Final Results

Games Workshop Group PLC 31 July 2001 PRELIMINARY RESULTS Games Workshop Group PLC ('Games Workshop' or the 'Group') announces its preliminary results for the year ended 3 June 2001. Highlights * Turnover at £92.6m (2000: £78.0m) up 19% * Pre-exceptional operating profit at £11.2m (2000: £10.0m) up 12% * Pre-exceptional earnings per share of 22.8p (2000: 20.2p) up 13% * Dividend per share of 10.54p (2000: 9.91 p) up 6% * The Hobby continues to grow from strength to strength * Encouraging sales growth in all territories * Restructuring programme nearing completion * Continued strong cash generation * Share buy-back programme to commence Tom Kirby, Chairman and Chief Executive, said: 'These results confirm that the long term organic sales growth trends, which have been a consistent feature of this business, are continuing. The directors firmly believe the prospects for the business are very good.' For further information, please contact: Games Workshop Group PLC Today: 01756 770 376 Tom Kirby, Chairman and Chief Executive Thereafter: 0115 916 8100 Mike Sherwin, Finance Director Rawlings Financial PR Limited Tel: 01756 770 376 John Rawlings Catriona Valentine FINANCIAL HIGHLIGHTS 2001 2000 Turnover £92.6m £78.0m Pre-exceptional operating profit £11.2m £10.0m Operating profit £9.4m £6.7m Pre-tax profit £9.4m £6.5m Year end net funds £9.0m £2.2m Pre-exceptional earnings per share 22.8p 20.2p Earnings per share 18.4p 11.4p Dividend per share 10.54p 9.91p CHAIRMAN'S STATEMENT Our core business I am delighted to report the key message which underpins these results: the Games Workshop Hobby, which is the heart of all of our business activities, continues to grow from strength to strength. Our core market remains model soldiers, and the demand from our customers during the period confirms that we have a great product portfolio. Our design studio continues to support our core game systems, Warhammer Fantasy Battle and Warhammer 40,000 with new armies and characters, constantly improving and refreshing the gaming experience. We also continue to develop diverse and exciting specialist games which add new dimensions to the Hobby - this year we launched the Inquisitor game, which has appealed to many of our more experienced gamers. In the coming year we have an opportunity to add to our existing games. The exclusive worldwide tabletop wargames licence for the Lord of the Rings films gives us another product range to exploit our unparalleled skills in making and selling model soldiers. Results These results confirm encouraging sales growth in all territories, and in particular the Americas where we see great potential for future development. Our profit growth continues to be underpinned by strong cash generation, and we have £9.1m of cash in the balance sheet. From this position of financial strength we are seeking approval to begin a share buy-back programme of up to 15% of the shares in issue. We believe that this programme will enhance shareholder value. Operations The plan to restructure our manufacturing and supply chain is now nearing completion - both on time and within budget. This leaves us in a more robust position to take advantage of the market opportunities we are creating. As our sales operations grow in confidence that their supply of product is assured, their efforts are now aligned on Hobby development. There will be further exploitation of our existing intellectual property, and we have signed various deals which will yield an income stream over time. This includes the development project of an online game set in the Warhammer fantasy world. Management Since my return to an executive position, I have been impressed by the management team which now has a healthy blend of experience and Hobby enthusiasm, and I am confident that it has the skills required to deliver our future growth. Workforce One of our key strengths is the hard core of committed gamers who make up the majority of our staff. Despite a couple of tough years, their faith, like mine, never wavered and they are now delivering results they should be very proud of, as I am proud of them. Future prospects These results confirm that the long term organic sales growth trends, which have been a consistent feature of this business, are continuing. The directors firmly believe the prospects for the business are very good. T H F Kirby Chairman and Chief Executive REVIEW OF OPERATIONS Sales The Hobby continues to grow from strength to strength, continuing to generate consistent, organic, year-on-year sales growth. Sales by channel The sales growth has been strongest in those channels which we control, direct (mail order and internet) and GW stores, which further