Preliminary Results 2010

RNS Number : 9541P

Games Workshop Group PLC

27 July 2010

 



PRELIMINARY RESULTS 2010

Games Workshop Group PLC ("Games Workshop" or the "Group") announces its preliminary results for the year ended 30 May 2010.

Highlights

·     Revenue at £126.5m (2009: £125.7m)

·     Revenue at constant currency* at £121.8m (2009: £125.7m)

·     Operating profit - pre-royalties receivable at £13.0m (2009: £5.5m)

·     Operating profit at £16.1m (2009: £9.0m)

·     Pre-tax profit at £16.1m (2009: £7.5m)

·     Earnings per share of 48.4p (2009: 17.6p)

·     Year end net funds/(borrowings) of £17.1m (2009: £(1.6)m)

·     Proposed gross dividend per share of 25.0p (2009: nil)

*Constant currency revenue is calculated by comparing results in the underlying currencies for 2009 and 2010, both converted at the 2009 average exchange rates.

Mark Wells, CEO of Games Workshop, said:

"We have a simple strategy at Games Workshop. We make the best fantasy miniatures and games in the world and sell them globally at a profit. This year we have improved Games Workshop's profitability and cash flow significantly. This has enabled us to repay our borrowings and recommend a dividend to our shareholders.

Games Workshop is now a much leaner business which is preparing itself for many years of steady profitable growth.

For further information, please contact:

Games Workshop Group PLC	Today only:	01653 618016
Tom Kirby, chairman	Thereafter	0115 900 4003
Mark Wells, CEO		0115 900 4003
Kevin Rountree, CFO		0115 900 4003
Investor relations website	http://investor.games-workshop.com www.games-workshop.com
General website
Rawlings Financial PR Limited	Tel:	01653 618016
Catriona Valentine

The 2010 annual report, AGM presentation and notice of annual general meeting may be viewed at the investor relations website at the address above.

FINANCIAL HIGHLIGHTS

	2010	Restated** 2009
Revenue	£126.5m	£125.7m
Revenue at constant currency*	£121.8m	£125.7m
Operating profit - pre-royalties receivable	£13.0m	£5.5m
Royalties receivable	£3.1m	£3.5m
Operating profit	£16.1m	£9.0m
Pre-tax profit	£16.1m	£7.5m
Year end net funds/(borrowings)	£17.1m	£(1.6)m
Earnings per share	48.4p	17.6p
Proposed gross dividend per share	25.0p	-

* Constant currency revenue is calculated by comparing results in the underlying currencies for 2009 and 2010, both converted at the 2009 average exchange rates.

**Prior periods have been restated to reflect the adoption of the amendment to IFRS2 with effect from 1 June 2008 (see note 7).

BUSINESS REVIEW BY THE CHIEF EXECUTIVE

Our strategy

I am often asked about our strategy. We have a simple strategy at Games Workshop. We make the best fantasy miniatures and games in the world and sell them globally at a profit.  Simple, but every part of this statement is important.

We make things. We are a manufacturer. Not a retailer. We do have outlets in retail locations. We call these Games Workshop Hobby centres because they show customers how to engage with our hobby of collecting, painting and playing with our miniatures and games. They are the front end of our manufacturing business. If our Hobby centres do a great job, we will recruit lots of customers into our hobby and they will enjoy spending their money on the products we make.

The products we make for our customers are the best in the wargaming world. This is because everyone at Games Workshop is passionate about our Hobby. Every year we seek new and better ways of making our products and improving the quality. This is not simply a personal obsession; it also makes good business sense. We know that, for a niche like ours, people who are interested in collecting fantasy miniatures will choose the best quality and be prepared to pay what they are worth.

The games are a key part of both our hobby and our business model. Our games are played between people present in a room (a Hobby centre, a club, a school), not with a screen. Our games are truly social and build a real sense of community and comradeship. This again makes good business sense. The more fun and enjoyable we make our games, the more customers we attract and retain, and the more miniatures our customers want to buy. This in turn allows us to reinvest in making more and more exciting miniatures and games, which creates a virtuous circle for all.

