Final Results

Games Workshop Group PLC 29 July 2003 PRELIMINARY RESULTS Games Workshop Group PLC announces its preliminary results for the year ended 1 June 2003. Highlights * Turnover at £129.1m (2002: £108.6m) up £20.5m * Operating profit at £17.5m (2002: £13.5m) up £4.0m * Earnings per share of 37.0p (2002: 28.2p) up 8.8p * Dividend per share of 17.0p (2002: 13.0p) up 4.0p * Year end cash of £11.7m (2002: £6.6m) Tom Kirby, Chairman and Chief Executive, said: 'We have enjoyed another year of strong sales growth (+£20.5m) which we have successfully converted into cash (operating cash flow +£1.2m) and operating profit (+£4m). For us this has been a wonderful year, which is another way of saying it has simply been more of the same.' 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 Tel: 0115 916 8100 Julia Woodall, PR Manager Tel: 0115 916 8026 Rawlings Financial PR Limited Tel: 01756 770 376 John Rawlings Catriona Valentine FINANCIAL HIGHLIGHTS 2003 2002 Turnover £129.1m £108.6m Operating profit £17.5m £13.5m Pre-tax profit £17.5m £13.5m Year end net funds £11.7m £6.6m Earnings per share 37.0p 28.2p Dividend per share 17.0p 13.0p OPERATING REVIEW BY THE CHAIRMAN AND CHIEF EXECUTIVE Summary of results - for the year to 1 June 2003 We have enjoyed another year of strong sales growth (+£20.5m) which we have successfully converted into cash (operating cash flow +£1.2m) and operating profit (+£4m). Sales Sales growth is a consistent feature of the Games Workshop Group story. In 2003 turnover in constant currency terms has grown in all key territories, with particularly impressive growth in Continental Europe and the UK. Sales by territory Growth Growth constant currency (see note 8) Continental Europe £50.0m +£13.5m +£11.2m UK £39.4m +£7.0m +£7.0m The Americas £32.2m -£0.6m +£2.3m Asia Pacific £7.5m +£0.6m +£0.6m In 2002/3 sales made through our own Games Workshop Hobby stores made up 46% of turnover, as our store opening programme gained momentum. We opened 28 stores during the year taking our total to 278 at the end of May 2003. The rest of our sales were made through independent retailers (47%) and direct, through the internet and mail order (7%). The balance of sales made through the different channels varies between our various sales businesses: sales in the UK and Asia Pacific are dominated by Games Workshop Hobby stores; sales to independent retailers represent a larger part of our businesses in the Americas and Continental Europe. Sales by channel Independent retailers £60.2m Hobby stores £59.9m Direct £9.0m Continental Europe We have five autonomous sales businesses in Continental Europe, responsible for developing the Games Workshop Hobby in France, Spain, Germany, Northern Europe and Italy. We now have 81 Games Workshop Hobby stores, up from 69 last year. Each of these businesses enjoyed strong growth during the year. The Italian sales business, which is the smallest of these units, is in the process of relocating its sales function from Nottingham to Rome. While this will incur higher costs in the short-term, this move is necessary to enable the business to develop the Games Workshop Hobby properly in Italy. UK We have 116 Games Workshop Hobby stores in the UK, and this business has enjoyed a remarkably successful year. For the eight months to February 2003 the business achieved sales and profit growth well ahead of inflation, which confirmed that we are able further to develop this, the market in which our brands and products are best known. Then 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 is sold through traditional magazine and newsstand distribution channels, was heavily TV advertised in the UK. Until then, sales of our Lord of the Rings tabletop battle games in the UK had accounted for less than 10% of sales, as in all of our other territories. However, from the launch in February onwards, we enjoyed an unexpected increase in sales in the UK, particularly of the Lord of the Rings products, which represented over 10% of UK sales during the last quarter of the financial year. We believe that this increase is due, at least in part, to the DeAgostini product launch and we therefore believe that an element of these sales could represent a 'bubble' effect which may not be sustainable in the future. While the UK management team has put measures in place to support and help the new entrants