underlines the strength of the Hobby when marketed by our uniquely skilled and enthusiastic staff. In response to this trend we are increasingly adopting a more integrated approach to marketing the Games Workshop Hobby in our major territories. We are breaking down the barriers between the channels by giving our sales managers responsibility for all sales in their geographical area. This encourages them to use their staff to support not only the GW stores and direct sales operations, but also to support and assist our independent customers with training, Hobby demonstrations and other marketing activities. This new approach of 'territory management' is currently being trialled in both the UK and the Americas. Sales by territory We have achieved encouraging sales growth in all territories. The table below shows the sales by territory and the underlying constant currency growth after eliminating the effect of exchange rate variations: United Kingdom £33.7 million up 17% Continental Europe Euro 35.7 million up 18% The Americas US $ 46.0 million up 17% Asia Pacific Aus $ 14.8 million up 7% The Americas Our growth in the Americas is driven primarily by sales to independent retailers which account for 66% of turnover (2000: 70%). We have opened three new stores in the year taking the total to 37. Our plan for the current year is to accelerate the opening programme. Direct sales have grown by an impressive 39%, with our internet turnover growing by over 75%. Over the coming two years we will be investing in the infrastructure of this business to ensure that the new territory management structure enables the American business to maximise its great potential. UK Our UK sales have grown during the year due to the stabilisation and improvement of the GW store chain which represents 61% of turnover (2000: 60%) with 120 stores. This turnaround has been achieved by the new management team in the UK business which has ensured that our sales activities in the stores have been appropriately focused on building the Hobby with the right customers. Continental Europe Our sales in Continental Europe have moved ahead in all countries with double digit constant currency growth. We opened five new stores taking the total to 61. At the beginning of the year we relocated our German sales operation, which had previously been run as a remote function from the UK, to Dusseldorf so that this business can now take advantage of proximity to market to realise its growth potential. We expect Germany to outstrip France as our largest Continental European sales business. Asia Pacific Our sales in Asia Pacific are mainly in Australia with a presence in New Zealand and Hong Kong. We opened two stores in Australia and closed one in Hong Kong. The Australian business enjoyed double digit sales growth in constant currency. Restructuring - manufacturing and supply chain In January 2000, we began a programme of restructuring our vertically integrated manufacturing and supply chain to simplify and remove unnecessary complexity, and to improve the supply of product to our sales operations. The restructuring plan is now nearing completion - on time and within budget. During the year we have introduced multi-lingual packaging to our core product lines, consolidated most of our European logistics activities into a central warehouse and introduced a third party outsourced warehousing operation in the Americas. We have also made significant improvements to our factory layout and our manufacturing processes. We remain confident that the benefits of this major overhaul of our supply chain will underpin the profitability of the business as it continues to expand in the future. Management team The business is run on a day to day basis by an executive team which comprises the chief executive, three functional heads (design, production, finance) and the three senior sales managers in the Group. This group meets weekly and ensures the prompt communication of both strategic and operational issues to the front line managers of each business. As communication and collegiate working are key to achieving our business objectives, members of the executive team travel regularly to our various sales operations around the world. Lord of the Rings - exclusive worldwide licence We have secured the exclusive rights from New Line Cinema to design, manufacture and retail fantasy tabletop wargames based on its eagerly awaited film trilogy. We believe that there is great potential to create premium products that will appeal to both existing and new gamers everywhere. We have established a dedicated team which is co-ordinating our activity in connection with this project which will last for a minimum of five