2017/18 INTERIM RESULTS - 27 MARCH 2018 - GAME Digital plc
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2017/18 INTERIM RESULTS 27 MARCH 2018
GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Forward looking statements
This presentation includes statements that are, or may be deemed to be, “forward-
looking statements”. These forward-looking statements can be identified by the use
of forward-looking terminology, including the terms “believe”, “estimates”, “plans”,
“projects”, “anticipates”, “expects”, “intends”, “may”, “will”, or “should” or, in each case, their
negative or other variations or comparable terminology. These forward-looking statements
include matters that are not historical facts and include statements regarding the
Company’s intentions, beliefs or current expectations.
Any forward-looking statements in this presentation reflect the Company’s current
expectations and projections about future events. By their nature, forward-looking
statements involve a number of risks, uncertainties and assumptions that could cause
actual results or events to differ materially from those expressed or implied by the
forward-looking statements. These risks, uncertainties and assumptions could adversely
affect the outcome and financial effects of the plans and events described herein.
Forward-looking statements contained in this presentation regarding past trends or
activities should not be taken as a representation that such trends or activities will
continue in the future. You should not place undue reliance on forward- looking
statements, which speak only as of the date of this presentation. No representations or
warranties are made as to the accuracy of such statements, estimates or projections.
Please note that the Directors of the Company are, in making this presentation,
not seeking to encourage shareholders to either buy or sell shares in the Company.
Shareholders in any doubt about what action to take are recommended to seek financial
advice from an independent financial advisor authorised by the Financial Services and
Markets Act 2000.
2
MARTYN GIBBS
Chief Executive Officer
3
GAME DIGITAL PLC – INTERIM RESULTS 2017/18
H1 Group headlines
Strategic progress made across the Group
• Redefining the Group through BELONG which is not exposed to the traditional console gaming
cycle, has high margins and a unique position in the significant growth area of esports
• Collaboration agreement signed with Sports Direct on 12 February 2018, which will accelerate
transformation of the business
• Sale of Multiplay Digital during H1 for £19 million
Positive UK & Spanish GTV trading performance, with reported GTV up +3.8%
• GTV improvement of +24.7% in hardware
• Physical software GTV up +3.3%
• GTV in Events and Esports (excluding Digital) up +31.5%
• Preowned decline of (8.6)% reflecting 2016/17 release schedule
Increased level of cost savings and operational improvements delivered
• UK retail costs reduced by £5 million year on year
• Continued focus on costs and property optimisation, with 272 lease events over the next 2 years
• Even greater efficiencies and savings being implemented during H2 that will completely right size
the business
Cash & liquidity position improved
• Group remains well funded with net cash of £84.9 million
• Total current facilities increased to up to c£130 million on signing of collaboration agreement 4
GAME DIGITAL PLC – INTERIM RESULTS 2017/18
1
Our proposition exploits all elements of esports
Professional / Elite
Fewer participation, greater viewership
GLOBAL
PRO 2
1 UK PRO
2 AMATEUR
3
Tournaments
3 GRASSROOTS
Tournaments
Casual / Amateur 4 COMPETITIVE GAMING EXPERIENCE 4
Higher participation,
Low viewership
Customer Proposition B2B Proposition
6
GAME DIGITAL PLC – INTERIM RESULTS 2017/18
BELONG overview and trajectory
Average Gaming Hours per
Overview Improved retail performance week per arena
5.6% improved core retail LFL performance in Q2 400
• BELONG is the leader in local and
regional esports whilst driving GAME
Customer type & spend
revenues 350
24% of customers are new to GAME
• Expanded to 19 locations alongside 36% of them are ‘Big Time Spenders
GAME retail with wide geographical 56% of customers are under 30
300
+58%
spread £364 Av. annual customer value (GAME £192)
• Relatively low capex with high ROI and
250
fast payback Gaming hours & utilisation +38%
• Creates a very high margin profile for 370 average store gaming hours per week 200
pay to play 176,000 gaming hours in H1
Arenas have held over 450 parties 150
• Margin rate of arenas circa. 45% across
pay to play, PC hardware and food & 28.5% utilisation across all arenas
beverage
100
Attracting high value PC gamers
27% purchase PC products 50
£5.1k av. store per week through PC categories
0
FY17 H1 FY17 H2 FY18 H1
7
GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Core elements of the proposition
1 Venues 2 Infrastructure 3 Tournaments 19
BELONG
Locations
BELONG.gg Website
Booking Platform UK Masters (Semi-pro streamed
BELONG Arenas Tournament Platform tournament)
Insomnia Gaming Festival Studio & Production BELONG Arena Clash