We are also clear that we will only make fantasy miniatures, not historical ones. Fantasy miniatures from our own Warhammer and Warhammer 40,000 worlds allow us unlimited scope for product innovation. In addition, we can, and do, defend our intellectual property rigorously against imitators, thus ensuring that our worlds are synonymous with quality.

Our customers are global. People with our particular hobby gene, namely collecting, painting and playing with fantasy soldiers, exist all over the world. Our job is to find them. In developed markets we like to do this ourselves through our own Games Workshop Hobby centres. Here we employ wonderful young men and women, who are recruited for their enthusiasm and willingness to help others. Our Hobby centre managers are quite literally that: the centre for the Hobby in their local community and it is their behaviour and attitude that determine our success in that location.

Because it takes time and care to find the right person to run a Games Workshop Hobby centre, it will take us many years to get the global penetration we want to achieve. So, in order to improve our coverage today, we seek out other businesses which can help us get to the places where our hobbyists may be found. The best businesses at helping us are independent shops, run by owners who know their customers and offer them a good personal service. We call these Stockists and we supply them with an easy to manage range of our fastest selling products, which we resupply every month.

For emerging markets in Eastern Europe, Asia and South America we work through experienced local distributors to ensure our product is available through their local networks of retailers. And, of course, in all these locations, we also have the Games Workshop Webstore, which gives customers a huge amount of information on the Hobby and access to our entire range of products with a fast and efficient delivery service wherever they live in the world.

Finally, we know that if we want Games Workshop to be around for a long time, we have to deliver all this profitably. This is why we are cost conscious. We no longer spend money on things we don't need, like expensive offices or prime rent shopping locations or advertising that speaks to the mass market rather than our small band of loyal followers. We only invest where it makes a positive improvement to our business model, such as in tooling to make better plastic miniatures, in opening more Hobby centres to improve our customer service and in fit-for-purpose systems to make our processes more efficient and reliable. And when we make an investment, we measure its impact to ensure that it delivers an improved return on capital for our owners.

Our continual investment in product quality, using our defendable intellectual property, provides us with a considerable barrier to entry for potential competitors: it is our Fortress Wall. While our 382 Hobby centreswhich show customers how to collect, paint and play with our miniatures and games provide another barrier to entry: our Fortress Moat. We have been building our Fortress Wall and Moat for many years and the competitive advantage they provide gives us confidence in our ability to grow profitably in the future.

Even though we have been in the UK for 35 years, we still see opportunities for growth here with smaller one man Hobby centres in market towns and suburbs of large cities. Compared to the UK, every other country is for us still a "green field" territory. This means we believe we can keep on growing steadily, using the same tried and tested approach of recruiting and retaining customers by opening Games Workshop Hobby centres, supported by the Games Workshop Webstore and independent Stockist accounts across the globe. With this growth we should be able to put more volume through our dedicated manufacturing and warehouse facilities ensuring that our gross margin continues to improve.

That's our core business strategy.

Aside from our core business, a number of commentators have recently become quite excited about the opportunity to use Games Workshop's intellectual property in other markets such as computer games. Indeed, we have already begun to generate royalty income from a small number of such games.

Where we think we can generate additional income for our shareholders from our intellectual property we will pursue these opportunities. However, we impose a number of important conditions. First, the products have to be of a high quality in their genre: we don't want to devalue our IP in the pursuit of short-term cash. Secondly, we must retain control of the IP. Thirdly, they must be significant enough for us to devote valuable management time to them.

In order to ensure that these opportunities do not distract the main Hobby business, we manage our licensing business separately, with a dedicated and single minded team. We believe this is the best way to ensure we continue to deliver good long-term returns to our owners.

Our results for 2009/10

Sales are down on last year on a constant currency basis despite strong growth from the new Games Workshop Webstore. We increased the number of Hobby centres by 27 stores during the year, but the growth from these was not able to offset the decline in existing stores. Although there was some improvement in the second half, achieving consistent like for like ('LFL') growth in Hobby centres is currently our main focus. More on this later.

Northern Europe and North America both showed growth in the year, while Continental Europe continued to decline, although at a slower rate than in previous years. Australia had a disappointing second half, as some of its key managers were redeployed to share their experience and training techniques with other territories.

