Final Results

Games Workshop Group PLC 27 July 2004 PRELIMINARY RESULTS Games Workshop Group PLC announces its preliminary results for the year ended 30 May 2004. Highlights • Turnover at £151.8m (2003: £129.1m) up £22.7m • Sales growth in all territories in constant currency terms* • Operating profit at £19.9m (2003: £17.5m) up £2.4m • Earnings per share of 40.8p (2003: 37.0p) up 3.8p • Dividend per share of 18.75p (2003: 17.00p) up 1.75p Tom Kirby, Chairman and Chief Executive, said: 'The Games Workshop Hobby, and the business which supports and maintains it, continue to enjoy good health. This has also been a very busy year operationally, and we have taken some bold steps forward in the Americas, in our global manufacturing and supply chain and with our management team.' * Constant currency terms are defined in note 8. For further information, please contact: Games Workshop Group PLC Today only: 01756 770 376 Tom Kirby, Chairman and Chief Executive Thereafter: 0115 916 8100 Michael Sherwin, Finance Director 0115 916 8100 Julia Woodall, PR Manager 0115 916 8026 Wade Pryce, Assistant PR Manager 0115 876 6868 Rawlings Financial PR Limited Tel: 01756 770 376 Catriona Valentine FINANCIAL HIGHLIGHTS 2004 2003 Turnover £151.8m £129.1m Operating profit £19.9m £17.5m Pre-tax profit £19.6m £17.5m Year end net funds £8.2m £11.7m Earnings per share 40.8p 37.0p Dividend per share 18.75p 17.00p OPERATING REVIEW BY THE CHAIRMAN AND CHIEF EXECUTIVE Summary of results - for the year to 30May 2004 I am delighted to report on another year of very strong sales growth (+£22.7m) and operating profit growth (+£2.4m). The Games Workshop Hobby, and the business which supports and maintains it, continue to enjoy good health. This has also been a very busy year operationally, and we have taken some bold steps forward in the Americas, in our global manufacturing and supply chain and with our management team. Sales Sales growth remains a consistent feature of the Games Workshop Group, as demonstrated below: Sales by territory Growth Growth constant currency (see note 8) Continental Europe £61.3m +£11.3m +£8.5m UK £48.2m +£8.9m +£8.8m The Americas £33.1m +£0.9m +£3.5m Asia Pacific £9.1m +£1.6m +£0.8m Sales have grown in all key territories, with particularly impressive growth continuing in both Continental Europe and the UK. In 2004 sales made through our own Games Workshop Hobby stores made up 46% of turnover, as we continued to open more stores throughout the world. We opened 37 stores during the year taking our total to 310 at the end of May 2004. The balance of our sales was made through independent retailers (47%) and direct, through the internet and mail order (7%). Sales by channel Independent retailers £71.3m Hobby stores £69.6m Direct £10.9m Continental Europe There are five autonomous sales businesses in Continental Europe, France, Germany, Spain, Northern Europe and Italy whose mission it is to develop the Games Workshop Hobby. We now have 90 Games Workshop Hobby stores, up from 81 last year. Each of these businesses enjoyed strong sales growth during the year except for the Spanish business, which saw sales slip slightly backwards after strong growth over the last three years. The Italian business, whose sales function had previously been based in Nottingham, relocated to the outskirts of Rome during the year. In spite of this disruption the sales for this relatively small business continued to grow impressively, and we believe that the sales operation is now well placed to develop the Games Workshop Hobby properly in Italy. UK Over the last two years we have enjoyed a period of very strong growth in this business, where we now have 117 Games Workshop Hobby stores (2003 - 116). We reported last year that DeAgostini, a third party business which had been granted a licence by the Games Workshop Group to produce a serialised gaming supplement based upon our Lord of the Rings tabletop battle game, launched its 'Battle Games in Middle-earth' product in the UK. This product, which was sold through traditional magazine newsstand distribution channels, was heavily TV advertised and this resulted in an unexpected increase in the sales of our Lord of the Rings products. At the time we indicated that this 'bubble' effect increase in sales might not be sustainable in the future. In 2004 this effect continued during the first half of the year, however during the second half we have seen a return to a more normal level of sales. The healthy growth which we have continued to enjoy through both the independent and direct channels, further confirms the underlying strength of our UK business. The Americas 2004 has been a year of significant investment and structural change in the Americas, which for us, comprises the USA and Canada. We believe that we now have a sales infrastructure which can deliver long-term growth in this exciting territory. At the beginning of the year