which this phenomenon may have introduced to the Hobby, we are monitoring developments closely. The Americas We believe that the American market, which for us at present comprises the USA and Canada, represents a great growth opportunity for Games Workshop. We are therefore investing in that opportunity in three ways: * During the year we opened 12 new Games Workshop Hobby stores, taking the total to 54 * We have begun the regionalisation of our US sales effort, establishing regional sales offices in the North East (Baltimore) and the West (Los Angeles) during the year, with the Mid West (Chicago) and the South (Memphis) opening early in the new financial year * To support this sales effort, we have built a new supply facility in Memphis, which began operations in June 2003 We believe that these ongoing investments will ensure that we have the necessary infrastructure to grow this business significantly in the future. During the year our sales to independent retailers and our direct sales in North America were sluggish, however, we continued to enjoy like for like growth in our Games Workshop Hobby stores. This continues to give us confidence in the long-term potential for this business, and in our investment programme. Asia Pacific We opened four Games Workshop Hobby stores during the year, taking our total to 27. While this business mainly comprises Australia and New Zealand, we also have two Games Workshop Hobby stores in Hong Kong and we opened one in Singapore during the year. Manufacturing and supply chain Our vertically integrated design, manufacturing and distribution supply chain has continued to operate smoothly during the year, responding very positively to the significant increase in demand placed upon it by our sales growth. To ensure that it can meet future demand, a major new facility has been built in Memphis, Tennessee which will support both the North American and Asia Pacific markets. This facility has opened in June 2003 as a warehouse and distribution centre, and we expect to develop it into a manufacturing facility over the next 12 months. Warhammer Online This venture, owned 71.25% by Games Workshop Group, was established to create a massively multiplayer online computer game set in the Warhammer world. Along with our partner, the UK computer games developer Climax Development Limited, we have progressed this project towards the beta testing phase of the game, due to begin in January 2004. During the year we have also established commercial relationships with the various third parties required to market, distribute and operate an online game. In particular we have recently announced that Sega will be our marketing and distribution partner, ensuring that the launch of the game into the traditional computer game channels will be handled by a large computer games publisher. Overall progress on this project remains in line with our original plans regarding both cost and timescale. Development costs of £1.7m were expensed in 2002/3. Sabertooth Games, Inc In the second half of the 2001/2 financial year Games Workshop Group acquired an 85% shareholding in Sabertooth Games, Inc, a start-up collectible card game business based in Seattle in the USA. During the year this business focussed much of its efforts on the launch in March 2003 of WarCry, its second game set in the Warhammer universe. It made sales of £1.0m during the year. For this niche, fantasy card game publisher to be successful it needs to establish a regular flow of monthly product releases and this in turn requires it to establish access to a portfolio of intellectual properties. Over the next year we expect Sabertooth to continue to publish games based upon the Warhammer and Warhammer 40,000 worlds, but also to expand to some third party properties. For example, it has recently signed a licence with Sony to produce games based upon the EverQuest property. BL Publishing This is our publishing business, which has grown up within the Games Workshop Group publishing novels, comics and magazines based in the Warhammer and Warhammer 40,000 universes. In the year, this business made sales of some £1.6m. BL Publishing has recently entered into various third party licensing arrangements to publish novels and other related products based upon other fantasy, science fiction and horror properties. We believe that this business can build