Our two specialist businesses, Forge World and Black Library, continue to perform well. Black Library had a number of bestsellers in both the UK and the US science fiction charts and Forge World has recently relaunched its website to improve the efficiency of processing its growing order book.

Gross margins have strengthened considerably from 71.4% to 75.4% on a constant currency basis. The quality of product we have released has both surprised and delighted our customers. We have increased our prices to reflect the additional investment and value we have built into these new releases.

The constant search for efficiencies and improvements in the manufacturing process has continued, delivering headcount savings in the factory and improved terms from suppliers, noticeably carriage. The professionalism and work ethic in our design and manufacturing teams are capable of offsetting uncertainty over raw material costs.

Costs have been reduced on a constant currency basis by £4.3 million to £80.0 million, after recognising the profit share cost of £1.8 million. This is a result of the culture of cost consciousness we have re-created at Games Workshop in recent years. We set ourselves the objective to pay off our borrowings this year and we asked staff to accept a salary freeze to allow us to do that. This they agreed to do and it is good to be able to report we are now debt free. We resumed normal pay reviews in the current year, and I am delighted that all employees earned their full profit share of £1,000 each (before tax) under our new scheme.

We continue to look for ways to improve the profitability of our Hobby centres. We have selectively reduced staffing levels in both Hobby centres and in regional management roles to ensure we will be able to operate profitable stores in all locations. We negotiate hard on each rent and, where increases have made a location uneconomic, we have relocated to a lower rent location nearby. The recent work we have done to reduce the cost of shopfitting a Hobby centre has made the option to relocate much more attractive. We have also negotiated changes to our opening hours to allow us to operate more of our one-man stores, of which there are now 143 worldwide.

We have been able to reduce our actual warehouse and retail stock by £2.2 million to £11.1 million through the implementation of automatic stock replenishment and a streamlined range in our Hobby centres. The latter has been made possible by the introduction of our new Games Workshop Webstore in all Hobby centres ensuring that customers can access the full range without us having to carry the slower moving lines on shelf. We now carry less stock in each store and are more in control of warehouse stocks which will help us minimise stock write offs in future.

The Stockist strategy of dealing with well run independent shops, focusing on fast moving lines and replenished on a monthly basis, has meant that our debtors are under control, despite difficult economic conditions for traditional retailers. This also means we are not exposed to large chains, which typically seek to leverage their buying power to extract improved margins.

Investment in store openings has continued, with 45 new Hobby centres bringing our total to 382. The improvements we have made to our Hobby centre model mean that most new Hobby centres are profitable in their first year. We invested £1.9 million in tooling and the popular new plastic ranges continue to deliver an excellent payback. In addition to the new web terminals we have installed in our Hobby centres, we have also introduced new tills in France and Germany to complete the rollout of automatic stock replenishment.

The net effect of all these changes has been to increase profit margins at Games Workshop to 12.7%, asset turn from 3.1 to 3.5 and therefore return on capital to 44%. This has allowed us to repay our borrowings and end the year with net cash of £17.1 million. Clearly this is a much improved performance. However, we believe there is more we can do in the years to come.

Our plans for 2010/11

We now use a rolling 5 year planning process for managing the performance of Games Workshop. This has replaced the old annual budgeting process which took up a lot of time for little real benefit. By contrast our 5 year planning process has allowed us to focus on key issues facing each business and to put in place projects that will have a long-term benefit on our performance.

We have found that focusing on a small number of major projects, each with a dedicated project manager, is the most effective method for implementing major change at Games Workshop. Last year's global projects included automatic stock replenishment, rollout of the Global Webstore and global pricing. Good progress was made in these areas, all of which have contributed to our performance improvement.

Whilst we recognise the importance of these performance improvements, our principal focus remains restoring real sales growth.

In 2010/11 our focus will be the issue of restoring LFL growth in our Hobby centres.

·      The first of our agreed global projects is the rollout to all Hobby centres of Retail Standards, the sales training approach developed by our Australian business. This rollout began in Europe just before Christmas and we have already seen an improved performance from many European Hobby centre managers in the second half. The Northern Europe and North American businesses have begun to implement the same in recent months.