years. Other exploitation of Games Workshop intellectual property There will be further exploitation of our existing intellectual property into areas which are an extension of our core model soldier business. Following the year end, we have established a 72% Games Workshop owned company to create Warhammer Online, a multiplayer online computer game set in the Warhammer world. Our partner in this venture is Climax, a major UK computer games developer which owns 23% of the project company. We have also recently entered a long term computer games licence with THQ, a computer games publisher, to create and distribute games based on our Warhammer 40,000 world and imagery. A third recent development is the granting of a licence to create a collectible card game based on Warhammer 40,000 imagery to Sabertooth Games Inc. These three ventures are examples of a more strategic approach to establishing long term relationships with businesses which understand and share our appreciation for the Games Workshop intellectual property. We believe that working in this way we will ensure that our intellectual property is exploited in an appropriate and sympathetic way with the right level of input from Games Workshop staff. Over time we expect that these arrangements will yield some attractive royalty and direct income. T H F Kirby Chairman and Chief Executive CONSOLIDATED PROFIT AND LOSS ACCOUNT Year to Year to 3 June 28 May 2001 2000 £000 £000 Turnover 92,634 77,993 Cost of sales (31,879) (27,261) ------- ------- Gross profit 60,755 50,732 Net operating expenses (51,377) (44,069) ------- ------- Operating profit 9,378 6,663 Continuing operations - pre-exceptional 11,235 10,037 Continuing operations - exceptional items (1,857) (3,374) Interest receivable 483 390 Interest payable and similar charges (496) (508) ------- ------- Profit on ordinary activities before taxation 9,365 6,545 Taxation on profit on ordinary activities (3,609) (2,983) ------- ------- Profit for the financial year 5,756 3,562 ------- ------- Dividends (3,288) (3,100) ------- ------- Profit retained for the financial year 2,468 462 ======= ======= Pre-exceptional earnings per ordinary share 22.8p 20.2p Basic earnings per ordinary share 18.4p 11.4p Diluted earnings per ordinary share 18.2p 11.2p Dividend per ordinary share 10.54p 9.91p 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 3 June 28 May 2001 2000 £000 £000 Profit for the financial year 5,756 3,562 Currency translation differences on foreign currency net investments 238 448 ------- ------- Total recognised gains and losses relating to the year 5,994 4,010 Prior year adjustment 811 - ------- ------- Total gains and losses recognised since last annual report 6,805 4,010 ======= ======= BALANCE SHEETS Group Company Restated Restated As at As at As at As at 3 June 28 May 3 June 28 May 2001 2000 2001 2000 £000 £000 £000 £000 Fixed assets Goodwill 1,785 1,891 - - Tangible assets 14,897 15,365 - - Investments 455 122 18,341 18,008 ------- ------- ------- ------- 17,137 17,378 18,341 18,008 ------- ------- ------- ------- Current assets Stocks 9,233 9,022 - - Debtors 8,626 7,349 7,060 7,087 Cash at bank and in hand 9,090 5,865 1,297 5,706 ------- ------- ------- ------- 26,949 22,236 8,357 12,793 Creditors: amounts falling due within one year (16,402) (12,491) (8,251) (10,572) ------- ------- ------- ------- Net current assets 10,547 9,745 106 2,221 ------- ------- ------- ------- Total assets less current liabilities 27,684 27,123 18,447 20,229 Creditors: amounts falling due after more than one year (20) (3,145) - (3,000) Provisions for liabilities and charges (1,401) (500) (299) - ------- ------- ------- ------- Net assets 26,263 23,478 18,148 17,229 ======= ======= ======= ======= Capital and reserves Called up share capital 1,567 1,565 1,567 1,565 Other reserve (418) (495) 7,610 7,533 Profit and loss account 25,114 22,408 8,971 8,131 ------- ------- ------- ------- Equity shareholders' funds 26,263 23,478 18,148 17,229 ======= ======= ======= ======= CONSOLIDATED CASH FLOW STATEMENT Year to Year to 3 June 28 May 2001 2000 £000 £000 Net cash inflow from operating activities 17,061 12,606 ------- ------- Returns on investments and servicing of finance Interest received 486 411 Interest paid (495) (493) Interest paid on hire purchase contracts (18) (17) ------- ------- Net cash outflow from returns on investment and servicing of finance (27) (99) ------- ------- Taxation UK corporation tax paid (1,953) (3,388) Overseas taxation paid (1,273) (1,233) ------- ------- Net cash outflow from taxation (3,226) (4,621) ------- ------- Capital expenditure and financial investment Purchase of tangible fixed assets (3,515) (4,822) Sale