Final Results

Games Workshop Group PLC 30 July 2002 PRELIMINARY RESULTS Games Workshop Group PLC ('Games Workshop' or the 'Group') announces its preliminary results for the year ended 2 June 2002. Highlights * Turnover at £108.6m (2001: £92.6m) - up 17% * Operating profit at £13.5m (2001: Pre-exceptional £11.2m) - up 20% * Earnings per share of 28.2p (2001: Pre-exceptional 22.8p) - up 24% * Dividend per share of 13.00p (2001: 10.54 p) - up 23% * Year end cash of £6.6m (2001: £9.0m) Tom Kirby, Chairman and Chief Executive, said: 'As our sales go past the £100 million mark for the first time, I am pleased to report continued growth from all of our operations around the world and that all our businesses are in good shape for the challenges ahead.' 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 Rawlings Financial PR Limited 01756 770 376 Catriona Valentine FINANCIAL HIGHLIGHTS 2002 2001 Turnover £108.6m £92.6m Pre-exceptional operating profit £13.5m £11.2m Operating profit £13.5m £9.4m Pre-tax profit £13.5m £9.4m Year end net funds £6.6m £9.0m Pre-exceptional earnings per share 28.2p 22.8p Earnings per share 28.2p 18.4p Dividend per share 13.00p 10.54p BUSINESS REVIEW BY THE CHAIRMAN AND CHIEF EXECUTIVE OVERVIEW As our sales go past the £100 million mark for the first time, I am pleased to report continued growth from all of our operations around the world and that all our businesses are in good shape for the challenges ahead. These results demonstrate the portfolio strength we now have, with the stronger performances supporting those not so strong, producing an overall sales growth of 17%. Sales for the year were £108.6m, with some benefit from the bounce-back from the slower growth we experienced in 2001. Operating profit at £13.5m (2001: pre-exceptional £11.2m) generated earnings per share of 28.2p (2001: pre-exceptional 22.8p). This continued cash generative growth, resulting in a year end net cash position of £6.6m, has enabled us to propose a full year dividend of 13.00p (2001: 10.54p). THE GAMES WORKSHOP HOBBY Our sales growth continues to provide the evidence that the Games Workshop Hobby is healthy in all of our geographic areas. Our main product ranges, Warhammer and Warhammer 40,000, are keeping gamers around the world excited and we have continued to develop new armies and characters. Additionally, new ranges including Lord of the Rings, have helped us establish some promising new relationships with independent retailers, in all territories. SALES BY CHANNEL Sales are made through three channels: direct to consumers via mail order, telephone sales and the internet (9%); direct to consumers via our own Hobby stores (44%); and through independent retailers of many types around the world (47%). Growth was healthy in each channel: direct sales up 8%, our own Hobby stores up 18% and independent retailers up 18%. The increase in direct sales was slower due in part to a deliberate reassertion of our no-discounting policy to counter discount creep that had occurred in some territories. Sales through this channel are made typically either to the most dedicated Hobbyists or to those who cannot find convenient local outlets. The increase in sales in our own Hobby stores was due partly to new store openings - 13 during the year - and partly due to healthy like for like growth in all territories. Besides their important contribution to Group sales, these stores are the main way we recruit new gamers and encourage existing gamers to keep their hobby going. Overall they provide an invaluable service, supporting underlying sales growth through all of our channels. In most territories we are working more closely with independent retailers offering increased training and support and running joint campaigns or programmes with them. This more integrated approach will be developed further in future years. SALES BY TERRITORY Sales by territory and % sales growth UK £32.3m +18% The Americas £32.8m +4% Asia Pacific £6.9m +23% Continental Europe £36.5m +30% UK The continued improvement in the performance of the Games Workshop store chain has fuelled the 18% growth in sales from our UK operations, which now represent 69% of UK sales. Our sales to independent retailers also moved ahead strongly. We did not open any new stores in the UK during the year, with the growth generated by the strong Hobby building activities run throughout the whole chain. We do not expect to grow significantly the