·      The second global project is the implementation of performance related pay for Hobby centre managers. This is a simple scheme which rewards managers for delivering growth over the previous year.  It was launched globally at the start of the 2010/11 financial year and has been well received.

·      The third global project has been the relaunch of Warhammer this summer. We relaunched Warhammer 40,000 in 2008/09 and this created a great amount of excitement, gaming activity and purchasing. After four years of development, we expect the Warhammer relaunch to create similar levels of excitement and purchasing activity in the coming year.

Outside of global projects, we will continue to invest in opening more Games Workshop Hobby centres in Northern Europe, Continental Europe, North America and Australia. Almost all will be the one-man store model. The pace of openings will be determined by our ability to recruit and train Hobby centre managers, all of whom will benefit from Retail Standards and performance related pay programmes.

We will continue to invest in tooling for more plastic miniatures and in upgrading and replacing computer systems, particularly in North America and Northern Europe. Outside these areas, there are no major investments planned as we continue to seek further productivity improvements from the facilities we already have in place.

Our risks and opportunities

As we have stated in previous years, we believe that the key risks which face Games Workshop are not external but internal. We are not significantly affected by economic factors, as recent results show. Performance shortfalls in the past have been down to the quality of management and decision making. The corollary is also true. Outperformance has been driven by better quality management and decision making, not external factors. As an investor once said about us: "I like Games Workshop because nothing they have ever done has been down to luck."

I believe that our management is getting better all the time. For the last few years we set ourselves the objective of making all senior appointments internally. This goal meant we had to take seriously the development of our managers and internal succession planning. We now conduct an annual appraisal and succession plan review for all management roles within Games Workshop and these in turn drive individual development plans.

Many successful managers in Games Workshop move across departments and territories to broaden their experience and skill sets. The Games Workshop Academy exists to support the identification and development of our future leaders with programmes to increase understanding of themselves, our business model and our culture. When we first began our succession planning reviews there were some gaps. Now, there are far fewer.

Progress has not been uniformly good. Development of management talent has lagged in North America, which is one of the reasons why Tom Kirby, whilst retaining his responsibilities as chairman, has been seconded to that business to help with its development. Nonetheless, this in itself shows the strength in depth we have developed in the Executive, who continue to drive the business forward while Tom is busy in North America. Tom continues to work approximately one week per month in the UK.

As for our opportunities, some years ago we set ourselves an ambitious goal for Games Workshop: to be the same great business, only several times bigger. Given the levels of penetration we have achieved in the UK compared to our other geographical territories, we believe this remains a realistic goal.

How long it will take us to achieve this goal is difficult to say. We are not too concerned about the timescale. Even with only modest levels of growth we are confident Games Workshop will become increasingly cash generative, meaning we can fund that growth internally and return truly surplus cash to shareholders.

Dividend and dividend policy

We're delighted to be able, once again, to recommend the payment of a dividend for the year. The gross dividend we are proposing is 25.0 pence per share.

Looking to the future we will pay dividends out of cash which is truly surplus to the business, after making allowance for the costs of new Hobby centre openings, regular capital expenditure and maintenance, investment in tooling, plus a sum to ensure the business has sufficient working capital for its needs.

And finally…

Recently we received a query as to whether something was wrong at Games Workshop. The query was prompted by our decision not to attend a City awards ceremony where someone had very kindly nominated us for 'Turnaround of the Year'. As you will see from this set of results, there is nothing wrong at Games Workshop. It's simply that we don't believe we are here to receive awards. We are here to deliver a good return for our owners.  And we aim to do that for a very long time.

