RNS Number:5398K
Game Group PLC
30 April 2003
30 April 2003
THE GAME GROUP PLC
RECORD PROFITS
Unaudited Preliminary results for the year ended 31 January 2003
Highlights
* Pre-tax profit before goodwill amortisation up 26% to a record #33.1m
(#26.3m)
* Operating profit, before goodwill amortisation and last year's provision
for re-branding, increased to a record #32.4m (#31.2m)
* Turnover up 23% to #560m (#454m)
* Basic earnings per share up 32% to 4.4 p (3.33p)
* Net cash at Bank of #37.4m
* Final dividend increased by 37.5% to 0.55p making a total for the year of
1.0p (0.8p)
Peter Lewis, Chairman, commented:-
"The strength of GAME's position in its markets can be measured by this
achievement of record sales, record profits and record cash in the bank of
#37.4m in a difficult year for UK retailers. Our response to the intense
competition during Christmas 2002 was successful in maintaining our clear market
leadership whilst delivering record profits. The current year has begun well
with further gains in market share".
For further information please contact:
John Steinbrecher, Chief Executive
Martin Long, Chief Executive Designate & Chief Financial Officer
Lisa Morgan, Deputy Chief Executive Designate
The GAME Group Tel: 01344 464515
Nic Bennett/Ben Foster/Charlie Armitstead
Financial Dynamics Tel: 020 7831 3113
RESULTS
It was another good year.
* Operating profit, before goodwill amortisation and last years provision
for re-branding, increased to a record #32.4m (#31.2m).
* Pre-tax profits before goodwill amortisation were up 26% to #33.1m
(#26.3m).
* Turnover grew by 23% to #560m (#454m) with like for like sales up 12%.
* Gross profit margin reduced to 28.1% (29.9%) in line with expectations
for the launch year of Xbox and GameCube.
* Basic earnings per share were 4.4p (3.33p) with adjusted EPS, before
goodwill amortisation, of 5.98p (4.91p).
Your Board is proposing an increase in the final dividend of 37.5% to 0.55p per
share making a total for the year of 1p (0.8p) . This increase is a result of
the Group's strong cash position and your Board's confidence in the underlying
business.
A BRIEF REVIEW OF THE YEAR
Our Market
A year ago the UK market for computer software and video games was expected to
grow in 2002 by as much as 25%. As clear market leader, our profits were
expected to grow proportionately. In the event, the market did increase, but by
8%*. As soon as it was clear to your Board that market growth was going to be
less than previous forecasts, with the inevitable impact on your Group's profits
increase, we were quick to ensure that our investors were informed.
The reasons for the shortfall against expectations were a combination of the
sharp drop-off in customer traffic experienced by most high street retailers and
industry specific issues, including lower than anticipated sales of both
Nintendo's GameCube and to a lesser extent Microsoft's Xbox in their launch
year. Total console unit sales in 2002 increased significantly over the
previous year but by value rose by only 1%*. By contrast, software sales were
up 11%* by value.
In response to these trading conditions, industry wide promotional activity was
intense and GAME responded very effectively, driving up seasonal like for like
sales from a mid-December negative of 5% to a positive 4% for the whole
Christmas Season.
Moreover, this strategy maintained our dominant market share, successfully
resisting the competitive attempts of mass merchandisers and others.
*source : ELSPA/ChartTrack
In 2002, the UK games market continued to be the largest in Europe with an
estimated value of #2.1bn*. This was twice the size of video rental and almost
1 1/2 times bigger than cinema box office spending. In "The Way Ahead" section,
later in this report, we address our growth prospects for 2003 and the
adaptation of our business model deriving from our experiences of Christmas
2002.
Our Business
During the year, there were 12 net store openings in the UK and 48 in our
European markets of France, Spain and Sweden. This increased our European store
base by 73% generating total sales growth of 100%. It also added inevitable
start-up costs with a consequent short-term drag effect on Group profits.
Stores trading at 31 January 2003 2002
Company owned & concessions
UK 335 323
Europe 114 66
Franchises
Europe 58 58
Total Outlets 507 447
This was a year of substantial investment in our fledgling European business not
only in stores but in management, systems and IT. Europe now represents 12% of
Group sales, and made a small loss in the year.