number of stores in the UK in the future, although the format may evolve as we experiment with new layouts to further enhance the Hobby development role of our stores. The Hobby building activities in the UK business were given a new focus in February with the opening of the new Warhammer World gaming arena in Nottingham. The Americas Some two thirds of our sales in the Americas are made to independent retailers, and it has been hard work maintaining momentum during the year. The sales growth we have seen in our own stores confirms that the Hobby is relatively immune from local economic conditions. Our strategy in North America remains clear. Firstly, we will continue to open new GW stores (we opened six this year taking the total to 43) to attract new gamers into the Hobby and to establish a more appropriate balance between our own stores and the independent retailer customer base. Secondly, we will continue to develop the structure of our sales teams. This will involve more field staff managed by geographic territory. We are confident that this strategy will ensure we address this important market properly. Continental Europe We have enjoyed double digit growth in all of our Continental European territories. We opened eight new GW stores taking the total to 69 and also enjoyed healthy growth from our independent customer base, which accounts for 57% of our sales in this territory. France remains our largest business, closely followed by Spain and Germany. At the beginning of the year, we established our Northern Europe business which groups together our activities in Scandinavia and the Netherlands. Three quarters of our sales in this region are made to independent retailers, and we opened two GW stores taking our total to seven in the region. Asia Pacific Our sales in this region are mainly in Australia, with a presence in New Zealand and Hong Kong. The strong growth from this territory came mainly from our own GW stores which account for 60% of our sales, and we opened one new store in the year, taking the total to 23. Our Australian management team has responsibility for developing our business throughout the region, and they have established a team to grow our sales to independent retailers throughout Asia. MANUFACTURING AND SUPPLY CHAIN Our two year restructuring plan to simplify our manufacturing and supply activities, which we began in January 2000, was completed during the first half of the year, on time and within our spending plans. Thanks to the improvements which this programme has delivered to both the efficiency and the effectiveness of our supply chain, we have been able to meet the growing demands placed by our sales companies without any reduction in our gross margin. We are confident that our manufacturing and distribution activities are now set up to support our business as it continues to expand in the future WARHAMMER ONLINE At the beginning of the year we established a 71.25% Games Workshop Group owned company to create Warhammer Online, a massively multiplayer online computer game set in the Warhammer world. Our partner in this venture is Climax Development Limited, a major UK computer games developer. The project, which is due to deliver the live game in Spring 2004, has met all of its development milestones during the year. The core technical and game design elements are now completed and the programmers are working in conjunction with Games Workshop artists to ensure that the look and feel of the game is true to the deep and powerful imagery of the Warhammer world. The development costs incurred by the Group during the year for this venture were £1.5m. SABERTOOTH GAMES, INC. On 1 January 2002 Games Workshop Group acquired an 85% shareholding in Sabertooth Games, Inc, a start-up collectible card game business based in Seattle in the USA. In 2001, we granted this business the licence to create a collectible card game based on Warhammer 40,000 imagery. As the development of the product progressed, it became clear that this niche business could bring another revenue stream to Games Workshop Group, and that we could bring a stronger resource base to help Sabertooth reach its potential. The first game was launched in November 2001, the second will be the Warhammer Fantasy Battle collectible card game in Spring 2003. 