Mark Wells

CEO

26 July 2010

CONSOLIDATED INCOME STATEMENT

	Notes	Year to 30 May 2010 £000	Restated* Year to 31 May 2009 £000
Continuing operations Revenue Cost of sales	3	126,511 (30,683)	125,706 (35,919)
Gross profit Operating expenses Other operating income - royalties receivable		95,828 (82,839) 3,056	89,787 (84,325) 3,471
Operating profit Finance income Finance costs	3	16,045 442 (367)	8,933 333 (1,808)
Profit before taxation Income tax expense	3 5	16,120 (1,040)	7,458 (2,107)
Profit for the year from continuing operations Discontinued operations Profit for the year from discontinued operations		15,080 -	5,351 118
Profit attributable to equity shareholders		15,080	5,469
Basic earnings per ordinary share	4	48.4p	17.6p
Diluted earnings per ordinary share	4	48.1p	17.6p
Basic earnings per ordinary share - continuing operations	4	48.4p	17.2p
Diluted earnings per ordinary share - continuing operations	4	48.1p	17.2p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		Year to 30 May 2010 £000	Restated* Year to 31 May 2009 £000
Profit attributable to equity shareholders Other comprehensive income Exchange differences on translation of foreign operations Cash flow hedges: -       fair value losses -       transferred to the income statement Net investment hedge Tax on items recognised directly in equity		15,080 1,885 - 112 - (31)	5,469 2,605 (112) 940 (621) (58)
Other comprehensive income for the year		1,966	2,754
Total comprehensive income attributable to equity shareholders		17,046	8,223

*Prior periods have been restated to reflect the adoption of the amendment to IFRS2 with effect from 1 June 2008 (see note 7).

CONSOLIDATED BALANCE SHEET

		As at 30 May 2010 £000	As at 31 May 2009 £000
Non-current assets Goodwill Other intangible assets Property, plant and equipment Trade and other receivables Deferred tax assets		1,433 5,889 23,264 1,678 5,917	1,433 5,811 25,380 1,570 4,704
		38,181	38,898
Current assets Inventories Trade and other receivables Current tax assets Financial assets - derivative financial instruments Cash and cash equivalents		10,138 10,043 301 - 17,089	10,678 9,959 32 210 10,355
		37,571	31,234
Total assets		75,752	70,132
Current liabilities Financial liabilities - borrowings Financial liabilities - derivative financial instruments Trade and other payables Current tax liabilities Provisions		- - (15,550) (1,027) (1,848)	(2) (550) (14,092) (2,233) (1,046)
		(18,425)	(17,923)
Net current assets		19,146	13,311
Non-current liabilities Financial liabilities - borrowings Other non-current liabilities Provisions		- (582) (1,442)	(12,000) (632) (1,586)
		(2,024)	(14,218)
Net assets		55,303	37,991
Capital and reserves Called up share capital Share premium account Other reserves Retained earnings		1,557 7,837 3,722 42,187	1,556 7,822 1,837 26,776
Total shareholders' equity		55,303	37,991

CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY

	Called up share capital £000	Share premium account £000	Other reserves £000	Retained earnings* £000	Total equity £000
At 2 June 2008	1,556	7,822	(321)	20,469	29,526
Profit for the year to 31 May 2009	-	-	-	5,469	5,469
Exchange differences on translation of foreign operations	-	-	2,605	-	2,605
Cash flow hedges: -       fair value losses in the year (net of tax) -       transferred to the income statement (net of tax)	- -	- -	- -	(81) 677	(81) 677
Net investment hedge (net of tax)	-	-	(447)	-	(447)
Total comprehensive income for the year	-	-	2,158	6,065	8,223
Transactions with owners:
Share-based payments	-	-	-	242	242
At 31 May 2009 and 1 June 2009	1,556	7,822	1,837	26,776	37,991
Profit for the year to 30 May 2010	-	-	-	15,080	15,080
Exchange differences on translation of foreign operations	-	-	1,885	-	1,885
Cash flow hedges: -       transferred to the income statement (net of tax)	-	-	-	81	81
Total comprehensive income for the year	-	-	1,885	15,161	17,046
Transactions with owners:
Share-based payments	-	-	-	170	170
Shares issued under employee sharesave scheme	1	15	-	-	16
Deferred tax credit relating to share options	-	-	-	80	80
Total transactions with owners	1	15	-	250	266
At 30 May 2010	1,557	7,837	3,722	42,187	55,303

*Prior periods have been restated to reflect the adoption of the amendment to IFRS2 with effect from 1 June 2008 (see note 7).