4 Player Support 5 Retail 6 Team
Tribes PC, hardware, accessories, digital
Team partnerships VR and merchandise GAME has the required specialist
Industry and charity collaborations Food and drink gaming resource
8
GAME DIGITAL PLC – INTERIM RESULTS 2017/18
BELONG illustrative financials
Number of Hours Price Per Annual Pay To Other Total Operating
Stations Utilisation Hour Play Revenue Revenue Revenue Margin
Collaboration The annual pay to play Assumed average price Average pay to play Average arena retail Average total revenue GAME share of average
Agreement allows for hours per desk per paid for every hour of revenue per arena is sales of £500k per per arena is £700k pa annual operating
larger arenas going arena are 1,156 gameplay is £4.50 c.£200k large arena pa margin per large arena
forward with c.40 c.23%
Each arena includes
desks or more 78 hours per week, per Including activities such £150k - £175k
additional sales for
arena x 52 weeks x as:
Food and Beverage, PC Each location also
Our most recent average large arena • Desk hire
hardware, accessories, generates profits from
openings have been of utilisation c.28.5% • Party hire
digital and Virtual GAME Retail (including
large arenas with 24- • Arena Clash
Reality potential incremental
36 desks
uplifts)
Stations Growth Utilisation Growth Price Per Hour Growth
Cumulative BELONG PC Gaming Desk Utilisation %
Capex
Std Pay to Play Gross Price Per gaming hour
Parties
Desks 30.0% £8.00 Desk P2P
340
Average capex per
£7.00 large BELONG/ GAME
25.0%
330 +10.8% £350k
£6.00
320 20.0%
£5.00 +4.7% Average arena capex
310 £4.00
£230k and average
15.0%
28.5% retail capex of £120k
300 334
£3.00
10.0% 18.7%
£3.97 £6.75 £4.23 £4.19 £7.48 £4.43 Average payback per
290 £2.00
large BELONG/ GAME
294 5.0% c.2 - 2.5 years
280 £1.00 +5.5%
270 0.0% £0.00
FY17 H2 FY18 H1 FY17 H2 FY18 H1 FY17 H2 FY18 H1
9
GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Broad spectrum of games and support
NEW PUBLISHER AND DEVELOPER PARTNERS LONG STANDING PUBLISHER PARTNERS INVESTING
Most participated PC Games in Titles participated
arenas are the largest esports titles from BETA
• UK World team meet &
greet
Publisher: Epic Games • Arena Clash title
Publisher: Riot Games Publisher: Valve Released: 2017 1st birthday promotion
Released: 2009 Released: 2012
•
Status:
Status: Status: Overwatch league viewing
• Available to play 6 x PlayStation arenas
•
• Pay to play live • Pay to play live • Streams from BELONG
•
parties
• League Unlocked launched • Full launch events for:
• Monthly
(access to content) tournaments • 6x PSVR executions Mass Effect Andromeda,
• Arena Clash title • Team partnerships • Third party event & FIFA 18, Star Wars
• Team partnerships tournament support Battlefront II
• Merchandise • Madden 2018 tournament
• First party title
tournaments • WWII launch events & stream
• WWII BETA event • Players signings for FIFA &
NFL 2018
• WWII DLC event
Publisher: BlueHole
• Arena Clash activity CWL
Released: 2017
Status:
tie in
• P2P tournament agreement
• Monthly tournaments
• Merchandise
BELONG delivers participation in major established esports titles and new releases
10GAME DIGITAL PLC – INTERIM RESULTS 2017/18
BELONG infrastructure has been created
Website & Booking Platform Tournament Platform Arena Clash Gaming Community & CSR
• Site re-designed and relaunched in • Player profile and reward mechanics to • All arenas have ‘tribes’ which the local • Supported UKIE’s Digital School House
January 2018 incentivise player participation community can associate with initiative to host 20 schools for an
Overwatch tournament
• Focus on messaging our key news and • Capability to organise tournaments • 3 game Arena Clash seasons established
event/tournament announcements for across multiple physical locations • Venue and promotional support for pro
• Strong continual growth in participation
BELONG esports teams such as eXcel and MCM
since season 1
• Hosts the video of the weekly Arena • Partnership with Dimensions to
• Arenas play off against each other
Clash show introduce autism friendly sessions into
• League winners go through to finals at selected BELONGs
• Hosts the booking platform for players
Insomnia Gaming Festival
to pre-book arena time and guarantee • Coaching support for players as part of
their booking slot and drive utilisation • Weekly video produced to showcase the the Arena Clash
best matches of the week
11GAME DIGITAL PLC – INTERIM RESULTS 2017/18
BELONG summary and the Collaboration Agreement
Locations and Gaming Station Count Delivering Transformation in High Growth Market,
High Profit & Fast Payback
• BELONG proposition developing rapidly with 19 locations and 334 gaming • Delivers strategic transformation in high growth market
stations • Remove cyclicality at high margin
• Pay to play gaming station utilisation continues to grow • Assumed £350k Capex requirement to site a BELONG arena and GAME store
• Necessity for larger premises and 24 gaming station minimum going forward • £150 - £175k illustrative arena contribution
