Interim 2008 Game Group Plc Earnings Presentation - Final.(Broadcast transcript)

LISA MORGAN, CEO, GAME GROUP PLC: Good morning, everyone. I know it is a very busy day out there today, so I appreciate you all coming along this morning. I will start by giving you the highlights from our first half and a market update. David will then take you through the financials, update you on our Gamestation integration and give you a brief property overview. I will then look at our strategy, our progress by territory and our outlook for Christmas.

I am very pleased to report another record set of results for GAME. We have achieved strong sales for the first half and a record performance for the Group. Total sales at GBP743 million are up by 54% with like-for-like sales up by 22%. We recognize the very challenging and uncertain market conditions within the wider economy. But we are trading within a buoyant video games market where we have seen continued growth in console ownership and an unprecedented first-half release schedule including titles such as GTA, Wii Fit, and Mario Kart.

These Blockbuster launches along with many other popular titles have driven exceptional software sales and a record profit performance to GAME. Profit before tax and nonrecurring costs were up significantly to GBP36.4 million compared to GBP2.7 million for the same period last year. Gamestation continues to perform very well within the Group and we now expect our synergies to be ahead of our previous guidance by GBP2 million taking the total to around GBP9 million for the current year.

Internationally we have opened 71 new stores and have had a strong trading performance with total sales growth at 64% and operating profits increasing to GBP3.5 million. We have continuing momentum in e-commerce. Increasing traffic to our websites has resulted in year-on-year sales growth of over 80%. Positive market trends, a solid first-half performance, and current trading are all encouraging and give us confidence as we approach Christmas. Accordingly, we have increased our full-year guidance of which David will talk to you later.

The video games market has seen exceptional growth since the launch of the third generation consoles. There are five successful console formats in the market, all selling well and in good supply. The current install base of third generation consoles now stands at over 17 million. The larger install base can in part be attributed to many customers entering our market for the first time, stimulated by a variety of innovative products.

Gamestation is the brand of choice for the core gamer. GAME, with its mass-market appeal, is the recognized brand on the high street with more customers in the UK buying their games from GAME than anywhere else. Interestingly, in 2003, women represented about 24% of our GAME reward base. Today they represent 33% and this is expected to rise to over 40% for Christmas.

We believe that gaming at home is a significant and recognized part of everyday leisure with products like FIFA, Brain Training, Wii Fit, and High School Musical providing affordable entertainment.

You may recall this slide from our presentation in April. Although it is UK data and excludes preowned, it is still a good representation of how the market is evolving. The most important points here are the significant growth of the total market from generation to generation, the total installed base of third generation consoles in terms of units and the number of successful formats. The third generation consoles have not only sold at record levels but at a much faster rate than the previous versions. To put these numbers in context, the level of third-generation ownership has been achieved in just three years compared to the seven years it took the previous generations.

Nintendo continued to be the market leader, reflecting their success in targeting the mass-market consumer with both the Wii and the DS Lite. Sony continues to be a strong market player with the PS3 outselling the PlayStation 2 at the same point in its lifecycle despite being at a much higher retail price. And Microsoft having recently reduced the price of the 360 to GBP129 have seen significant sales uplifts.

Overall console sales have gained terrific momentum so far this year. There have been 4.6 million consoles sold and this is before we enter the key Christmas selling period. We believe that the characteristics of today's market together with the strong outlook for new software and accessories will further drive the video games market for a considerable time.

I will now hand you over to David.

DAVID THOMAS, DEPUTY CEO AND GROUP FINANCE DIRECTOR, GAME GROUP PLC: Thank you, Lisa. Good morning, everyone. Starting with the income statement, we treated well throughout the first half. Turnover at over GBP743 million was 54% up on last year and 22% up on a like-for-like basis. The variance between total and LFL sales growth reflects the ongoing progress with our store opening program coupled with the acquisition of Gamestation in May 2007.

Slightly ahead of our guidance, the gross margin increased by 120 basis points to 27%. This is primarily due to higher margin software being a larger part of the total sales mix. As Lisa mentioned, software sales were particularly strong with great titles such as GTA4, Mario Kart, and Wii Fit. In second quarter, we also started to see the benefit of improved purchasing terms for Gamestation.

Operating expenses increased in line with ongoing inflation and the change in the scale of the store portfolio. We will look at this in more detail in the operating expenses bridge later. The result in operating profit of GBP36 million compared to GBP4.8 million 2007 and is a pleasing …