Interim Results - 6 Months to 28 November 1999

Games Workshop Group PLC 25 January 2000 INTERIM RESULTS - SALES UP 10% Aggressive Restructuring Programme Implemented Games Workshop Group PLC ('Games Workshop' or the 'Group') announces its interim results for the six months ended 28 November 1999. Highlights * Turnover at £39.1m (1998: £35.5m) - up 10% * Pre-exceptional operating profit at £5.7m (1998: £5.4m) - up 5% * Pre-exceptional profit before tax £5.7m (1998: £5.2m) - up 9% * Profit before tax £3.8m (1998: £5.2m) - down 27% * Pre-exceptional earnings per share at 11.5p (1998: 10.9p) - up 6% * Basic earnings per share at 7.1p (1998: 10.9p) - down 35% * Interim dividend per share at 3.77p (1998: 3.56p) - up 6% * Growth returning to the independent sector * Continued like for like growth maintained in the retail operations * Opened 16 new stores with 15 outside the UK * Implemented aggressive two year restructuring programme, costing £5m; £1.9m charged in the current period Chairman, Tom Kirby, said: 'I am pleased to report continued growth in underlying profits and turnover in the first half of the year. We have also seen the continued expansion of our global retail network and progress in rebuilding growth in our sales to independent retailers. In order to bring about more rapid growth we are aggressively restructuring our operations. The changes will bring greater control to the centre investing the Group with greater management expertise, focused firmly on Group needs. 'The Board is confident that the successful completion of these changes will allow the Group to expand faster internationally, drive up margins through increased efficiencies and explore new opportunities to extend the reach of the Hobby. 'The Games Workshop Hobby continues to show great growth potential with the current product range offering both continuity with our now classic brands, Warhammer and Warhammer 40,000, and exciting new games like Mordheim, a skirmish battle game set in the world of Warhammer, which was launched in October. We demonstrated our commitment to reaching out to new customers by opening a further sixteen new stores during the period. Fifteen of these were outside the UK reconfirming the increasing international nature of the Group. 'We believe the growth we achieved in the first half will be maintained in the full year. The Board is confident that the appeal of the Games Workshop Hobby remains as powerful as ever.' For further information, please contact: Games Workshop Group PLC Today: 01756 770 376 Chris Prentice, Chief Executive Thereafter: 0115 916 8100 Michael Sherwin, Finance Director Dick Hosie, Investor Relations Rawlings Financial PR Limited 01756 770 376 John Rawlings Catriona Valentine Chairman's Statement Overview I am pleased to report continued growth in underlying profits and turnover in the first half of the year. We have also seen the continued expansion of our global retail network and progress in rebuilding growth in our sales to independent retailers. In order to bring about more rapid growth we are aggressively restructuring our operations. A significant part of this statement describes that restructuring. The changes will bring greater control to the centre investing the Group with greater management expertise, focused firmly on Group needs. The Board is confident that the successful completion of these changes will allow the Group to expand faster internationally, drive up margins through increased efficiencies and explore new opportunities to extend the reach of the Hobby. Results Turnover grew by 10% to £39.1 million with sales through our own channels growing at 16% and sales to independent retailers at 6%. The territory with perhaps the greatest potential, the Americas, showed healthy growth of 25%. This is especially satisfying and augurs extremely well for the expansion of the Hobby. Our pre-exceptional operating profits grew by 5%, with continued investment in overhead by the sales companies to support future growth. Sales and profits were also held back by logistics shortfalls which are being addressed in the restructuring programme. Dividend As a measure of the confidence the Board has in the future of the Hobby, the interim dividend is being raised to 3.77 pence per share, in line with pre- exceptional earnings per share (up 6%). This will be paid on 28 April 2000 to shareholders on the register at 31 March 2000. Operations The Games Workshop Hobby continues to show great growth potential with the current product range offering both continuity with our now classic brands, Warhammer and Warhammer 40,000, and exciting new games like Mordheim, a skirmish battle game set in the world of Warhammer, which was launched in October. We demonstrated our commitment to reaching out to new customers by opening a further sixteen new stores during the period. Fifteen of these were outside the UK reconfirming the increasing international nature of the Group. During the first half, we were able to respond to the problems of flat sales to independent retailers. We initiated several measures to improve these sales including introducing a new operating procedures manual for the retailers and new presentation racks which are now ready for launch in the second half. The result has been a 6% growth in the business from the independent retail trade as compared