We are at an early stage in the development of our business in these markets and
while much of the initial groundwork needed to create a solid foundation for
future expansion has been done, there is still some way to go. Each of our
three businesses is at a different stage of development. In 2003 our plans for
France are a continuation of the remodelling of the acquired ScoreGames chain as
well as the enhancement of IT Systems and the strengthening of the local
management team. In Sweden, where much of the key foundation stage is behind
us, our efforts will be concentrated on accelerating store expansion, whilst in
Spain we seek to improve overall performance with a more modest store expansion
programme.
In the UK, the re-branding from Electronics Boutique to GAME was completed on
schedule and within budget. In 2003 we expect to accelerate our store opening
programme.
In October 2002, we sought in the High Court to clarify our rights to terminate
the long standing services agreement with Electronics Boutique Inc (EBI). On
appeal, the court upheld the agreement which expires on 31 January 2006. We
continue to pay EBI 1% of our UK turnover.
*source : ELSPA/ChartTrack
TREASURY
GAME continues to be strongly cash generative. In the year net cash inflow from
operating activities increased by 26% to #37.4m (#29.7m). Despite a substantial
increase in capital expenditure to #22.3m (#7.0m) driven largely by the
rebranding programme and our store investment in Europe and the UK, the Group
ended the year with net cash of #37.4m (#35.9m). In the last two years GAME has
generated net cash inflow from operating activities of #67.1m
As a result of our strong cash generation and the weakness in our share price,
on 28 January 2003 the Board commenced the buy back of our own shares for
cancellation, in order to enhance shareholder value. Including 1,000,000 shares
purchased prior to the year end, a total of 11,450,000 shares have now been
acquired at an average price of 36.98p. The Board has current powers to
continue this programme prior to the annual renewal of its authority at the AGM
on 3 July, when the Group will seek shareholder approval to increase this figure
from 5% to 10% in line with current practice.
During the year, the Board authorised the purchase of land at Basingstoke for
the creation of a new Distribution and Head Office facility, which we expect to
be completed in early 2004. The existing leasehold premises at Bracknell are
inadequate for the future requirements of our fast growing business. This
development will be largely financed by 10 year loans which have been negotiated
with a major UK bank on favourable terms.
Provision of #14.7m for potential deferred consideration payments in respect of
the acquisitions in 2001 in France and Spain will no longer be required and
goodwill in the balance sheet has accordingly been reduced by this amount.
BOARD CHANGES
On 28 February 2003 the Board announced that its long serving Chief Executive,
John Steinbrecher, had decided to return to his native United States. He
relinquishes his role on 31 January 2004 after over 8 very successful years.
Martin Long, 36, who has been a director and has worked side by side with John
since 1995 and as Deputy Chief Executive and Chief Financial Officer for over 3
years, has been named Chief Executive Designate and will succeed John on his
return to the USA. Martin will continue to act as Chief Financial Officer in
the meantime and the Board will appoint a Finance Director in due course. Lisa
Morgan, 32, has been promoted from Commercial Director to Deputy Chief Executive
Designate.
On 25 January Sir Richard Greenbury, 66, retired from the Board as a
non-executive director so as to pursue his many other retirement interests. He
made an invaluable contribution to our affairs during his term. He is succeeded
by Christopher Bell, 45, who is Chief Executive of Ladbrokes Worldwide and a
main board director of Hilton Group plc.
Following Sir Richard's retirement, William Slee, 62, who has been a member of
the Board since September 2001, was appointed Senior Independent Director.
OUR PEOPLE
It would be remiss of me not to note that our successful response to the
challenges of 2002 trading conditions was made possible only by the commitment
and energy of our outstanding workforce. We thank them all.
In addition to the Main Board changes there have been important internal and
external appointments to the key trading subsidiaries, in particular
strengthening Operations, Property Management, Human Resources and our
commercial team, to meet the needs of the next phase of our growth.
THE WAY AHEAD
The challenge of Christmas 2002 demanded a swift response by your management
which was both forthcoming and effective. Very few UK retailers were able to
match GAME's success in reporting 2002 as a record year.
Since the year end, management has built on these experiences and adapted our
business model to suit these new conditions. In 2003 and beyond, much greater
emphasis is being given to our competitive advantages which taken together
represent a unique selling proposition. These include the loyalty data base
(now 3.9 million customers), our preowned programme, multi-buy product offers,
unrivalled range of products, our all-round superior instore service and local
price competitiveness.