we established three new regional sales offices for the US in Chicago (Mid-West), Los Angeles (West) and Memphis (South) in addition to the Baltimore (North-East) operation, which was previously our sales centre for the entire country. These offices, and the dedicated sales teams which each has established, are now responsible for growing the Games Workshop Hobby in each region, and for providing customer service both through independent retailers and through our own Games Workshop Hobby stores. To support these efforts on the ground we have opened 21 new Games Workshop Hobby stores, taking the total to 75. Sales in the year through our own stores and through the direct internet and mail order channels have shown healthy growth, while sales to independent retailers have remained sluggish. We remain confident that the investment we have put into growing the Hobby in each region will result in continued sales growth in our own Games Workshop Hobby stores and the direct channel, and that this will also help to restore the health of our sales to independent retailers. Asia Pacific This business comprises Australia and New Zealand. We made the decision during the year to close our three stores in Hong Kong and Singapore as these activities were a serious and unprofitable distraction from the core business in Australia and New Zealand. During the year we opened three new Games Workshop Hobby stores in Australia and New Zealand, and we are confident that this business will benefit from the improved focus which it now receives. Manufacturing and supply chain We have made significant investment in our vertically integrated design, manufacturing and distribution supply chain this year. This has enabled it to respond positively to the growing demands of the sales businesses and will underpin its ability to do so in the future. In June 2003 we opened our new Memphis warehousing and distribution facility, which has supplied the needs of our American business this year. Towards the end of the year we introduced a box packing activity in the new facility, and over the next twelve months we plan to introduce both metal casting and plastic injection moulding. In the medium-term we expect that the Memphis facility will supply the majority of the needs of both our American and Asia Pacific regions. We have also continued to invest in the Nottingham operations where we are currently reorganising our administrative offices ahead of building a new warehouse. This programme will ensure that the needs of our Continental European and UK businesses are catered for into the medium-term. Other activities Warhammer Online In 2001 we established a venture, owned 71.25% by Games Workshop Group, with our partner Climax Development Limited to create a massively multiplayer online computer game set in the Warhammer world. This operation continued until 21 June 2004 when, following a fundamental review, Games Workshop Group and Climax decided to terminate the venture. This decision was taken following a full review of the progress, costs, market and risks associated with the operations. This decision is treated for accounting purposes as a post balance sheet event, and the costs of termination will be dealt with in the results of the Group for the year to May 2005. BL Publishing Our publishing business, which made sales of some £1m this year, has begun to extend its activities outside the Warhammer and Warhammer 40,000 intellectual properties into other fantasy, science fiction and horror properties. This business is developing a small but profitable niche publishing portfolio, while continuing to enhance and develop the existing Games Workshop intellectual property. Sabertooth Games We have taken action this year to refocus this US based collectible card game business, which has been struggling to break even since we acquired it in 2002. We have acquired the outstanding minority shareholding (15%), reduced the cost base and moved the business to our Memphis location to ensure that it can obtain the maximum benefit from Games Workshop's operational logistical structures. We believe that these actions will place this small business (sales this year of $3.4m) on a firmer footing for the future. Management team While we believe in evolutionary rather than revolutionary change in our management structures, this year we have made an important move to establish a more clearly defined divisional management structure for the Games Workshop Group. We now have four management groups, each with clearly defined responsibilities as follows: Games Workshop Tabletop Wargaming division - responsible for the development of the Hobby throughout the world. This encompasses the sales businesses in each territory as well as the design studio based in Nottingham. Manufacturing and Supply division - responsible for the realisation of the designs into manufactured products, and the supply and distribution