a small but profitable niche publishing portfolio, applying its existing skills and infrastructure to a broader base of intellectual property. In addition, it is a powerful enhancer and developer of existing Games Workshop Group intellectual property. Other activities We have granted a licence to THQ Inc, the US based computer games publisher, to develop several PC and console games based upon Warhammer 40,000 imagery. The first of these games will be Fire Warrior, a first person shooter game which is due to be launched in September 2003. We expect this game to begin to generate royalty income once launched. We continue to explore potential new avenues to create royalty income. Management team Management development is still high up on my personal agenda. I find it hard to improve on the words I used last year. 'These results have been delivered by a management team which has grown enormously in stature in recent years. The team has to work co-operatively across cultural and national boundaries to achieve both individual and corporate goals. This is inherently difficult and we don't get it right all of the time, but what we do now have is a blend of internally developed expertise and recruited experience which gets it right more often than not.' Just as we plan for the long-term, we recruit for the long-term. This means that we are looking for people who understand what we do for a living. It's surprising how unusual this attitude is. Workforce Good management is essential in a good company, but so is a high quality workforce. We are blessed with a high quality workforce. Once I would be able to talk to every person in Games Workshop and thank them personally. Sadly, thanks to our success and the growth of the workforce, I am no longer able to do so. I would like therefore to use this annual report to send a heart felt thank you to all staff and I trust shareholders will join me. Risks facing our business Shareholders should take great comfort from the portfolio of businesses we run, and the different routes to market that exist within each. This means none of our business customers is individually significant and we enjoy a degree of natural hedging in our currency exposures. The main source of risk remains management error. This is why management development is so important. Future prospects We believe that Games Workshop Group can continue to deliver linear growth in sales and profits. The directors believe the prospects for the business remain very good. T H F Kirby Chairman and Chief Executive CONSOLIDATED PROFIT AND LOSS ACCOUNT Year to Year to 1 June 2003 2 June 2002 £000 £000 Turnover 129,109 108,557 Cost of sales (42,592) (36,550) --------- --------- Gross profit 86,517 72,007 Net operating expenses (69,056) (58,502) --------- --------- Operating profit 17,461 13,505 Interest receivable 265 253 Interest payable and similar charges (274) (235) --------- --------- Profit on ordinary activities before taxation 17,452 13,523 Taxation on profit on ordinary activities (6,470) (4,935) --------- --------- Profit on ordinary activities after taxation 10,982 8,588 Equity minority interests - - --------- --------- Profit for the financial year 10,982 8,588 --------- --------- Dividends (5,086) (3,816) --------- --------- Profit retained for the financial year 5,896 4,772 --------- --------- Basic earnings per ordinary share 37.0p 28.2p Diluted earnings per ordinary share 36.3p 27.5p Dividend per ordinary share 17.0p 13.0p 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 1 June 2003 2 June 2002 £000 £000 Profit for the financial year 10,982 8,588 Currency translation differences on foreign currency net investments 95 86 --------- --------- Total recognised gains and losses relating to the year 11,077 8,674 --------- --------- BALANCE SHEETS Group Company As at As at As at As at 1 June 2003 2 June 2002 1 June 2003 2 June 2002 £000 £000 £000 £000 Fixed assets Goodwill 3,190 3,647 - - Tangible assets 17,623 15,211 - - Investments - 121 27,867 18,007 --------- --------- --------- --------- 20,813 18,979 27,867 18,007 --------- --------- --------- --------- Current assets Stocks 12,496 9,260 - - Debtors 13,212 10,213 9,109 8,835 Cash at bank and in hand 11,728 9,132 - 1,100 --------- --------- --------- --------- 37,436 28,605 9,109 9,935 Creditors: amounts falling due within one year (28,335) (23,352) (14,875) (9,346) --------- --------- --------- --------- Net current assets/ (liabilities) 9,101 5,253 (5,766) 589 --------- --------- --------- --------- Total assets less current liabilities 29,914 24,232 22,101 18,596 Creditors: amounts falling due after more than one year (16) - - - Provisions for liabilities and charges (1,725) (2,006) (1,232) (414) --------- --------- --------- --------- Net assets 28,173 22,226 20,869 18,182 ========= ========= ========= ========= Capital and reserves Called up share capital 1,503 1,499 1,503 1,499 Capital redemption reserve 101 96 101 96 Share premium 1,267 417 9,295 8,445 Profit and loss account 25,301 20,213 9,970 8,142 --------- --------- --------- --------- Equity shareholders' funds 28,172 22,225 20,869 18,182 Equity minority interests 1 1 - - --------- --------- --------- --------- Total capital employed - all equity 28,173 22,226 20,869 18,182 ========= ========= ========= ========= CONSOLIDATED CASH FLOW STATEMENT Year to Year to 1 June 2003 2 June 2002 £000 £000 Net cash inflow from operating activities 23,180 22,010 ------- ------- Returns on investments and servicing of finance Interest received 260 254 Interest paid (269) (240) Interest paid on hire purchase contracts - (11) ------- ------- Net cash (outflow)/inflow from returns on investment and servicing of finance (9) 3 ------- ------- Taxation UK corporation tax paid (4,616) (3,615) Overseas taxation paid (1,257) (902) ------- ------- Net cash outflow from taxation (5,873) (4,517) ------- ------- Capital expenditure and financial investment Purchase of tangible fixed assets (8,202) (5,416) Sale of tangible fixed assets 22 413 Purchase of own shares - (328) ------- ------- Net cash outflow from capital expenditure and financial investment (8,180) (5,331) ------- ------- Acquisitions Purchase of subsidiary undertaking - (2,103) Net overdraft acquired with subsidiary - (97) Shares issued to equity minority interests - 3 ------- ------- Net cash outflow from acquisitions - (2,197) ------- ------- Equity dividends paid (3,958) (3,294) ------- ------- Net cash inflow before financing 5,160 6,674 ------- ------- Financing Issue of ordinary share capital 399 863 Repayment of principal under hire purchase agreements (20) (42) (Repayment)/draw down of medium-term revolving credit facility (2,500) 2,500 Repayment of other loans - (194) Own shares purchased/cancelled (443) (9,759) ------- ------- Net cash outflow from financing (2,564) (6,632) ------- ------- Increase in cash in the year 2,596 42 ------- ------- NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT Reconciliation of operating profit to operating cash flow 2003 2002 £000 £000 Operating profit 17,461 13,505 Loss on disposal of tangible fixed assets 130 151 Depreciation of tangible fixed assets 5,709 4,847 Amortisation of goodwill 457 252 Amortisation of own shares 121 662 Exchange movements 135 11 (Increase)/decrease in stocks (3,236) 54 Increase in debtors (2,414) (434) Increase in creditors 5,098 2,356 (Decrease)/increase in provisions (281) 606 --------- --------- Net cash inflow from operating activities 23,180 22,010 --------- --------- Analysis of net funds As at As at 2 June 2002 Cash flow 1 June 2003 £000 £000 £000 Cash at bank and in hand 9,132 2,596 11,728 Debt due within one year (2,500) 2,500 - Hire purchase contracts (20) 20 - --------- -------- --------- Net funds 6,612 5,116 11,728 --------- -------- --------- Reconciliation of net cash flow to movement in net funds Year to Year to 1 June 2003 2 June 2002 £000 £000 Increase in cash in the year 2,596 42 --------- --------- Cash outflow/(inflow) from decrease/(increase) in debt and lease financing 2,520 (2,264) --------- --------- Change in net funds resulting from cash flows 5,116 (2,222) Loans acquired with subsidiary - (194) Relinquished hire purchase contracts - 70 --------- --------- Change in net funds in the year 5,116 (2,346) Net funds at 3 June 2002 6,612 8,958 --------- --------- Net funds at 1 June 2003 11,728 6,612 --------- --------- NOTES TO THE ACCOUNTS 1. The financial information given above does not constitute the Group's statutory accounts. Statutory accounts for the years ended 1 June 2003 and 2 June 2002 have been reported on without qualification by the Group's auditors. Statutory accounts for the year ended 2 June 2002 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 1 June 2003 will be delivered to the Registrar of Companies in due course. 