• Our 270+ lease negotiations over the next 20 months allow for re-organisation • c.2 - 2.5 year payback for the joint unit
of the estate
• All infrastructure has been built with further development such as local leagues
• Closing stores replacing with one larger unit to house a BELONG and improve and ladders over the next 12 months
GAME performance and share of wallet
• Flexibility allows for larger esports competitions at local level
Collaboration supports Locations and Gaming Station Count by: Collaboration supports delivery of Transformation in High Growth
Market, High Profit & Fast Payback by:
• The Collaboration Agreement allows for speed, space, flexibility and scale
• Provision of £35m capex facility for BELONG roll out with a seven year loan
• Gives ability to partner with Sports Direct to deliver a BELONG/GAME offer
repayment on each BELONG /GAME
within an SPD store, in SPD owned property or stand alone
• Provision of a £20m working capital facility
• Supports lease expiry and relocation strategy
• Facilitates strategic procurement of fit out costs and improved supplier terms
• Supports our landlord negotiations
• Management fee charged as percentage of store turnover
• Allows for more space to be allocated to BELONG and GAME to capitalise on
more gaming stations and improved retail performance • 100% of BELONG team charged to the new P&L
• £3.2m cash received for 50% of BELONG IP and share of up to 50% of profits
from new and existing venues
12MARTIN HOPCROFT
Interim Chief Financial Officer
13GAME DIGITAL PLC – INTERIM RESULTS 2017/18
H1 2017/18: Group financial summary
H1 H1
All figures in £m (unless stated) VAR, %
20171 2018
• Group GTV up 3.8% including the benefits of:
Gross Transaction Value (GTV)2 565.4 586.8 3.8 • Hardware improvement of +24.7%
• Physical software increase of +3.3%
Revenue 498.1 517.4 3.9
• Events and Esports sales up +31.5%
GTV & Revenue for Events & Esports 5.4 7.1 31.5 • Preowned down (8.6)%
• Strong cost discipline across the business, with
UK operating costs pre except & adjusting items (71.3) (67.3) 5.6 over £5 million of costs savings realised in UK
Retail
Adjusted EBITDA 23.3 21.2 (9.0)
• Overall cost decrease includes exchange
Adjusted profit before tax 16.9 14.2 (16.0) rate impact on Spanish operations
• Positive cash generation continued in the
Adjusted (basic) EPS 7.9p 6.4p (19.0)
period
Net cash from operating activities 25.7 32.2 25.3 • Group remains well funded with net cash of £84.9
million with recently expanded facilities of up to
Cash 73.0 84.9 16.3 c£130 million
Sales growth delivered in UK and Spain with significant cost savings achieved in UK Retail
Strong cash position and significantly higher facilities available to deliver continued growth
1.2017 restated for the reclassification of marketing income
2.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 14GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Group GTV by category
All figures in £m (unless stated) H1 2017 H1 2018 VAR, %
Total Hardware 117.6 146.7 24.7 • Strong hardware sales supported by Nintendo Switch benefit, Xbox One
X launch and stronger relative PlayStation 4 performance
Total Content 262.1 265.3 1.2
Physical software 184.7 190.8 3.3 • Physical software increase driven by the strong performance of
Nintendo Switch
Digital content 77.4 74.5 (3.7) • Xbox One and PlayStation 4 sales increase of 0.5% supported by non
perennial titles e.g. Destiny 2 and stronger year on year performance of
Total A&O 90.0 87.3 (3.0) Call of Duty
Core A&O 82.3 78.4 (4.7)
• Growth in core console accessories and pc accessories of 8.2% offset
declines in VR (major launches in H1 2017) and Toys to Life category
Events & Esports 5.4 7.1 31.5
Digital1 2.3 1.8 (21.7)
• Sales across BELONG and Game Esports and Events up 31.5% and gross
Total Preowned 95.7 87.5 (8.6)
profit up 250% driven by higher margin events
Preowned (core) 71.4 63.2 (11.5)
Preowned tech 24.3 24.3 -
• Preowned tech flat, core preowned down 11.5% given mint software
performance in the prior year
Total 565.4 586.8 3.8
Strong GTV growth across hardware, physical software and Esports & Events
1 Multiplay Digital sold on 28 November 2017 and activities discontinued
15GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Group gross margin (as % of GTV) by category
H1 2017% H1 2018% % PT CHANGE
• Hardware margins up 1.4% pts, benefiting from improved terms and
Hardware 5.7 7.1 1.4 new console launches including Nintendo Switch full price sales
A&O 29.9 32.9 3.0
• Mix effect, predominantly higher margin achieved in E,E&D and mix of
products in this category (VR launches LY at lower average rates)
Content 23.0 21.6 (1.4)
Physical software 24.3 24.5 0.2
• Software margins increased 0.2% pts, with improved stock
management and further supplier support
Digital content 16.9 14.2 (2.7) • Digital margins down 2.7% pts year-on-year
Preowned 34.6 30.5 (4.1)
• Preowned margin rates fell 4.1% pts due to increasing mix of Xbox One
and PlayStation 4 which achieve lower margin rates than older formats,
Total 22.5 21.0 (1.5) as well as lower gross profit rate on preowned technology products