of those products to our sales businesses and their customers around the world. Other Activities division - responsible for the sales of all non-tabletop wargaming products, including publishing, collectible card games and computer games. Group - responsible for the financing and corporate governance of the activities carried out in the divisions. This also includes intellectual property management, legal, treasury, reporting and investor relations. Having established this divisional structure we believe that we are now better placed to address the key areas of management recruitment, development and succession planning in a more systematic way. Workforce Games Workshop is a special business with an even more special workforce. Many share a passion for the Games Workshop Hobby, and those who do not, have an equally strong passion for providing excellent quality service to support the Games Workshop Hobby. So we are fortunate in that the Hobby is at the centre of all that we do. But while managers can talk about divisional structures until the cows come home, it is not structures which have delivered Games Workshop's remarkable growth, it is the often heroic efforts of this special workforce who all understand that what they are doing matters. That is why we have managed to make such significant changes to our business while still delivering growth in both sales and profits. We now employ 3,200 people around the world, and one of my (few) regrets is that I can no longer talk to them all personally. So once again, I would like to use this annual report to say thank you to all our staff and I trust that our shareholders will join me. Risks facing the business Managing the risks which face our business is what we do every day. The establishment of the divisional management structure referred to above is a natural step towards making this process more transparent and accountable. The Games Workshop Tabletop Wargaming division is responsible for keeping the Hobby fresh and exciting and for managing market facing risks, the Manufacturing and Supply division is responsible for managing product delivery risks, the Other Activities division is responsible for using our intellectual property appropriately while not distracting our tabletop wargaming activities and the Group is responsible for managing treasury and legal risks. We have a formal risk reporting process as part of our annual budgeting and planning cycle, but the management of these risks is an integral part of the daily management process. Amongst the product delivery risks are those relating to input prices. The cost of raw materials, such as metal and plastic, represents no more than 2% of our sales. While the prices of these commodities have shown significant volatility during the second half of this year, we do not believe that this volatility represents a significant threat to our long-term profitability. In the short-term our buying team is working hard to minimise these risks and the Manufacturing and Supply division is seeking out process efficiencies to offset any cost impact. Many of our risks are mitigated by the significant portfolio effect which we enjoy with different geographies, different routes to market and different currencies. This leads me to conclude that the main source of risk for us remains management error. This is why management recruitment, development and succession planning are so important. Prospects We believe that Games Workshop Group can continue to deliver consistent linear growth in sales and profits. We believe that by doing what we are doing, in the territories in which we are already doing it, our sales can grow to a multiple of what they are today. Therefore the directors believe the prospects for the business remain very good. Tom Kirby Chairman and Chief Executive CONSOLIDATED PROFIT AND LOSS ACCOUNT Year to Year to 30 May 2004 1 June 2003 £000 £000 Turnover 151,775 129,109 Cost of sales (50,099) (42,592) --------- --------- Gross profit 101,676 86,517 Net operating expenses (81,821) (69,056) --------- --------- Operating profit 19,855 17,461 Interest receivable 145 265 Interest payable and similar charges (427) (274) --------- --------- Profit on ordinary activities before taxation 19,573 17,452 Taxation on profit on ordinary activities (7,245) (6,470) --------- --------- Profit on ordinary activities after taxation 12,328 10,982 Equity minority interests 1 - --------- --------- Profit for the financial year 12,329 10,982 Dividends (5,749) (5,086) --------- --------- Profit retained for the financial year 6,580 5,896 --------- --------- Basic earnings per ordinary share 40.8p 37.0p Diluted earnings per ordinary share 40.1p 36.3p Dividend per ordinary share 18.75p 17.00p All items dealt with in arriving at the profit on ordinary activities before taxation relate to continuing activities. There is no difference between the profit on ordinary activities before taxation and the retained profit for the year stated above and their historical cost equivalents. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year to Year to 30 May 2004 1 June 2003 £000 £000 Profit for the financial year 12,329 10,982 Currency translation differences on foreign currency net investments (2,012) 95 --------- --------- Total recognised gains and losses relating to the year 10,317 11,077 --------- --------- BALANCE SHEETS Group Company As at As at As at As at 30 May 2004 1 June 2003 30 May 2004 1 June 2003 £000 £000 £000 £000 Fixed assets Goodwill 2,463 3,190 - - Tangible assets 25,627 17,623 - - Investments - - 30,281 27,867 --------- --------- --------- --------- 28,090 20,813 30,281 27,867 --------- --------- --------- --------- Current assets Stocks 12,102 12,496 - - Debtors 13,612 13,212 9,902 9,109 Cash at bank and in hand 8,570 11,728 551 - --------- --------- --------- --------- 34,284 37,436 10,453 9,109 Creditors: amounts falling due within one year (26,558) (28,335) (9,833) (14,875) --------- --------- --------- --------- Net current assets/(liabilities) 7,726 9,101 620 (5,766) --------- --------- --------- --------- Total assets less current liabilities 35,816 29,914 30,901 22,101 Creditors: amounts falling due after more than one year (788) (16) - - Provisions for liabilities and charges (924) (1,725) (392) (1,232) --------- --------- --------- --------- Net assets 34,104 28,173 30,509 20,869 --------- --------- --------- --------- Capital and reserves Called up share capital 1,542 1,503 1,542 1,503 Capital redemption reserve 101 101 101 101 Share premium 5,251 1,267 13,279 9,295 Profit and loss account 27,210 25,301 15,587 9,970 --------- --------- --------- --------- Equity shareholders' funds 34,104 28,172 30,509 20,869 Equity minority interests - 1 - - --------- --------- --------- --------- Total capital employed - all equity 34,104 28,173 30,509 20,869 --------- --------- --------- --------- CONSOLIDATED CASH FLOW STATEMENT Year to Year to 30 May 2004 1 June 2003 £000 £000 Net cash inflow from operating activities 23,490 23,180 ------- ------- Returns on investments and servicing of finance Interest received 147 260 Interest paid (408) (269) Interest paid on finance leases (9) - ------- ------- Net cash outflow from returns on investment and servicing of finance (270) (9) ------- ------- Taxation UK corporation tax paid (6,201) (4,616) Overseas taxation paid (1,977) (1,257) ------- ------- Net cash outflow from taxation (8,178) (5,873) ------- ------- Capital expenditure and financial investment Purchase of tangible fixed assets (13,968) (8,202) Sale of tangible fixed assets 117 22 ------- ------- Net cash outflow from capital expenditure and financial investment (13,851) (8,180) ------- ------- Equity dividends paid (5,218) (3,958) ------- ------- Net cash (outflow)/inflow before financing (4,027) 5,160 ------- ------- Financing Issue of ordinary share capital 1,363 399 Repayment of principal under finance leases/hire purchase contracts (124) (20) Repayment of medium -term revolving credit facility - (2,500) Own shares purchased/cancelled - (443) ------- ------- Net cash inflow/(outflow) from financing 1,239 (2,564) ------- ------- (Decrease)/increase in cash in the year (2,788) 2,596 ------- ------- NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT Reconciliation of operating profit to operating cash flow 2004 2003 £000 £000 Operating profit 19,855 17,461 (Profit)/loss on disposal of tangible fixed assets (35) 130 Depreciation of tangible fixed assets 6,080 5,709 Amortisation of goodwill 366 457 Amortisation of own shares - 121 Exchange movements - 135 Decrease/(increase) in stocks 263 (3,236) Increase in debtors (1,754) (2,414) (Decrease)/increase in creditors (484) 5,098 Decrease in provisions (801) (281) --------- --------- Net cash inflow from operating activities 23,490 23,180 --------- --------- Analysis of net funds As at Other non- Exchange As at 2 June 2003 Cash flow cash changes movement 30 May 2004 £000 £000 £000 £000 £000 Cash at bank and in hand 11,728 (2,788) - (370) 8,570 Finance leases - 124 (491) 3 (364) ------- ------ -------- -------- ------- Net funds 11,728 (2,664) (491) (367) 8,206 ------- ------ -------- -------- ------- Reconciliation of net cash flow to movement in net funds Year to Year to 30 May 2004 1 June 2003 £000 £000 (Decrease)/increase in cash in the year (2,788) 2,596 Cash outflow from decrease in debt and lease financing 124 2,520 --------- --------- Change in net funds resulting from cash flows (2,664) 5,116 New finance leases (491) - Translation difference (367) - Net funds at 2 June 2003 11,728 6,612 --------- --------- Net funds at 30 May 2004 8,206 11,728 --------- --------- NOTES TO THE ACCOUNTS 1. The financial information given above does not constitute the Group's statutory accounts. Statutory accounts for the years ended 30 May 2004 and 1 June 2003 which have been reported on by the Group's auditors, were unqualified and did not contain statements under s237(2) or (3) of the Companies Act 1985. Statutory accounts for the year ended 1 June 2003 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 30 May 2004 will be delivered to the Registrar of Companies in due course. 