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. We expect this licence to begin to generate royalty income from next year. We continue to explore new avenues to create royalty income. MANAGEMENT TEAM Management development is very high up on my personal agenda, and will remain so. 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. Our management philosophy is not to hire and fire at will, based on short-term performance, but to work with the right people for this business in the long-term. This has produced a very powerful and able group of managers, which is capable of tackling the growth challenges which lie before us. WORKFORCE The hard core of committed gamers who make up the majority of our staff have created these results. These are people who believe in what they do for a living and who, on the whole, find themselves in the unusual position of enjoying their jobs. I know that these people are proud of the success of Games Workshop because it is their success. I salute them all. SHAREHOLDER VALUE We believe that our job as managers is firstly to run the business properly, but also to consider ways in which we can more actively manage the value of the Company. This year we have used our cash resources to acquire a small business, Sabertooth Games, Inc, and also to purchase 1.9 million (equivalent to 6.1%) of our shares in the open market for cancellation. We will continue to explore the opportunities which exist to maximise shareholder value, but we will always ensure that the needs of running our core business are foremost in our attention. RISKS FACING OUR BUSINESS One of the benefits of operating in a niche market is that this should isolate the business from certain of the external market risks which beset many companies. No one customer represents a significant part of our business, and our major supplier relationships are for commodity services, for which there is always an alternative supplier. We believe that most of our business risks are internally generated - in other words management mistakes. The mitigation of these risks involves the development of a management team which is both empathetic to the development of the Hobby and capable of dealing with the risks of running a larger business. Both the executive team and the board, through both the business and the remuneration and nomination committees, keep the issues of management development and succession under constant review. PROSPECTS These results provide further evidence that the long-term organic growth trends, a consistent feature of this business, are continuing. The directors firmly 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 2 June 3 June 2002 2001 £000 £000 Turnover (notes 3 and 4) 108,557 92,634 Cost of sales (36,550) (31,879) ------- ------- Gross profit 72,007 60,755 Net operating expenses (58,502) (51,377) ------- ------- Operating profit (notes 3 and 4) 13,505 9,378 (Continuing operations - pre-exceptional 13,505 11,235 (Continuing operations - exceptional items - (1,857) Interest receivable 253 483 Interest payable and similar charges (235) (496) ------- ------- Profit on ordinary activities before taxation 13,523 9,365 Taxation on profit on ordinary activities (note 6) (4,935) (3,609) ------- ------- Profit on ordinary activities after taxation 8,588 5,756 Equity minority interests - - ------- ------- Profit for the financial year 8,588 5,756 ------- ------- Dividends (3,816) (3,288) ------- ------- Profit retained for the financial year 4,772 2,468 ======= ======= Pre-exceptional earnings per ordinary share (note 5) 28.2p 22.8p Basic earnings per ordinary share (note 5) 28.2p 18.4p Diluted earnings per ordinary share (note 5) 27.5p 18.2p Dividend per ordinary share 13.00p 10.54p 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 2 June 3 June 2002 2001 £000 £000 Profit for the financial year 8,588 5,756 Currency translation differences on foreign currency net investments 86 238 ------- ------- Total recognised gains and losses relating to the year 8,674 5,994 Prior year adjustment - 811 ------- ------- Total gains and losses recognised since last annual report 8,674 6,805 ======= ======= BALANCE SHEETS Group Company As at As at As at As at 2 June 3 June 2 June 3 June 2002 2001 2002 2001 £000 £000 £000 £000 Fixed assets Goodwill 3,647 1,785 - - Tangible assets 15,211 14,897 - - Investments 121 455 18,007 18,341 ------- ------- ------- ------- 18,979 17,137 18,007 18,341 ------- ------- ------- ------- Current assets Stocks 9,260 9,233 - - Debtors 10,213 8,626 8,835 7,060 Cash at bank and in hand 9,132 9,090 1,100 