CONSOLIDATED CASH FLOW STATEMENT

	Notes	Year to 30 May 2010 £000	Year to 31 May 2009 £000
Cash flows from operating activities Cash generated from operations UK corporation tax paid Overseas tax paid	9	29,787 (1,802) (1,417)	18,902 (191) (592)
Net cash  from operating activities		26,568	18,119
Cash flows from investing activities Purchases of property, plant and equipment Proceeds on disposal of property, plant and equipment Proceeds on disposal of asset held for sale Purchases of other intangible assets Expenditure on product development Interest received		(4,611) 10 - (900) (2,524) 51	(6,291) 62 500 (1,315) (2,249) 333
Net cash from investing activities		(7,974)	(8,960)
Cash flows from financing activities Proceeds from issue of ordinary share capital Proceeds from borrowings Repayment of borrowings Repayment of principal under finance leases Interest paid		16 - (12,000) (2) (315)	- 2,000 (5,000) (13) (1,258)
Net cash from financing activities		(12,301)	(4,271)
Net increase in cash and cash equivalents		6,293	4,888
Opening cash and cash equivalents		10,355	4,944
Effects of foreign exchange rates on cash and cash equivalents		441	523
Closing cash and cash equivalents		17,089	10,355

NOTES TO THE PRELIMINARY RESULTS

1.   The consolidated financial statements of Games Workshop Group PLC are prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations, that are adopted by the European Union and with those parts of the Companies Act 2006 applicable to those companies reporting under IFRS. 

2.   These results for the year to 30 May 2010 together with the corresponding amounts for the year to 31 May 2009 are extracts from the 2010 annual report and do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The annual report for the year to 30 May 2010, on which the auditors have issued a report that does not contain a statement under section 498(2) or 498(3) of the Companies Act 2006, will be posted to shareholders on 27 July 2010 and will be delivered to the Registrar of Companies in due course. Copies will also be available from Kevin Rountree, Games Workshop Group PLC, Willow Road, Lenton, Nottingham NG7 2WS.  This information is also available on the Company's website at http://investor.games-workshop.com.

The annual general meeting will be held at Willow Road, Lenton, Nottingham NG7 2WS at 10.00am on 16 September 2010.

The preliminary announcement is prepared in accordance with the Listing Rules of the Financial Services Authority and accounting policies consistent with those used in the 2009 annual report except as follows:

·      The amendment to IFRS 2, 'Share-based payment' has been adopted during the year. This amendment requires that all cancellations under the Group's sharesave scheme will require immediate recognition of the remaining future charges in relation to the associated options. The impact of this change is explained in note 7.

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and disclosure of contingencies at the balance sheet date. If in future such estimates and assumptions, which are based on management's best judgement at the date of the consolidated financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified, as appropriate, in the period in which the circumstances change. The following areas are considered of greater complexity and/or particularly subject to the exercise of judgement:

·      Judgement is involved in assessing the exposures in provisions and hence in setting the level of the required provisions.

·      Management estimates and judgements are required in assessing the recognition of deferred tax assets, particularly in relation to the timing and amount of future profits.

·      Management estimates and judgements are required in assessing the impairment of assets, particularly in relation to the forecasting of future cash flows and the discount rate applied to the cash flows.

3.  Segment information

The chief operating decision-maker has been identified as the executive directors. They review the Group's internal reporting in order to assess performance and allocate resources. Management has determined the segments based on these reports. 

As Games Workshop is a vertically integrated business, management assess the performance of sales businesses and manufacturing and distribution businesses separately. At 30 May 2010, the Group is organised as follows:

-  Sales businesses. These businesses sell product to external customers, through the Group's network of Hobby centres, independent retailers and direct via the Global Webstore. The sales businesses have been aggregated into segments where they sell products of a similar nature, have similar production processes, similar customers, similar distribution methods and are affected by similar economic factors. The segments are as follows:

-       Northern Europe. This sales business operates in the UK, Ireland and Scandinavia.

-       Continental Europe.  This combines the France, Germany, Italy, Spain and the Netherlands sales businesses.