Your Board believes that by harnessing these competitive advantages together
with our philosophy of empowering store management to respond to local trading
conditions, GAME will benefit from further advances in the games market
predicted for this year. Industry reports indicate the world wide games market
may grow to $18.5bn this year ($16.9bn in 2002)*. Since 1995, the global
leisure software market has almost tripled in value. There are few, if any,
other markets that can show comparable growth.
In the UK, 2002 video game console unit sales were up 44% to 3.3million. This
increase in the installed base will stimulate demand for software sales this
year and beyond. The UK is the third largest games market in the world. Of
great significance to the future of GAME is that in the largest and more mature
market of the USA, specialist retailers, like GAME, continue to grow their store
base and market share.
* Source : ELSPA/ChartTrack
CURRENT AND FUTURE TRADING
In 2003 we aim to exploit our commercial advantages in the UK, whilst in Europe
the emphasis is on honing our management systems and capabilities. We expect
the video games market to grow and your management's task is to ensure that GAME
takes its full share of the opportunities.
In the first half of last year like for like sales increased by 29% due to the
unprecedented event of two major systems launches in quick succession. Thus, in
value terms, this year's comparisons for the first half will be misleading,
nevertheless, in the 12 weeks to 26 April which incorporated the launch of Xbox
in 2002, this year's overall sales are up by 10% with same store sales up 1%.
Your Board is encouraged by this performance which is ahead of budget, with
margins in line with internal forecasts. In addition, GAME has further
increased its UK market share.
Your Board is anticipating another successful year.
Peter Lewis
Chairman
30 April 2003
Unaudited consolidated profit and loss account for the year ended 31 January
2003
Unaudited Audited
Note 2003 2002
#'000 #'000
Turnover 560,065 453,776
Cost of sales 402,910 318,201
_______ _______
Gross profit 157,155 135,575
Other operating expenses 1 130,786 115,355
_______ _______
Operating profit before goodwill
amortisation and re-branding costs 32,395 31,179
Goodwill amortisation (5,923) (5,716)
Re-branding costs 2 (103) (5,243)
_______ _______
Operating profit 26,369 20,220
Interest receivable and similar income 1,052 607
Interest payable and similar charges (256) (243)
_______ _______
Profit on ordinary activities before taxation 27,165 20,584
Taxation 3 10,608 8,566
_______ _______
Profit on ordinary activities after taxation 16,557 12,018
Dividends 4 3,758 2,954
_______ _______
Retained profit for the financial year 12,799 9,064
_______ _______
Earnings per share - basic 5 4.40p 3.33p
- diluted 5 4.36p 3.23p
_______ _______
Earnings per share before amortisation
of goodwill - basic 5 5.98p 4.91p
- diluted 5 5.91p 4.76p
_______ _______
Number of own stores trading
(including concessions)
At beginning of year 389 311
At end of year 449 389
Unaudited consolidated balance sheet at 31 January 2003
Unaudited Audited
Note 2003 2002
#'000 #'000
Fixed assets
Intangible assets 6 92,160 112,720
Tangible assets 7 41,742 25,975
_______ _______
133,902 138,695
_______ _______
Current assets
Stocks 38,205 37,746
Debtors 8 17,523 15,529
Cash at bank and in hand 37,972 35,885
_______ _______
93,700 89,160
Creditors: amounts falling due
within one year 9 71,923 73,183
Net current assets 21,777 15,977
_______ _______
Total assets less current liabilities 155,679 154,672
Creditors: amounts falling due
after more than one year 10 1,361 4,621
Accruals and deferred income
Leasehold property incentives 1,733 1,149
_______ _______
Net assets 152,585 148,902
_______ _______
Capital and reserves
Called up share capital 18,772 18,520
Share premium account 38,513 36,463
Shares to be issued 11 - 11,232
Capital redemption reserve 50 -
Other reserves 76,907 76,907
Profit and loss account 18,343 5,780
_______ _______
Equity shareholders' funds 152,585 148,902
Unaudited consolidated cash flow statement for the year ended 31 January 2003
Unaudited Audited