Note: Calculated as % of GTV
Higher margin rates achieved across hardware, physical software and accessories & other
Overall Group gross margin % impacted by higher mix of lower margin hardware
16GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Group operating costs
Group Continuing Costs1
H1 20173 H1 2018 VAR, £m
£m (unless otherwise stated) • Total underlying operating costs1 of £108.3
Selling & Distribution costs 82.2 80.5 1.7 million, reduced by 1.0%
Administrative costs 27.2 27.8 (0.6) • Continuing costs1 excluding depreciation and
Total Operating expenses 109.4 108.3 1.1 amortisation reduced by 1.8% to £101.9 million
Less: Underlying Depreciation & Amortisation (5.6) (6.4) 0.8 • Significant cost savings and operational
efficiencies realised in the UK
Total Operating expenses before D&A 103.8 101.9 1.9
as % of GTV 18.3% 17.3% • UK Retail costs down £4.0 million or 5.6% to £67.3
million
Group Continuing costs by division1,2
H1 20173 H1 2018 VAR, £m • Spain Retail costs up €1.4 million or 4.3% in
£m (unless otherwise stated)
local currency, significantly lower than growth
Core Retail 99.7 97.9 1.8 rate of GTV
UK Retail 71.3 67.3 4.0 • Events, Esports and Digital costs1,2 reduced by
Spain Retail 28.4 30.6 (2.2) £0.1 million to £4.0 million, reflecting the continued
expansion of BELONG and lower costs in Game
Spain Retail, €m 32.9 34.3 (1.4)
Esports & Events and Multiplay Digital (following
Events, Esports & Digital 4.1 4.0 0.1 the sale)
Strong cost reduction programme continues in UK business
1. Excludes exceptional and adjusting items
2. Before depreciation and amortisation
3. 2017 restated for the reclassification of marketing income 17GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Operational efficiencies and cost savings have continued
Targeted
Total savings Total savings
Further property savings realised in the £m savings for
• achieved in FY17 realised in H1
period including rent and rates in H2
• Payroll cost savings from organisational
redesign and store staffing efficiencies Property 1.4 1.6 c.1.5
• Business wide savings from efficiency
measures and procurement activities Payroll 3.8 1.6 c.1.5
• Pursuing even greater savings in H2 17/18
across property, payroll, distribution, Procurement, distribution,
procurement and central operations plus efficiency savings and 1.4 1.8 c.3.0
cost initiatives within gross profit including other
changes to loyalty arrangements and
refunds and returns
Total 6.6 5.0 c.6.0
Continued delivery of efficiency initiatives, procurement benefits and other cost saving actions
18GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Property optimisation programme update
• Successfully realising opportunities to significantly reduce UK
UK Lease Expiry Profile
estate costs including store closures
250 233
• Total annualised group rent reduction of c.£4.7m to date1
• 66 leases renewed in stores to date1 200
• 23 renewed at zero rent 150
• Average rent reduction of 41%
100
• 25 renewals in H1 17/18 with 23 on improved terms
39
• Average length to first break 1.1 years 50
13 9 1 0
• Planning for 233 UK lease events in the current calendar year 0
and 272 over the next 2 years To Dec 18 2019 2020 2021 2022 2023+
• Total annual rent of c.£16.7m No. of Leases Expiring
1 Since UK action plan initiated in January 2016 19GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Cash flow generation
£m H1 2017 H1 2018 Var, £m
• Cash generated by operations of £36.3
Operating profit 17.3 12.9 (4.4) million up 29.6% with strong working
capital management
Depreciation & amortisation 10.4 11.1 0.7
Exceptional profit on sale of assets (6.3) (6.0) 0.3 • Proceeds of £14.9 million (net of fees and
escrow balance) received from the sale of
Working capital and other items 6.6 18.3 11.7 Mulitplay Digital
Cash generated by operations 28.0 36.3 8.3 • Continuing investment for growth with capital
expenditure of £6.2 million in the first half, and
Proceeds from sale of business/property 13.3 14.9 1.6 planned acceleration of the BELONG roll out
under the Sports Direct collaboration
Sub-total 41.3 51.2 9.9
• Free cash flow of £41.0 million, up 23.1% on LY
Capital expenditure (5.8) (6.2) (0.4)
Taxation (1.4) (3.7) (2.3)
Net interest (0.8) (0.3) 0.5
FREE CASH FLOW 33.3 41.0 7.7
Continued strong free cash generation
20GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Cash flow & net cash
£m H1 2017 H1 2018 Var, £m
• Strong closing cash position of £84.9 million
Opening cash 43.1 47.2 4.1
• As at 27 January 2018, all facilities were undrawn
Cash generated by operations 28.0 36.3 8.3 • Following the completion of the SPD agreement,
total available facilities have been increased to
Proceeds from sale of
13.3 14.9 1.6 c£130 million (2017: £80 million)
business/property
• UK ABL facility of up to £50 million, rising to
Tax, interest, dividends & other (4.9) (6.0) (1.1) £75 million in peak
• Additional new facilities in UK of £55 million,
Capex (5.8) (6.2) (0.4)
provided by SPD (Capex facility of £35 million
and working capital facility of £20 million)
Movement in borrowings (0.7) (1.3) (0.6)