1,297 ------- ------- ------- ------- 28,605 26,949 9,935 8,357 Creditors: amounts falling due within one year (23,352) (16,402) (9,346) (8,251) ------- ------- ------- ------- Net current assets 5,253 10,547 589 106 ------- ------- ------- ------- Total assets less current liabilities 24,232 27,684 18,596 18,447 Creditors: amounts falling due after more than one year - (20) - - Provisions for liabilities and charges (2,006) (1,401) (414) (299) ------- ------- ------- ------- Net assets 22,226 26,263 18,182 18,148 ======= ======= ======= ======= Capital and reserves Called up share capital 1,499 1,567 1,499 1,567 Capital redemption reserve 96 - 96 - Other reserve 417 (418) 8,445 7,610 Profit and loss account 20,213 25,114 8,142 8,971 ------- ------- ------- ------- Equity shareholders' funds 22,225 26,263 18,182 18,148 Equity minority interests 1 - - - ------- ------- ------- ------- Total capital employed - all equity 22,226 26,263 18,182 18,148 ======= ======= ======= ======= CONSOLIDATED CASH FLOW STATEMENT Year to Year to 2 June 3 June 2002 2001 £000 £000 Net cash inflow from operating activities 22,010 17,061 ------- ------- Returns on investments and servicing of finance Interest received 254 486 Interest paid (240) (495) Interest paid on hire purchase contracts (11) (18) ------- ------- Net cash inflow/(outflow) from returns on investment and servicing of finance 3 (27) ------- ------- Taxation UK corporation tax paid (3,615) (1,953) Overseas taxation paid (902) (1,273) ------- ------- Net cash outflow from taxation (4,517) (3,226) ------- ------- Capital expenditure and financial investment Purchase of tangible fixed assets (5,416) (3,515) Sale of tangible fixed assets 413 45 Purchase of own shares (328) (561) ------- ------- Net cash outflow from capital expenditure and financial investment (5,331) (4,031) ------- ------- 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 (3,294) (3,099) ------- ------- Net cash inflow before financing 6,674 6,678 ------- ------- Financing Issue of ordinary share capital 863 79 Repayment of principal under hire purchase agreements (42) (86) Increase in/repayment of medium term revolving credit facility 2,500 (3,000) Repayment of other loans (194) - Own shares purchased/cancelled (9,759) - ------- ------- Net cash outflow from financing (6,632) (3,007) ------- ------- Increase in cash in the year 42 3,671 ======= ======= NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT Reconciliation of operating profit to operating cash flow 2002 2001 £000 £000 Operating profit 13,505 9,378 Loss on disposal of tangible fixed assets 151 21 Depreciation of tangible fixed assets 4,847 4,134 Amortisation of goodwill 252 106 Amortisation of own shares 662 228 Exchange movements 11 231 Decrease/(increase) in stocks 54 (211) Increase in debtors (434) (847) Increase in creditors 2,356 3,120 Increase in provisions 606 901 ------- ------- Net cash inflow from operating activities 22,010 17,061 ======= ======= Analysis of net funds Other As at non- As at 4 June Cash- Acquisi- cash 2 June 2001 flow tions* changes 2002 £000 £000 £000 £000 £000 Cash at bank and in hand 9,090 42 - - 9,132 Debt due after one year - (2,306) (194) - (2,500) Hire purchase contracts (132) 42 - 70 (20) ------ ------ ------ ------ ------ Net funds 8,958 (2,222) (194) 70 6,612 ====== ====== ====== ====== ====== * Excluding cash and overdraft During the year the Group relinquished hire purchase contracts in respect of assets with a residual value of £70,000. Reconciliation of net cash flow to movement in net funds Year to Year to 2 June 3 June 2002 2001 £000 £000 Increase in cash in the year 42 3,671 Cash (inflow)/outflow from (increase)/decrease in debt and lease financing (2,264) 3,086 ------- ------- Change in net funds resulting from cash flows (2,222) 6,757 Loans acquired with subsidiary (194) - Relinquished hire purchase contracts 70 - ------- ------- Change in net funds in the year (2,346) 6,757 Net funds at 3 June 2001 8,958 2,201 ------- ------- Net funds at 3 June 2002 6,612 8,958 ======= ======= NOTES TO THE ACCOUNTS 1. The financial information given above does not constitute the Group's statutory accounts. Statutory accounts for the years ended 2 June 2002 (52 weeks) and 3 June 2001 (53 weeks) have been reported on without qualification by Arthur Andersen, the Group's auditors. Statutory accounts for the year ended 3 June 2001 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 2 June 2002 will be delivered to the Registrar of Companies in due course. 