-       North America. This combines the United States and Canada sales businesses.

-       Australia. This is the Australian sales businesses.

-       Emerging Markets and Japan.  This combines the Emerging Markets and Capital Cities, and Japan sales businesses.

-       Other. This includes the other operating segments reviewed by the chief operating decision-maker which are not individually significant. These are the Forge World business, the Black Library business and Warhammer World.

-     Product and supply. This includes the design and manufacture of the products and incorporates 
      production facilities in the UK, North America and China.

-     Logistics and stock management. This represents the warehousing and distribution activities needed 
      to supply product to the sales businesses and includes facilities in the UK, North America, China and 
      Australia.

-     Licensing. This is the net income receivable from third party licensees after deducting directly 
      attributable costs.

-     Service centre. The service centre is established in the UK to provide support services (IT, accounting, 
      payroll, HR, production planning, supplier development, legal and property) to activities across the 
      Group.

-     Web costs. These are the costs associated with the running of the Games Workshop Global 
      Webstore.

  -   Central costs. These include the Company overheads, head office site costs and the costs of running 
      the Games Workshop Academy.

The chief operating decision-maker assesses the performance of each business based on operating profit, excluding share option charges recognised under IFRS 2, 'Share-based payment'. This has been reconciled to the Group's total profit before tax below.

The segment information reported to the executive directors for the year ended 30 May 2010 is as follows:

	External Revenue		Internal Revenue		Total
	2010 £000	2009 £000	2010 £000	2009 £000	2010 £000	2009 £000
Sales businesses
Northern Europe	36,769	36,387	-	-	36,769	36,387
Continental Europe	35,974	38,193	-	-	35,974	38,193
North America	31,270	29,904	-	-	31,270	29,904
Australia	10,795	9,286	-	-	10,795	9,286
Emerging Markets and Japan	3,416	3,481	-	-	3,416	3,481
All other sales businesses	8,287	8,455	1,214	936	9,501	9,391
Other segments
Product and supply	-	-	52,071	48,786	52,071	48,786
Total	126,511	125,706	53,285	49,722	179,796	175,428
Intra-group sales eliminations	-	-	(53,285)	(49,722)	(53,285)	(49,722)
Total revenue	126,511	125,706	-	-	126,511	125,706

Segment revenue and segment profit include transactions between business segments; these transactions are eliminated on consolidation. Sales between segments are carried out at arm's length.  The revenue from external parties reported to the executive directors is measured in a manner consistent with that in the income statement.

Total segment operating profit is as follows and is reconciled to total profit before taxation below:

	2010 £000	2009 £000
Operating profit
Sales businesses
Northern Europe	4,824	4,376
Continental Europe	635	830
North America	3,270	734
Australia	654	786
Emerging Markets and Japan	(174)	54
All other sales businesses	3,254	3,157
Other segments
Product and supply	19,045	14,659
Total segment operating profit	31,508	24,596
Logistics and stock management	(6,748)	(7,323)
Licensing	2,546	3,092
Service centre costs	(5,709)	(5,783)
Web costs	(1,937)	(1,754)
Central costs	(3,445)	(3,653)
Share-based payments charge	(170)	(242)
Total group operating profit	16,045	8,933
Finance income	442	333
Finance costs	(367)	(1,808)
Profit before taxation	16,120	7,458

Interest income and expense and tax income and expense are not included in the information reported to the executive directors and therefore are not analysed by segment.

4.  Earnings per share

The calculation of basic earnings per ordinary share has been based on the profit attributable to equity shareholders of £15.1m (2009:  £5.5m and £5.4m for continuing operations) and the weighted average number of shares in issue throughout the year of 31,131,000 (2009:  31,129,000).

The calculation of diluted earnings per ordinary share has been based on the profit attributable to equity shareholders of £15.1m (2009:  £5.5m and £5.4m for continuing operations) and the weighted average number of shares in issue throughout the year, adjusted for the dilutive effect of share options outstanding at the year end of 220,000 (2009:  17,000).