• New 2 year Spanish facilities finalised in January
Movement in cash 29.9 37.7 7.8 2018, with potential to extend for a further year
Closing cash 73.0 84.9 11.9 • Working capital and guarantee facilities in
Spain of €28 million, rising to €44 million in
Finance leases (4.0) (2.7) 1.3 peak
• Total maximum facilities over peak season of
Net cash 69.0 82.2 13.2
c£169 million
Strong cash position and increased available facilities
21GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Market update and outlook
• Positive market trends seen in H2 16/17 last year continued throughout H1 17/18 in both territories for core
console categories. Cumulatively the UK and Spanish markets remain in growth so far this year
• Strong demand for Nintendo Switch has continued to deliver growth to the overall market and consumer
interest is expected to remain strong from newly announced software titles (Super Smash Bros. and a
Pokémon game) together with associated products including the new LABO range
• Cost focus has been intensified for the balance of H2 to mitigate margin pressures
• Further supportive market developments in the second half of the calendar year, with major new game titles
announced, e.g. Call of Duty: Black Ops 4 and a number of non-perennials including Red Dead Redemption 2
and Shadow of the Tomb Raider
• Growth in BELONG and Events & Esports planned under major transformation strategy
1 Source GfK Chart-track
22MARTYN GIBBS
Chief Executive Officer
23MARKET UPDATE
24GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Market Update – Esports and monetisation
Average Esports Global Revenue per Enthusiast A new business model into the group that directly
Introduce new revenue/ margin
>$3.0bn 1 streams for GAME
commercialises gamers outside of retail (pay to play / food
1.6 & drink)
$11
1.4 Total Esports Rev
By increasing the value of our Converting the average gamer into a competitive gamer
2 existing customers significantly increases their lifetime value
1.2
1 By reaching existing competitive gaming communities & PC
Revenue in bn’s ($)
$1.0bn
3 By acquiring new customers gamers that sit outside of GAME’s current retail sphere of
0.8 influence
$5.2
0.6 Through the increased support of Help negotiate better margin, terms and exclusive content
4 existing and new suppliers and from partners. New monetisation routes through event/
0.4 partners tournament organisation
$2.7
0.2 GAME’s value proposition remains
$0.3 $0.7 $1.5 5 relevant in changing market Frontline engagement of the next generation of customers
0 conditions
2013 2014 2015 2016 2017 2018 2019 2020 2021
Number of eSports
enthusiasts
120M 191M 286M Increasing the volume, range of Have access to a more holistic understanding of the gamer
6 data and our understanding of behaviour through retail and their engagement in esports/
gamer behaviour competitive gamers
SOURCE – NEWZOO 2017 GLOBAL ESPORTS MARKET REPORT 25GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Market Update – UK & Spain performance
Mint Video Game Market Performance
• First half FY 17/18 growth driven by:
15.7%
• Nintendo Switch
• Xbox One X launch 10.0%
• Stronger new release performance 8.8%
8.3%
• Impacted by:
• Low margin hardware
1.8%
• Continued online growth
• Preowned software and GameTronics decline
H1 16/17 H2 16/17 17/18 YTD*
• Positive dynamics in H2:
• Continued Switch availability
• Further Nintendo releases
-12.5%
H1 16/17 H2 16/17 17/18 YTD*
33 Weeks to 17 March 26GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Market Update – Latest generation of consoles performing well
Units sold Comparison of latest generation Comparison of latest generation
million Units sold
(PS4/Xbox One vs Prior generation (PS3/Xbox 360) – UK million (PS4/Xbox One vs Prior generation (PS3/Xbox 360) – Spain
10
3
9
44%
8 57% 3
7
56% 2
6 43%
5
2
PS3/Xbox 360 PS4/Xbox One
4 Xbox PlayStation
1
3
2
1
1
0 0
Month 1
Month 3
Month 5
Month 7
Month 9
Month 11
Month 13
Month 15
Month 17
Month 19
Month 21
Month 23
Month 25
Month 27
Month 29
Month 31
Month 33
Month 35
Month 37
Month 39
Month 41
Month 43
Month 45
Month 47
Month 49
Month 51
Month 53
Month 55
Month 57
Month 59
Month 1
Month 3
Month 5
Month 7
Month 9
Month 11
Month 13
Month 15
Month 17
Month 19
Month 21
Month 23
Month 25
Month 27
Month 29
Month 31
Month 33
Month 35
Month 37
Month 39
Month 41
Month 43
Month 45
Month 47
Month 49
Month 51
Month 53
Month 55
Month 57
Month 59
Months Since Launch Months Since Launch
UK Latest Generation (PS4/Xbox One) Prior Generation (PS3/Xbox 360) Latest Generation (PS4/Xbox One) Prior Generation (PS3/Xbox 360)
• Console unit sales of current generation continues to outperform previous console cycle in UK & Spain
• PlayStation mix growing in UK
27GAME DIGITAL PLC – INTERIM RESULTS 2017/18
New console cycle
UK Market Value Hardware & Software: Playstation, Xbox and Nintendo Switch
1400
Market Value +7%
Market Value +12%
1200
106 178
21 149
1000
800 490 426
596
601 501 650
600
143
195
400 56 177
490 473 616
200 369 383
313
0
16/17 17/18 18/19 19/20
PS & XB HW Switch HW PS & XB SW Switch SW