of tangible fixed assets 45 54 Purchase of own shares (561) (122) ------- ------- Net cash outflow from capital expenditure and financial investment (4,031) (4,890) ------- ------- Equity dividends paid (3,099) (3,094) ------- ------- Net cash inflow / (outflow) before financing 6,678 (98) ------- ------- Financing Issue of ordinary share capital 79 454 Repayment of principal under hire purchase agreements (86) (73) Repayment of medium term revolving credit facility (3,000) - ------- ------- Net cash (outflow) / inflow from financing (3,007) 381 ------- ------- Increase in cash in the year 3,671 283 ======= ======= NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT Reconciliation of operating profit to operating cash flow 2001 2000 £000 £000 Operating profit 9,378 6,663 Loss on disposal of tangible fixed assets 21 42 Depreciation of tangible fixed assets 4,134 4,041 Amortisation of goodwill 106 105 Amortisation of own shares 228 - Exchange movements 231 363 (Increase) / decrease in stocks (211) 239 Increase in debtors (847) (17) Increase in creditors 3,120 670 Increase in provisions 901 500 ------- ------- Net cash inflow from operating activities 17,061 12,606 ======= ======= Analysis of net funds As at As at 28 May 3 June 2000 Cash flow 2001 £000 £000 £000 Cash at bank and in hand 5,865 3,225 9,090 Bank overdrafts (446) 446 - Debt due after one year (3,000) 3,000 - Hire purchase agreements (218) 86 (132) ------- ------- ------- Net funds 2,201 6,757 8,958 ======= ======= ======= Reconciliation of net cash flow to movement in net funds Year to Year to 3 June 28 May 2001 2000 £000 £000 Increase in cash in the year 3,671 283 ------- ------- Cash outflow from decrease in debt and lease financing 3,086 73 ------- ------- Increase in net funds in the year 6,757 356 Net funds at 28 May 2000 2,201 1,845 ------- ------- Net funds at 3 June 2001 8,958 2,201 ======= ======= NOTES TO THE ACCOUNTS 1. The calculation of pre-exceptional earnings per ordinary share has been based on profit for the year of £7.1 million (2000: £6.3 million) being the profit for the financial year adjusted for the exceptional restructuring costs and the tax credit thereon. This calculation has been included to enable like for like comparison with other years where no exceptional costs are charged. The calculation of basic earnings per ordinary share has been based on profit for the year of £5.8 million (2000: £3.6 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. 2001 2000 Weighted average number of shares: For basic earnings per ordinary share 31,276,803 31,177,439 Dilution effect of share options 384,302 547,776 ---------- ---------- For diluted earnings per ordinary share 31,661,105 31,725,215 ========== ========== 2. Taxation on profit on ordinary activities 2001 2000 £000 £000 Current taxation UK corporation tax 2,769 1,641 Overseas tax 1,151 1,342 ------- ------- Total current taxation 3,920 2,983 Deferred taxation (311) - ------- ------- Taxation on profit on ordinary activities 3,609 2,983 ======= ======= 3. The Group's policy for accounting for deferred tax has changed to comply with Financial Reporting Standard 19, Deferred Tax. Previously deferred tax was only provided to the extent that timing differences were expected to reverse in the future without being replaced. Deferred tax is now provided in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. The effects of the change in policy are summarised below: Balance sheet £000 Increase in deferred tax asset and retained earnings as at 28 May 2000 811 Deferred tax credit in the profit and loss account for the year 311 Exchange difference (5) ------- Net deferred tax asset as at 3 June 2001 1,117 ======= The directors consider that the impact of the change in accounting policy on the tax charge for the current and prior year is not significant. 4. The financial information given above does not constitute the Group's statutory accounts. Statutory accounts for the years ended 3 June 2001 (53 weeks) and 28 May 2000 (52 weeks) have been reported on without qualification by Arthur Andersen, the Group's auditors. Statutory accounts for the year ended 28 May 2000 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 3 June 2001 will be delivered to the Registrar of Companies in due course. 5. The Annual Report will be mailed to shareholders on 2 August 2001. Copies of the Annual Report will also be available from Michael Sherwin, Games Workshop Group PLC, Willow Road, Lenton, Nottingham NG7 2WS. 6. The proposed final dividend per share of 6.77p will be paid on 2 November 2001 to shareholders on the register at the close of business on 12 October 2001.

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