). On a statutory basis, Group revenues for the 53 weeks ended 30 July 2016 are expected to be approximately £815 million (2015: £866.6 million).

On a 52 week comparative basis, total Group GTV of £914.1 million was down £48.3 million or 5.0%, with low margin console sales down £55.9 million in the period. Over the same period GTV from preowned technology products was up £17.5 million or 65.1% whilst GTV from the Group's Accessories, Toys-to-Life and Other (AT&O) category increased £19.7 million or 19.0%, including a continued strong performance from PC accessories and licensed merchandise. However, combined GTV from mint and preowned content was down £25.5 million or 4.8% across the Group, despite 15.5% growth in digital content GTV, negatively impacting the overall gross profit performance.

Costs, in line with previous guidance, reflect the full year inclusion of Multiplay and the first time inclusion of costs from the newly acquired Spanish esports business and Ads Reality Limited which was acquired in May 2016. Cost savings were made in our core retail businesses in the second half, however overall costs have increased modestly in both the UK and Spain as investment has been made in activities to support the new growth areas.

Overall, the Group expects to report an Adjusted EBITDA2 for the 53 weeks ended 30 July 2016 within the range of current market expectations3.

WORKING CAPITAL, CASH AND FINANCING ARRANGEMENTS

The Group maintained a disciplined approach to working capital and cash management during the period. Given the 53rd week and the inclusion of additional payments (e.g. 13 payroll payments in the financial year), the Group will show a one-time working capital outflow in the financial year just ended. This working capital outflow will reverse in the new financial year. The Group has maintained positive cash balances throughout the year and closed the period with a net cash position of over £40 million.

As previously announced, after arranging a new £100 million financing facility in April with Lajedosa Investments S.à r.l.4 (the "Lajedosa" facility), management continued to investigate alternative, more flexible and appropriate facilities. Accordingly, on 15 July 2016 certain members of the Group signed a new, 4.5 year £75 million financing facility with PNC and Wells Fargo. This facility will be used instead of the Lajedosa facility for the Group's UK activities, and replaces the previous £30 million revolving credit facility. The new £75 million facility provides greater stock purchasing flexibility and can also be used to finance outstanding receivables from concession partners. The facility is not expected to be drawn over the next 12 months for normal working capital purposes but could be used to support future peak season working capital needs or help fund significant new hardware launches or new game releases if required.

OPERATIONAL UPDATE

In January, the business implemented a comprehensive action plan to respond to the change in market dynamics experienced in the UK market. Further progress has been made in the second half of the year, including continued improvements to the consumer proposition, the identification and delivery of new commercial opportunities and further process improvements to drive operational efficiency.

Key developments in the second half included:

· Continued progress improving our trading arrangements with suppliers

· Further cost savings realised across the UK store estate, distribution and central operations. In particular, considerable focus has been centred on reducing property costs as leases have come up for renewal, with many renegotiated on improved terms

· The implementation of an organisational redesign for the UK retail business, to ensure it is structured and resourced to drive future growth opportunities and realise savings in areas of the business that are expected to continue to experience future declines

· Continued system investment and process reviews to improve efficiency and bring into service new systems to drive growth

· Continued actions to optimise stock and working capital management

· Further enhancements to our customer proposition, including multichannel improvements and new range developments focused on our growth categories

STRATEGIC UPDATE

The Group made further progress across its strategic initiatives in the second half. The Group continues to prioritise actions to improve the multichannel and digital experience for customers in the core retail business whilst implementing plans to rapidly develop the Group's new business activities, comprising esports and competitive gaming, events and digital services. All of which is intended to transition the business from one predominantly selling products to one selling both products and services to its customers.

In particular, the Group has made considerable progress developing detailed plans for esports and competitive gaming activities in both the UK and Spain. Implementation against these plans is gathering pace, with a number of trials launched in the UK including both in-store and locally-based activities. The Group opened its first new in-store 'gaming zone' concept in the UK, which launched in the Trafford Centre store in July. The development of these plans remains at an early stage, however initial results and feedback from customers, store teams, supplier partners and gaming communities has been positive.

The Group also made two significant strategic developments within its digital business during the second half, comprising:

· the signing of a major global hosting contract for a 'AAA' game due to launch in October; and

· the acquisition and develop of Ads Reality Limited, a technology company focused on visual recognition and augmented reality

A full update on the Group's strategy and business plans will be provided at our results in October.

OUTLOOK

We are encouraged by the strong line-up of highly anticipated new products scheduled for launch over the next 12 months including, amongst others, PlayStation VR, Oculus Rift, Xbox One S and Nintendo NX. These exciting developments will provide further opportunities to engage with both existing and new customers. However, the Group needs to balance these developments against the prevailing conditions in our markets. Accordingly, at this stage we retain a cautious sales outlook for our retail markets in the year ahead.

Overall, the Board plans to deliver an Adjusted EBITDA for FY16/17 broadly level to the current year (on a 52 week basis), before the financial impact of its planned new live gaming activities. Based on the roll-out of the new stand-alone gaming venues and in-store gaming zones currently planned, the Group expects to incur a small loss across these activities in the first year. Depending on the success of these initial trials, the Group may decide to accelerate the roll-out and increase investment to support the development of this opportunity.

The Board will announce its full year results, together with an update on the Group's strategy for the 53 weeks ended 30 July 2016, on 13 October 2016.

Martyn Gibbs, Chief Executive Officer of GAME Digital, commented:

"We continue to focus our efforts on maximising the potential of our core retail markets; driving operational improvements and efficiencies across the business; and developing our broader consumer and enterprise gaming services to support deeper engagement with our customers, communities and supplier partners.

"Next year will see several significant industry developments, with new console launches, the arrival of new ground-breaking virtual reality devices, as well as continued strong growth in competitive and social gaming.

"We are well positioned to benefit from these exciting developments and have clear plans in place to drive our retail businesses forward whilst developing our strategic initiatives to support future growth."

Enquiries:

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. 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.

3. The company compiled consensus Adjusted EBITDA for the 53 weeks to 30 July 2016 is £26.2m-£32.2m, with the average being £29.8m.

4. Lajedosa is an entity associated with Duodi Investments S.à r.l., GAME's major shareholder, which in turn is an investment vehicle ultimately wholly-owned by Elliott International, L.P. and Elliott Associates, L.P., the latter via a participation interest with Elliott International, L.P.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014

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 or may not 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 gaming products and services to the gaming communities of the UK and Spain and beyond, providing more ways for gamers to enjoy more games and unique gaming experiences, more often. GAME's UK and Spanish retail businesses are the market leaders in those geographical areas, operating a total of approximately 580 stores across the two areas, 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 businesses, GAME is pioneering the use of new technologies to reach gamers and business partners outside its main markets. This is effected through Ads Reality Limited, the Group's visual recognition and augmented reality business and Multiplay, its specialist game server hosting business. Multiplay is also spearheading the development of GAME's esports and events activities, delivering 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 or www.adsreality.com.