• 17/18 overall market value forecast to increase by 12% (H1: +14.3%)
• 18/19 market growth in high margin software category of c9% has been forecast
• 19/20 Hardware growth of c26% based on market analyst expectation of PS5 launch, with start of the next console cycle
• 19/20 overall market value forecast to grow by 7%
• Forecast may change for new releases as further announcements are made
IHS (March 2018) 28GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Major drivers in core business
Esports growth will continue at pace
• Revenues are growing exponentially in all areas of esports both from viewership and participation
Nintendo Switch continues to grow
• Significant installed base established and high tie-ratios supporting mint and preowned margin
• Any future price point reduction will drive further growth
New release schedule across all formats is strong
• New non-perennial titles will drive positive overall market dynamics e.g. Red Dead Redemption 2
announced for Oct 18 & Shadow of the Tomb Raider
• Super Smash Bros. and strong line up of other games will support Switch growth
• Call of Duty launch window redefined with Black Ops 4 announced for October release
Current generation of consoles growth expected to continue’
• Significant installed base established, future expected price point reduction will drive further growth
PlayStation 5 launch forecast by market analysts for peak ‘19
• Increased penetration levels expected in both UK and Spain
Continued pressures factored in
• Reduced preowned revenues across software and mobile phones
• Continued move to online but growing share of the online channel
• Digital downloading continues to grow but with further retail opportunities to exploit the market
29BUSINESS &
STRATEGY UPDATE
30GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Building the most valuable community for gamers
CORE SPECIALIST RETAIL MAJOR GAMING EVENTS
4.6m Active
(LTM)
EVENTS
ESPORTS, BELONG & COMPETITIVE GAMING
31GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Game changing strategy recap: Pillars & 2018 priorities
1. Expand live and online 2. Continue to improve our 3. Optimise the Group's
gaming services for gamers retail businesses in the UK efficiency whilst investing
and publishers & Spain in order to for the future
maximise market potential
1. Local competitive 1. Continue to enhance the 1. Optimise fixed &
gaming and esports, Group’s specialist variable store costs
headlined under proposition 2. Distribution efficiencies
BELONG
2. Build new categories & 3. Procurement & business
2. Insomnia Gaming services process improvements
Festival
3. Multichannel 4. Supplier arrangements
3. Major third party development
contract events
4. Store optimisation
32GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Our Esports approach
GLOBAL PRO
UK MASTERS FINALS
UK PRO UK MASTERS SEASONS
UKM BYOC LAN
WEBSITE & TOURNAMENTS BELONG
BOOKING T/MENT
SYSTEM PLATFORM
AMATEUR
REGIONAL
BELONG ARENA TOURNAMENTS
CLASH
BELONG CUPS UKM ONLINE CUPS
GRASSROOTS LOCAL ARENA LOCAL (TOWN)
TOURNAMENTS TOURNAMENTS
BELONG KIDS
TOURNAMENTS
ESPORTS PC AND VR HW, SW, DIGITAL HIGH END
RETAIL OPPORTUNITIES PLAYER PRODUCTS
MERCHANDISE AND ACC PERIPHERALS
33GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Expanding the Group’s live gaming services
Events Overview
• Events business increase in EBITDA H1 versus LY through higher margins and cost savings
• Stronger performing events in H1 YOY (RuneFest and Minecon)
• Core Insomnia continues to grow and evolve with more focus on BELONG and esports
Insomnia Overview
• Insomnia 61 is the most successful to date driven by Esports / BELONG and gaming
Influencers (78m subscribers)
• Insomnia 62 Call of Duty World League with a $200,000 prize fund, the only open event
outside of the US in 2018, to be held at Insomnia 62 after hugely successful Easter event
last year
• Insomnia 62 influencers with 50m+ subscribers and Microsoft, Nintendo and Sony all
attending
Insomnia Franchise
• Insomnia Franchise (with esports as the key differentiator) now an established program
• Four initial territories in negotiation to drive additional margin as well as licence fees
Third Party Events
• All four BRICKLIVE shows delivered over 72,000 footfall in total
• Rentals up YOY with exclusive agreements now with HTC-Vive and Intel for events
34GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Game changing strategy recap: Pillars & 2018 priorities
1. Expand live and online 2. Continue to improve our
gaming services for gamers retail businesses in the UK
and publishers & Spain in order to
maximise market potential
1. Continue to enhance the
Group’s specialist
proposition
2. Build new categories &
services
3. Multichannel
development
4. Store optimisation
35GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Maximising retail priorities
1 Continue to enhance the Group’s
specialist proposition 3 Multi-channel development
Continue to improve
our retail businesses
in the UK & Spain in
order to maximise
2 Build new categories & services
market potential 4 Store estate optimisation
36GAME DIGITAL PLC – INTERIM RESULTS 2017/18