5.  Income tax expense

	2010 £000	2009 £000
Continuing operations Current UK taxation: -               UK corporation tax on profits for the year -               Over provision in respect of prior years	1,038 (11)	2,314 (5)
Current overseas taxation: -               Overseas corporation tax on profits for the year -               (Over)/under  provision in respect of prior years	1,027 909 (228)	2,309 1,426 54
Total current taxation	1,708	3,789
Deferred taxation: -               Origination and reversal of timing differences -               Under/(over) provision in respect of prior years	(855) 187	(1,481) (201)
Tax expense recognised in the income statement	1,040	2,107
Current tax credit on net investment hedge Deferred tax charge on cash flow hedges Deferred tax credit relating to share option scheme	- 31 (80)	(174) 232 -
(Credit)/charge taken directly to equity	(49)	58

The tax on the Group's profit before taxation differs from the standard rate of corporation tax in the UK as follows:

	2010 £000	Restated* 2009 £000
Continuing operations
Profit before taxation	16,120	7,458
Profit before taxation multiplied by standard rate of corporation tax in the UK of 28% (2009: 28%) Effects of: Expenses not deductible for tax purposes Movement in provision for tax enquiry Movement in deferred tax not recognised Deferred tax on losses now recognised Higher tax rates on overseas earnings Adjustments to tax charge in respect of previous years Abolition of industrial buildings allowances	4,514 148 (1,351) (322) (2,060) 163 (52) -	2,088 23 1,351 (85) (2,489) 370 (152) 1,001
Total tax charge for the year	1,040	2,107

The Group has not recognised deferred income tax assets of £3,800,000 (2009:  £5,600,000) in respect of losses amounting to £5,600,000 (2009:  £8,500,000) and other temporary differences of £4,500,000 (2009:  £6,900,000) due to the uncertainty at the balance sheet date as to their recovery.

6.  Dividends per share

No dividend was paid in the 2009 financial year. A gross dividend in respect of the year ended 30 May 2010 of 25.0 pence per share, amounting to a total dividend of £7,784,000, is to be proposed at the annual general meeting on 16 September 2010. The financial statements do not reflect this dividend payable.

7.  Change of accounting policy

The adoption of the amendment to IFRS 2 as described in note 2 has resulted in an additional charge of £81,000 to operating expenses in the consolidated income statement for the year ended 31 May 2009 in respect of employee sharesave schemes.  The prior year income statement has been restated accordingly.  There is no impact on the consolidated net assets of the Group at 1 June 2008 or 31 May 2009.  Basic and diluted earnings per share are both 0.2p lower than previously reported for the year ended 31 May 2009.  The impact of the change in policy for the current financial year is an additional charge of £15,000 in the consolidated income statement.  There is no impact on the consolidated net assets of the Group at 30 May 2010.

8.  Analysis of net funds/(debt)

	As at 31 May 2009 £000	Cash flow £000	Exchange movement £000	As at 30 May 2010 £000
Cash at bank and in hand	10,355	6,293	441	17,089
Cash and cash equivalents Non-current borrowings Finance leases	10,355 (12,000) (2)	6,293 12,000 2	441 - -	17,089 - -
Net funds/(debt)	(1,647)	18,295	441	17,089

9.  Reconciliation of profit to net cash from operating activities

	2010 £000	Restated* 2009 £000
Operating profit - continuing operations Operating profit - discontinued operations Depreciation of property, plant and equipment Net impairment charge on property, plant and equipment Loss on disposal of property, plant and equipment Loss on disposal of intangible assets Profit on disposal of asset held for sale Amortisation of capitalised development costs Amortisation of other intangibles Share-based payments Changes in working capital: -       Decrease in inventories -       Decrease in trade and other receivables -       Increase/(decrease) in trade and other payables -       Increase/(decrease) in provisions	16,045 - 6,772 139 91 18 - 2,438 952 170 1,004 122 1,601 435	8,933 129 7,055 167 - 39 (36) 2,269 1,281 242 386 393 (1,939) (17)
Net cash from operating activities	29,787	18,902

*Prior periods have been restated to reflect the adoption of the amendment to IFRS2 with effect from 1 June 2008 (see note 7).

 

END

 

 

FR LLFFRDAIRFII