2. The annual report will be mailed to shareholders on 28 July 2004. Copies of the annual report will also be available from Michael Sherwin, Games Workshop Group PLC, Willow Road, Lenton, Nottingham NG7 2WS. This information is also available on the company web site at http://investor.games-workshop.com. 3. Geographical analysis Turnover By geographical area of sales operation 2004 2003 £000 £000 Continental Europe 61,290 50,030 United Kingdom 48,241 39,353 The Americas 33,110 32,218 Asia Pacific 9,134 7,508 --------- -------- Turnover 151,775 129,109 --------- -------- By geographical area of destination 2004 2003 £000 £000 Continental Europe 66,643 51,672 United Kingdom 42,143 37,160 The Americas 33,291 32,384 Asia Pacific 9,501 7,683 Other 197 210 --------- -------- Turnover 151,775 129,109 --------- -------- Operating profit By geographical area of sales operation Restated 2004 2003 £000 £000 Continental Europe 19,948 14,096 United Kingdom 11,370 11,590 The Americas (829) 1,573 Asia Pacific 756 1,162 --------- -------- 31,245 28,421 Design and development costs (3,549) (3,725) New business development costs (3,085) (2,531) Central costs (4,942) (4,901) --------- -------- Operating profit before royalties 19,669 17,264 Royalty income 186 197 --------- -------- Operating profit 19,855 17,461 --------- -------- New business development costs include £2.5 million (2003: £1.7 million) in respect of the Warhammer Online venture. The prior year allocation of operating profit by geographical area has been restated to better reflect the allocation of the manufacturing costs between the UK and US based production activities. Net assets By geographical area of sales operation Restated 2004 2003 £000 £000 Continental Europe 10,919 6,169 United Kingdom 8,252 2,769 The Americas 10,377 10,568 Asia Pacific 398 708 --------- -------- 29,946 20,214 Unallocated net assets/(liabilities) - cash 8,570 11,728 - taxation (813) (1,764) - central (3,599) (2,005) --------- -------- Net assets 34,104 28,173 --------- -------- The prior year has been restated to allocate goodwill across the appropriate geographical area and to remove short-term intra group indebtedness from the territories, in line with cash. 4. Turnover, cost of sales, gross profit and net operating expenses 2004 2003 £000 £000 Turnover 151,775 129,109 Cost of sales 50,099 42,592 --------- -------- Gross profit 101,676 86,517 --------- -------- Selling and distribution costs 45,035 37,996 Administrative costs 36,972 31,257 Operating income - royalty income (186) (197) --------- -------- Net operating expenses 81,821 69,056 --------- -------- Operating profit 19,855 17,461 --------- -------- 2004 2003 £000 £000 Administrative costs include: Design and development costs 3,549 3,725 New business development costs 3,085 2,531 Other administrative costs 30,338 25,001 --------- ------- Total administrative costs 36,972 31,257 --------- ------- 5. The calculation of basic earnings per ordinary share has been based on profit for the year of £12.3 million (2003: £11.0 million) and the weighted average number of shares in issue throughout the year. The calculation of diluted earnings per ordinary share has been based on profit for the year and the weighted average number of shares in issue throughout the year, adjusted for the dilution effect of share options outstanding at the year end. 2004 2003 Weighted average number of shares: For basic earnings per ordinary share 30,223,087 29,689,168 Dilution effect of share options outstanding 495,036 600,302 ----------- ----------- For diluted earnings per ordinary share 30,718,123 30,289,470 ----------- ----------- 6. Taxation on profit on ordinary activities 2004 2003 £000 £000 Current taxation UK corporation tax 4,410 5,204 Overseas tax 2,193 1,844 ----------- ----------- Total current taxation 6,603 7,048 Deferred taxation 642 (578) ----------- ----------- Taxation on profit on ordinary activities 7,245 6,470 ----------- ----------- 7. The proposed final dividend per share of 14.025p will be paid on 29 October 2004 to shareholders on the register at the close of business on 8 October 2004. 8. Constant currency growth is calculated by comparing sales in underlying currencies for 2003 and 2004, both converted at the 2003 average exchange rates. euro US dollar 2004 2003 2004 2003 Year end rate used for the 1.50 1.39 1.83 1.64 balance sheet Average rate used for earnings 1.46 1.52 1.74 1.58 This information is provided by RNS The company news service from the London Stock Exchange

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