1. Specialist proposition
Continued development and improvement of customer loyalty programmes
• GAME Reward card scheme with 4.6m active reward customers in the UK & Spain
• GAME Elite subscription model launched May 2017 in the UK
• Enhanced points and exclusive offers driving higher spend and greater engagement
• Strong engagement with over 80,000 sign-ups to date
Securing “Only at GAME” exclusive ranges from supplier partners
• In 2017, 8 out of the top 10 peak titles had an “Only at GAME” exclusive element
• Ongoing discussion with supplier partners to secure a number of specialist exclusives for 2018
Creating a relevant and credible marketing strategy to engage with gamers
• New marketing strategy established to drive reach and engagement of gamers through peak
• Black Friday ‘Deadline Deal’ campaign featuring Harry Redknapp delivered 137.5m impressions
• Shortlist Media partnership driving 1.54m engagements
• Mail Online & Metro partnership, reaching gamers & gifters, creating 264.7m impressions
Content first strategy through social media channels
• Improved impressions (engagement with content) to 2.2m on Twitter & 1.5m on Facebook since
March with Facebook and September with Twitter
• Player 1 Talent influencer programme expanded with over 350 talents signed up with a combined
following 37.1m
• Weekly YouTube show TL;DR launched in February 2018 bringing gaming news and content to
gaming community 37GAME DIGITAL PLC – INTERIM RESULTS 2017/18
2. Build new categories & services
Build on current success achieved in BELONG locations
• Margin rate of arenas circa. 45% with pay to play, food and drink, PC hardware /
accessories / digital
• Arenas have supported improved performance in core retail in LFL arenas is 5.6%
up on non-arena locations in Q2 FY18 VR PC
• Margin rates of combined arenas and stores are higher than non-arenas given the
P2P margin at 100%
• Supplier support on exclusive offers for core console categories
• PC category
• Entrance into PC hardware sales at higher margin than console
LICENSED
• Redefined PC accessories sales MERCHANDISE
SERVICES
• Digital sales to those playing in arenas
• Food and drink proposition launched and opportunity to further exploit with long
dwell times in arenas
• Exploiting services especially warranties and consumer finance
• Sales of VR through creating the experience
CORE CONSOLE &
FOOD & DRINK
• New licensed merchandise category opportunities to deliver for most engaged PC DIGITAL
gamers and esport participants
38GAME DIGITAL PLC – INTERIM RESULTS 2017/18
3. Multi-channel development
2017 Developments 2018 Priorities
Customer Retention Customer Retention
• Improvements to the customer end to end journey • New checkout for Mobile & Desktop
• Customer self service & efficiency programme • Launch of new product categories and Services
• Improved product recommendations and customer upsell tools
Delivery Services Delivery Services
• Order in-store, now available in ALL stores • Collection points increased (new service with Collect +)
• Free next day (Royal Mail) order placed before 3 pm (later cut off) • Basket up-sell to qualify for free delivery
• Launch of new tracked services with Yodel and DPD • Launch of tracked service for International Orders (Asscendia)
Omni-Channel Services Omni-Channel Services
• Click & Reserve/Collect from Store enhanced or launched • Expanded range of store product categories available on-line &
• Trade-in online launched despatched from stores
• Store stock available on-line & despatch from stores launched • Additional online services e.g. GAME Elite, warranties, disc-care,
across 250 stores BELONG PC build
Ways To Pay Ways To Pay
• PayPal credit launched with over £17m in sales in H1 • Consumer finance product implemented
• Delivery upgrade prompts when purchasing
Pre-Orders Pre-Orders
• Implemented customer self service for pre-order payments • Further improvements to customer journey & self service
• Improved product content and information • Pre-order on-line collect from store service
• Pre-order upgrade proposition to fully exploit exclusives
Specialist Games Retailer Specialist Games Retailer
• Refresh content and improved merchandising and attach • Site Navigation, and new PLP and PDP pages together with content
• New Homepage design launched improvements
39GAME DIGITAL PLC – INTERIM RESULTS 2017/18
4. Store estate optimisation
STORE RECONSTRUCTION
THE TWO MODELS
• Exit stores unless significant fixed costs reduction achieved
• Low Capex in secondary locations
• Low operating costs in smaller locations
• Capitalise in larger properties on expanding categories esp. console
accessories, console digital, PC and accessories
TO ACHIEVE
• Further negotiating power with landlords
BELONG WITH A GAME STORE SMALL STORE / CONCESSION
• Space in all major cities and towns
• Cash and facilities to enact property strategy
Leverage BELONG fully for footfall Small store offering, a reduced range
and experience and deliver a and task, with less operating and
UK Lease Expiry Profile specialist range catering for staff costs.