2003 2002
#'000 #'000
Net cash inflow from operating activities 37,366 29,712
Returns on investments and servicing of finance 796 364
Taxation (10,648) (6,504)
Capital expenditure (22,263) (7,036)
Acquisitions (569) (12,845)
Equity dividends paid (3,175) (2,623)
_______ _______
Net cash inflow before financing 1,507 1,068
Financing (7) 18,866
_______ _______
Increase in cash in the year 1,500 19,934
_______ _______
Reconciliation of operating profit to net cash inflow
from operating activities
Operating profit 26,369 20,220
Depreciation 7,862 10,402
Amortisation of intangible assets 5,923 5,716
Loss on disposal of tangible fixed assets 184 121
Increase in stock (806) (6,596)
Increase in debtors (1,995) (3,287)
(Decrease)/ increase in creditors (755) 3,437
Increase/ (decrease) in leasehold property incentives 584 (301)
_______ _______
37,366 29,712
_______ _______
Reconciliation of net cash flow to movement in net funds
Increase in cash in the year 1,500 19,934
Cash outflow/ (inflow) from decrease/ (increase) in net
debt and lease financing 1,239 (113)
_______ _______
Change in net funds resulting from cash flows 2,739 19,821
Loans and finance leases acquired with subsidiary
undertaking - (1,363)
New finance leases (339) (1,207)
Deferred consideration on acquisitions 3,500 (3,500)
Translation differences (75) 27
_______ _______
Movement in net funds in year 5,825 13,778
Net funds at beginning of year 28,958 15,180
_______ _______
Net funds at end of year 34,783 28,958
_______ _______
Notes to the preliminary announcement for the year ended 31 January 2003
1 Other operating expenses Unaudited Audited
2003 2002
#'000 #'000
Selling and distribution 100,974 90,852
Administrative expenses 29,812 24,503
_______ _______
130,786 115,355
_______ _______
Administrative expenses include goodwill amortisation of #5,923,000
(2002: #5,716,000). Selling and distribution includes re-branding
costs of #103,000 (2002: #5,243,000).
2 Re-branding costs
During the previous year the Group announced its decision to adopt
GAME as its core trading name in the future. A one off charge for the
costs of re-branding in the United Kingdom and Eire was included
within those financial statements, and the re-branding exercise was
completed in the current year giving rise to the following charge:
Unaudited Audited
2003 2002
#'000 #'000
Accelerated depreciation charge (247) 2,913
Provision for communication to loyalty scheme
members 65 1,259
Other costs 285 1,071
_______ _______
103 5,243
_______ _______
3 Taxation
Analysis of charge in the year Unaudited Audited
2003 2002
#'000 #'000
Current year:
UK Corporation tax 10,278 9,179
Adjustments in respect of prior periods (23) 18
Overseas tax payable 26 49
_______ _______
Total current tax 10,281 9,246
Deferred tax:
Origination and reversal of timing differences 327 (680)
_______ _______
Taxation on profit on ordinary activities 10,608 8,566
_______ _______
4 Dividends
Unaudited Unaudited Audited Audited
2003 2003 2002 2002
Pence per Pence per
share #'000 share #'000
Interim paid 0.45 1,693 0.40 1,472
Final proposed 0.55 2,065 0.40 1,482
_______ _______ _______ _______
1.00 3,758 0.80 2,954
_______ _______ _______ _______
It is proposed that the final dividend will be paid on 18 July 2003
to shareholders on the register on 27 June 2003.
5 Earnings per share
The calculation of earnings per share for the year ended 31 January
2003 is based on the profit after taxation of #16,557,000 (2002:
#12,018,000). The calculation of basic earnings per share and diluted
earnings per share is based on a weighted average number of
376,009,811 (2002: 360,919,032) shares in issue during the year. The
number of shares used in these calculations and the reconciliation of
denominators used for basic and diluted earnings per share
calculations is set out in the table below:
Effect of
Basic Share options Diluted
Year ended 31 January 2003 376,009,811 4,164,972 380,174,783
Year ended 31 January 2002 360,919,032 11,491,326 372,410,358
Additional disclosure has been provided in respect of earnings per
share before amortisation of goodwill as the Directors believe this
gives a better view of ongoing maintainable earnings.