2. The annual report will be mailed to shareholders on 30 July 2003. 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 website at http://investor.games-workshop.com. 3. Geographical analysis Turnover By geographical area of sales operation 2003 2002 £000 £000 Continental Europe 50,030 36,518 United Kingdom 39,353 32,369 The Americas 32,218 32,791 Asia Pacific 7,508 6,879 --------- -------- Turnover 129,109 108,557 --------- -------- By geographical area of destination 2003 2002 £000 £000 Continental Europe 51,672 37,814 United Kingdom 37,160 30,168 The Americas 32,384 33,375 Asia Pacific 7,683 7,017 Other 210 183 --------- -------- Turnover 129,109 108,557 --------- -------- Operating profit By geographical area of sales operation 2003 2002 £000 £000 Continental Europe 13,550 8,551 United Kingdom 11,343 6,424 The Americas 2,430 6,132 Asia Pacific 1,098 955 --------- -------- 28,421 22,062 Design and development costs (3,725) (2,605) New business development costs (2,531) (2,125) Central costs (4,901) (3,949) --------- -------- Operating profit before royalties 17,264 13,383 Royalty income 197 122 --------- -------- Operating profit 17,461 13,505 --------- -------- New business development costs include £1.7 million (2002: £1.5 million) in respect of the Warhammer Online venture. Net assets By geographical area of sales operation Restated 2003 2002 £000 £000 Continental Europe 6,337 4,585 United Kingdom 2,315 779 The Americas 11,544 8,247 Asia Pacific 598 (254) --------- -------- 20,794 13,357 New business development costs (3,708) (1,946) Goodwill 3,190 3,647 Unallocated net assets 7,897 7,168 --------- -------- Net assets 28,173 22,226 --------- -------- The prior year has been restated to separate tax and cash balances from the net assets by geographical area. These are now included in unallocated net assets. This reflects the definition of return on average capital employed as described in note 9 below. 4. Turnover, cost of sales, gross profit and net operating expenses 2003 2002 £000 £000 Turnover 129,109 108,557 Cost of sales 42,592 36,550 --------- -------- Gross profit 86,517 72,007 --------- -------- Selling and distribution costs 37,996 34,360 Administrative costs 31,257 24,264 Operating income - royalty income (197) (122) --------- -------- Net operating expenses 69,056 58,502 --------- -------- Operating profit 17,461 13,505 --------- -------- 2003 2002 £000 £000 Administrative costs include: Design and development costs 3,725 2,605 New business development costs 2,531 2,125 Other administrative costs 25,001 19,534 --------- ------- Total administrative costs 31,257 24,264 --------- ------- 5. The calculation of basic earnings per ordinary share has been based on profit for the year of £11.0 million (2002: £8.6 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. 2003 2002 Weighted average number of shares: For basic earnings per ordinary share 29,689,168 30,485,802 Dilution effect of share options 600,302 708,818 ----------- ----------- For diluted earnings per ordinary share 30,289,470 31,194,620 ----------- ----------- 6. Taxation on profit on ordinary activities 2003 2002 £000 £000 Current taxation UK corporation tax 5,204 4,432 Overseas tax 1,844 1,116 ----------- ----------- Total current taxation 7,048 5,548 Deferred taxation (578) (613) ----------- ----------- Taxation on profit on ordinary activities 6,470 4,935 ----------- ----------- 7. The proposed final dividend per share of 12.5p will be paid on 31 October 2003 to shareholders on the register at the close of business on 10 October 2003. 8. Constant currency growth is calculated by comparing sales in underlying currencies for 2002 and 2003, both converted at the 2002 average exchange rates. 9. We use average capital employed to take account of the significant fluctuation in working capital which occurs as the business builds both stocks and trade debtors in the pre-Christmas trading period. Return is defined as pre-exceptional operating profit, and the average capital employed is adjusted by deducting assets and adding back liabilities in respect of cash, borrowings, provisions, taxation and dividends. This information is provided by RNS The company news service from the London Stock Exchange

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