250 233 improved core console proposition Concessions in markets where
with greatly increased engagement standalone stores are not financially
200 with PC gamers viable
150 • 4,000 – 7,000 sq. ft. • Lighter task levels
• Efficient hours usage • Cluster management
100 • 48-100 gaming stations • 80/20 range
• Expanded specialist range • Low operating costs
50 39 • Bespoke look & feel
13 9 • New brand
1 0
0
GAME / BELONG SMALL / CONCESSION
To Dec 18 2019 2020 2021 2022 2023+
No. of Leases Expiring
40GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Game changing strategy recap: Pillars & 2018 priorities
1. Expand live and online 3. Optimise the Group's
gaming services for gamers efficiency whilst investing
and publishers for the future
1. Optimise fixed &
variable store costs
2. Distribution efficiencies
3. Procurement & business
process improvements
4. Supplier arrangements
41GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Right sizing our retail business through significant cost savings
Whilst fully optimising BELONG and the Collaboration Agreement
• Collaboration Agreement allows for broader, longer term approach to improving agreements with
1 Supplier suppliers
• Positive specialist support, including improved exclusives
Arrangements
• Active engagement on strategic live gaming initiatives
• Planning for lease events across over 70% of the UK estate by end of 2018 and over 90% by end of 2019
2 • Total annualised benefits of over £4.7m since programme implemented
Property • Target property savings of a further £1.5m in H2
• BELONG/GAME enacted in ideal locations and close existing stores
• Strong cash position increased year on year £11.9m to £84.9m
3 Cash & • Stock management strengthened delivering £11.7m improved working capital
• Total facilities in place of up to £130m
Working Capital
• Collaboration agreement gives £55m of additional facilities
4 Organisational Efficiency • Head Office reorganisation actioned across all levels
• 10% of roles impacted
and Design • Stores management structure in retail improved
5 Operational Costs & • Loyalty scheme, refund policy, GAME Elite introduction, DC efficiencies and store payroll
Business Processes • Savings in excess £11m targeted in this financial year
42CLOSING REMARKS
43GAME DIGITAL PLC – INTERIM RESULTS 2017/18
H1 Summary
Business transformation activities fully developed with a clear strategy and plans to
address long term structural changes in our markets
• Targeting major new growth markets across the group especially esports
• Pleasing build of BELONG pay to play activities, entry into new retail categories and positive
impact on core retail
• Collaboration Agreement entered into to realise full BELONG potential
• Infrastructure created to improve further utilisation and price per hour initiatives
• New esports innovations to drive growth and impetus in 2018
Right-sizing of retail continues
• Positive market growth in the UK and Spain
• Margin challenged through hardware mix and pressure on preowned
• Successful negotiations at lease events as we enact 200+ lease renegotiations
• Significant cost saving and efficiency programme successfully enacted £5m saving
delivered in H1 and further initiatives in place
• Investment in multichannel and our differentiated, specialist proposition
• Prepared for improving line up of games in 2018/19
Strong cash generation and disciplined use of capital
Spanish market and GAME’s performance remain strong 44GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Future priorities
Expand live and online gaming services for gamers and publishers
• Continue to transform our retail business to one which delivers high growth and high
margins and reduces previous console market cyclicality
• Increase station count, drive utilisation and price per hour in BELONG arenas
• Move our customer proposition to a unique model to deliver the very best esports and
competitive gaming approach
Continue to improve our retail business in the UK and Spain in order to maximise market
potential
• Maximise new product launches and exploit current market
• Further develop our specialist proposition through customer loyalty, exclusives, credible
marketing and content first approach
• Utilising BELONG to drive core retail performance and bring in new retail revenue streams
• Grow share of wallet in the online channel through online services and proposition
development
• Fully utilise the 230+ lease events to deliver the desired BELONG and GAME future approach
Optimise the Group’s efficiency whilst investing for the future
• Gain further supplier support for BELONG and GAME
• Realise the full benefit of the improved negotiated property deals
• Continued focus on cash generation and disciplined use of capital
• Realise all upside from the cost savings programme to deliver over £11m in FY17/18 45QUESTIONS
46APPENDIX
47GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Software market top titles – UK & Spain
H1 FY17/18 H1 FY17/18
H1 FY16/17 H1 FY16/17
2,500 2,500
2,000 2,000
1,500 1,500
1,000 1,000
500 500
0 0
FIFA 18 v FIFA 17 COD WW2 v COD Assassins Creed v Star Wars v Destiny 2 SWITCH: Super FIFA 18 v FIFA 17 COD WW2 v COD Assassins Creed v Star Wars v Destiny 2 SWITCH: Super
IW Watch Dogs 2 Battlefield Mario / Mario Kart IW Watch Dogs 2 Battlefield Mario / Mario Kart
• Total mint market up 14.3% in H1 • Total mint market up 13.5% in H1 in local currency
• Total software mint market up 6% in H1 • Total software mint market up in H1 12.4% in local currency
• Software market growth supported by stronger: • Software market growth supported by stronger:
• Call of Duty performance • FIFA, Call of Duty and Assassin’s Creed performance
• Destiny 2, a non-perennial title without an equivalent in the previous year • Switch new releases – Super Mario Odyssey & Mario Kart, without an
• Switch new releases – Super Mario Odyssey and Mario Kart, without an equivalent title in the previous year
equivalent titles in the previous year
Source: GfK Chart-Track, Spanish market, units sold in H1 18 vs. H1 17 48GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Console digital market continues to enable growth for GAME
Total UK console digital content market GAME console digital sales (GTV), £m
Total UK console digital content
£m (UK only)
market
£m (UK Only)
1,022
934 96.8
875
79.3
725
72.3
580 60.4 59.5
57.5
429
2013 A 2014 A 2015 A 2016 A 2017 A 2018 E FY14 FY15 FY16 FY17 H1 FY17 H1 FY18
Source: IHS 49GAME DIGITAL PLC – INTERIM RESULTS 2017/18
Nintendo Switch performance
SWITCH weekly sales - 52 weeks since launch UK & Spain Markets – Nintendo software market is
(excludes launch week) dominated by physical content sales
60,000
50,000
40,000
30,000
22%
20,000
10,000 53%
0
Install Base 1st Year of Launch - Nintendo Consoles
1,600,000 78%
1,373,102
1,400,000
1,200,000 47%
1,000,000
800,000 653,451
600,000
400,000
138,567 NINTENDO PLAYSTATION
200,000
0
Physical Digital
Wii Wii-U SWITCH
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