2003 2002
Pence Pence
Basic earnings per share 4.40 3.33
Amortisation of goodwill 1.58 1.58
________ ________
Basic earnings per share before
amortisation of goodwill 5.98 4.91
________ ________
6 Intangible assets
Goodwill
Group #'000
Cost
At 1 February 2002 127,389
Additions 328
Fair value adjustments (267)
Adjustment to deferred
consideration payable (14,732)
Exchange adjustment 34
_______
At 31 January 2003 112,752
_______
Amortisation
At 1 February 2002 14,669
Amortisation charge for the year 5,923
_______
At 31 January 2003 20,592
_______
Net book value
At 31 January 2003 92,160
_______
At 31 January 2002 112,720
_______
7 Tangible fixed assets
Improvements Fixtures,
Land and to leasehold fittings and
property property equipment Total
#'000 #'000 #'000 #'000
Cost
At 1 February 2002 9,387 15,214 36,992 61,593
Additions 2,988 7,327 12,479 22,794
Acquisitions - 46 14 60
Fair value adjustments 985 - (168) 817
Reclassification of -
acquired assets 2,839 (2,839)
Disposals (242) (1,990) (9,725) (11,957)
Exchange adjustment 183 (1) 298 480
_______ _______ _______ _______
At 31 January 2003 13,301 23,435 37,051 73,787
_______ _______ _______ _______
Depreciation
At 1 February 2002 2,546 7,536 25,536 35,618
Charge for the year 460 1,903 5,499 7,862
Reclassification of - 1,722 (1,722) -
acquired assets
Disposals (194) (1,899) (9,488) (11,581)
Exchange adjustment 5 - 141 146
_______ _______ _______ _______
At 31 January 2003 2,817 9,262 19,966 32,045
_______ _______ _______ _______
Net book value
At 31 January 2003 10,484 14,173 17,085 41,742
_______ _______ _______ _______
At 31 January 2002 6,841 7,678 11,456 25,975
_______ _______ _______ _______
8 Debtors
Unaudited Audited
2003 2002
#'000 #'000
Amounts falling due
within one year:
Trade debtors 4,224 5,026
Other debtors 2,221 850
VAT 672 516
Corporation tax 137 150
Deferred tax asset 1,155 1,152
Prepayments and accrued 9,114 7,835
income
_______ _______
17,523 15,529
_______ _______
9 Creditors: amounts falling due within
one year
Unaudited Audited
2003 2002
#'000 #'000
Bank loan 936 1,185
Bank overdraft 587 -
Trade creditors 32,396 35,626
Other creditors 746 307
Tax and social security
costs 1,905 1,713
VAT payable 13,963 9,995
Dividends payable 2,065 1,482
Corporation tax 5,085 5,465
Obligations under finance
leases and hire purchase
contracts 533 621
Accruals and deferred 13,707 16,289
income
Deferred consideration - 500
_______ _______
71,923 73,183
_______ _______
10 Creditors: amounts falling due after more than one year
Unaudited Audited
2003 2002
#'000 #'000
Deferred consideration - 3,000
Other loans 991 991
Obligations under finance leases and hire
purchase contracts 370 630
_______ _______
1,361 4,621
______ ______
11 Shares to be issued
In accordance with the terms of the agreement to purchase ABC Games
International S.A. deferred consideration of up to EUR.18,294,000
(#11,232,000) was payable dependent upon the results of the acquired
subsidiary undertaking during the period from the date of acquisition
to 31 January 2003.
Based on the performance to date the Directors do not believe any of
this additional consideration will become payable. As a result the
deferred consideration payable has been released in full.
12 Share buy backs
On 28 January 2003, 1,000,000 shares were repurchased for cancellation
by the company at a cost of #310,000.
Since the year end a further 10,450,000 shares were repurchased for
cancellation by the company at a cost of #3,924,500.
13 The results and summary balance sheet incorporates the unaudited
results of THE GAME GROUP PLC and all its subsidiaries made up to
31 January 2003 and have been prepared on a basis consistent with
the audited financial statements for the year ended 31 January 2002.
14 The results for the year ended 31 January 2002 have been extracted
from the audited financial statements for that year which have been
filed with the Registrar of Companies. The auditors' report on these
accounts was unqualified and did not contain statements under s237(2)
or (3) of the Companies Act 1985.
15 The financial information contained in this preliminary announcement
does not constitute statutory accounts within the meaning of section
240 of the Companies Act 1985.
16 The Report and Accounts will be posted to shareholders at least 21 days
before the Annual General Meeting and copies will be available from the
Company Secretary at Charter Court, Third Avenue, Southampton,
SO15 0AP.
This information is provided by RNS
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