2. The annual report will be mailed to shareholders on 31 July 2001. 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 Restated 2002 2001 £000 £000 United Kingdom 32,369 27,501 Continental Europe 36,518 28,018 The Americas 32,791 31,539 Asia Pacific 6,879 5,576 ------- ------- Turnover 108,557 92,634 ======= ======= By geographical area of destination 2002 2001 £000 £000 United Kingdom 30,168 25,315 Continental Europe 37,814 29,497 The Americas 33,375 31,993 Asia Pacific 7,017 5,654 Other 183 175 ------- ------- Turnover 108,557 92,634 ======= ======= OPERATING PROFIT By geographical area of sales operation Restated 2002 2001 £000 £000 United Kingdom 6,424 4,739 Continental Europe 8,551 4,661 The Americas 6,132 7,190 Asia Pacific 955 859 ------- ------- 22,062 17,449 Design and development costs (2,605) (2,233) New business development costs (2,125) (721) Central costs (3,949) (3,339) ------- ------- Operating profit before royalties 13,383 11,156 Royalty income 122 79 ------- ------- Pre-exceptional operating profit 13,505 11,235 Exceptional items - (1,857) ------- ------- Operating profit 13,505 9,378 ======= ======= New business development costs include £1.5 million (2001: £0.5 million) in respect of the Warhammer Online venture. NET ASSETS By geographical area of sales operation Restated 2002 2001 £000 £000 United Kingdom 2,565 4,813 Continental Europe 6,337 4,011 The Americas 10,157 14,007 Asia Pacific 723 792 ------- ------- 19,782 23,623 New business development (1,412) (507) Goodwill 3,647 1,785 Unallocated net assets 209 1,362 ------- ------- Net assets 22,226 26,263 ======= ======= As a result of a reorganisation within the United Kingdom sales operation, the prior period numbers have been restated to include the Northern Europe operation within Continental Europe. 4. Turnover, cost of sales, gross profit and net operating expenses Continuing Acquisi- operations tion 2002 2002 2002 2001 £000 £000 £000 £000 Turnover 107,849 708 108,557 92,634 Cost of sales 36,285 265 36,550 31,879 ------- ------- ------- ------- Gross profit 71,564 443 72,007 60,755 ------- ------- ------- ------- Selling and distribution costs 34,287 73 34,360 30,562 Administrative costs 19,316 218 19,534 17,940 Design and development costs 4,477 253 4,730 2,954 Other operating income - royalty income (122) - (122) (79) ------- ------- ------- ------- Net operating expenses 57,958 544 58,502 51,377 ------- ------- ------- ------- Operating profit/(loss) 13,606 (101) 13,505 9,378 ======= ======= ======= ======= Design and development costs represent the administration and running costs of the design studio and new business development costs. The results for the year ended 3 June 2001 include an exceptional item announced in January 2000, relating to a plan to restructure the business. As part of this restructuring programme, £nil (2001: £1.2 million) was incurred in simplifying the supply chain together with £nil (2001: £0.6 million) relating to property and people costs. Cash costs incurred in the year ended 2 June 2002 amounted to £0.6 million (2001: £1.2 million). 5. The calculation of basic earnings per ordinary share has been based on profit for the year of £8.6 million (2001: £5.8 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. The calculation of pre-exceptional earnings per ordinary share for the previous year has been based on the profit for the financial year before the effect of 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. 2002 2001 Weighted average number of shares: For basic earnings per ordinary share 30,485,802 31,276,803 Dilution effect of share options outstanding 708,818 384,302 ---------- ---------- For diluted earnings per ordinary share 31,194,620 31,661,105 ========== ========== 6. Taxation on profit on ordinary activities 2002 2001 £000 £000 Current taxation UK corporation tax 4,432 2,769 Overseas tax 1,116 1,151 ------- ------- Total current taxation 5,548 3,920 Deferred taxation (613) (311) ------- ------- Taxation on profit on ordinary activities 4,935 3,609 ======= ======= 7. The proposed final dividend per share of 8.85p will be paid on 1 November 2002 to shareholders on the register at the close of business on 11 October 2002. This information is provided by RNS The company news service from the London Stock Exchange

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