to 2% last year. Nevertheless we can always do better. As part of our continuing investment in IT, complete new systems have been installed in the USA, Canada, France, Italy and Germany and major upgrades were required in the UK sales and manufacturing operations. During 1999 a lot of time and money went on ensuring the date change would not affect our systems. As a result we have so far experienced no significant problems. Internet We are especially pleased with the progress of our Internet activities where we have seen our Internet sales more than double in the period. We believe the Internet represents an extremely exciting opportunity for Games Workshop given our customer profile. We have no doubt that the growth in Internet sales we are seeing in the USA will be replicated elsewhere and in time the Internet will be an important sales medium as well as ensuring all hobbyists are kept up to date with the latest developments. We are fully committed to exploring the exciting opportunities presented by the new digital environment. To that end, I have taken responsibility for exploring this area and ensuring that we take advantage of the opportunities that are identified. Making changes - exceptional restructuring programme The restructuring we are announcing today is designed to streamline our activities and ensure that we are better able to respond to demands from our customers - be they through our own stores, through independent retailers, through mail order or increasingly over the Internet. Owing to the rapid growth of the Group - an essential response to customer demand - we have suffered from our sales companies, manufacturing and distribution activities being at times out of step. This has caused a mismatch between sales and production causing stock shortages in the sales companies resulting in lost sales. This inadequate supply has at times triggered excess stock building. We are determined to eradicate these problems and to make sure our supply systems are in tune and able to fulfill the needs of our customers. It has become clear to the Board that the current operational structure where individual sales companies in each country have a high degree of autonomy in ordering stock, forecasting demand and establishing expenditure commitments, falls short of the requirements of the Group and needs stronger central co- ordination. We are therefore undertaking a restructuring of our activities which will focus expertise at group level in the key activities of IT, human resources, logistics and warehousing. We believe these changes will not only result in greatly heightened expertise in these functions but will allow the territories to focus all their drive and attention on the key task of building sales. These changes will result in exceptional costs over the next two years of approximately £5 million. However, we estimate rapid pay back with annualised benefits to the Group's operating profits of £2 - £2.5 million per annum at the end of the second year. £1.9 million of the costs have been charged in the half year to 28 November 1999. We will report back in detail on the progress of this programme of change with our full year results. Prospects We believe the growth we achieved in the first half will be maintained in the full year. The Board is confident that the appeal of the Games Workshop Hobby remains as powerful as ever. THF Kirby Chairman 25 January 2000 TURNOVER BY GEOGRAPHICAL AREA OF SALES OPERATION IN LOCAL CURRENCY United Kingdom £ 15.3m + 7% Continental Europe Euro 15.0m + 4% The Americas US$ 18.6m + 21% Asia Pacific Aus $ 6.5m + 15% CONSOLIDATED PROFIT AND LOSS ACCOUNT Six months to Six months to Year to 28 November 29 November 30 May 1999 1998 1999 Notes £000 £000 £000 1 Turnover 39,145 35,506 72,565 Cost of sales (12,374) (12,079) (23,624) ------- ------- ------- Gross profit 26,771 23,427 48,941 Net operating expenses (21,157) (18,088) (36,390) ------- ------- ------- Pre-exceptional operating profit before royalty income 5,614 5,339 12,551 Royalty income 98 102 249 ------- ------- ------- Pre-exceptional operating profit 5,712 5,441 12,800 Exceptional item - restructuring costs (1,860) - - ------- ------- ------- Operating profit 3,852 5,441 12,800 Interest receivable 52 63 117 Interest payable and similar charges (105) (291) (453) ------- ------- ------- Profit on ordinary activities before taxation 3,799 5,213 12,464 2 Taxation on profit on ordinary activities (1,581) (1,824) (4,378) ------- ------- ------- Profit for the period 2,218 3,389 8,086 3 Dividends (1,173) (1,108) (3,022) ------- ------- ------- Profit retained for the period 1,045 2,281 5,064 ======= ======= ======= 4 Pre-exceptional earnings per ordinary share 11.5p 10.9p 26.0p 4 Basic earnings per ordinary share 7.1p 10.9p 26.0p 4 Diluted earnings per ordinary share 7.0p 10.6p 25.4p 3 Dividend per ordinary share 3.77p 3.56p 9.7p All items dealt with in arriving at profit on ordinary activities before taxation relate to continuing activities. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months to Six months to Year to 28 November 29 November 30 May 1999 1998 1999 £000 £000 £000 Profit for the period 2,218 3,389 8,086 Currency translation differences on foreign currency net investments (175) 10 39 ------- ------- ------- Total recognised gains relating to the period 2,043 3,399 8,125 ======= ======= ======= CONSOLIDATED BALANCE SHEET As at As at As at 28 November 29 November 30 May 1999 1998 1999 Notes £000 £000 £000 Fixed assets Intangible assets 1,943 2,051 1,996 Tangible assets 15,181 14,873 14,755 Own shares 122 - - ------- ------- ------- 17,246 16,924 16,751 ------- ------- ------- Current assets Stocks 10,583 9,426 9,261 Debtors 9,649 10,729 6,501 Cash at bank and in hand 3,599 3,557 5,172 ------- ------- ------- 23,831 23,712 20,934 ------- ------- ------- Creditors: amounts falling due within one year 15,719 16,942 13,143 ------- ------- ------- Net current assets 8,112 6,770 7,791 ------- ------- ------- Total assets less current liabilities 25,358 23,694 24,542 Creditors: amounts falling due after more than one year 3,182 5,255 3,239 ------- ------- ------- Net assets 22,176 18,439 21,303 ======= ======= ======= Capital and reserves Called up share capital 1,558 1,556 1,558 Other reserve (939) (992) (942) Profit and loss account 21,557 17,875 20,687 ------- ------- ------- 5 Equity shareholders' funds 22,176 18,439 21,303 ======= ======= ======= CONSOLIDATED CASH FLOW STATEMENT Six months to Six months to Year to 28 November 29 November 30 May 1999 1998 1999 Notes £000 £000 £000 7 Net cash inflow from operating activities 3,236 5,100 16,261 ------- ------- ------- Returns on investments and servicing of finance Interest received 49 63 117 Interest paid (78) (267) (451) Interest paid on hire purchase contracts (9) (3) (13) ------- ------- ------- Net cash outflow from returns on investments and servicing of finance (38) (207) (347) ------- ------- ------- Taxation paid (176) (856) (4,278) ------- ------- ------- Capital expenditure and financial investment Purchase of tangible fixed assets (2,644) (2,699) (4,108) Sale of tangible fixed assets 21 233 258 Net cash outflow from capital expenditure and financial investment (2,623) (2,466) (3,850) ------- ------- ------- Acquisitions Purchase of subsidiaries - (2,893) (3,058) Net cash acquired with subsidiaries - 89 89 ------- ------- ------- Net cash outflow from acquisitions - (2,804) (2,969) ------- ------- ------- Equity dividends paid (1,914) (1,775) (2,881) ------- ------- ------- Net cash (outflow)/inflow before financing (1,515) (3,008) 1,936 ------- ------- ------- Financing Issue of ordinary share capital 3 15 67 Repayment of principal under hire purchase contracts (36) (20) (111) Inflow from medium term revolving credit facility - 5,000 5,000 Repayment of medium term loan facility - - (2,000) Loan repayments - (235) (235) ------- ------- ------- Net cash (outflow)/inflow from financing (33) 4,760 2,721 ------- ------- ------- 6 (Decrease)/increase in cash in the period (1,548) 1,752 4,657 ======= ======= ======= NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. Turnover by geographical area of sales operation Six months to Six months to Year to 28 November 29 November 30 May 1999 1998 1999 £000 £000 £000 United Kingdom 15,350 14,338 29,084 Continental Europe 9,685 9,861 20,040 The Americas 11,521 9,229 18,976 Asia Pacific 2,589 2,078 4,465 ------- ------- ------- 39,145 35,506 72,565 ======= ======= ======= 2. Taxation on profit on ordinary activities Taxation on exceptional items (485) - - Taxation on pre-exceptional activities 1,118 1,138 3,043 ------- ------- ------- UK corporation tax 633 1,138 3,043 Overseas tax 948 686 1,335 ------- ------- ------- 1,581 1,824 4,378 ======= ======= ======= 3. Dividends Interim ordinary dividend 1,173 1,108 1,108 Final ordinary dividend - - 1,914 ------- ------- ------- 1,173 1,108 3,022 ======= ======= ======= 4. Earnings per ordinary share The calculation of pre-exceptional earnings per ordinary share has been based on the profit for the period before the effect of the exceptional restructuring costs. This calculation has been included to enable a like for like comparison with other periods where no exceptional costs are charged. The calculation of basic earnings per ordinary share is based on the profit for the period and the weighted average number of ordinary shares. The calculation of diluted earnings per ordinary share has been based on the profit for the period and the weighted average number of shares in issue during the relevant period, adjusted for the effect of share options outstanding at the end of the period. Six months to Six months to Year to 28 November 29 November 30 May 1999 1998 1999 Number of Number of Number of shares shares shares Weighted average number of shares: For basic earnings per ordinary share 31,122,465 31,106,825 31,113,927 Share options outstanding 694,342 797,621 747,854 ---------- ---------- ---------- For diluted earnings per ordinary share 31,816,807 31,904,446 31,861,781 ========== ========== ========== 5. Reconciliation of movements in shareholders' funds Six months to Six months to Year to 28 November 29 November 30 May 1999 1998 1999 £000 £000 £000 Profit for the period 2,218 3,389 8,086 Dividends (1,173) (1,108) (3,022) ------- ------- ------- 1,045 2,281 5,064 Issue of new share capital 3 15 67 Other recognised gains and losses (175) 10 39 Opening shareholders' funds 21,303 16,133 16,133 ------- ------- ------- Closing shareholders' funds 22,176 18,439 21,303 ======= ======= ======= 6. Reconciliation of net cash flow to movement in net cash Six months to 28 November 1999 £000 Decrease in cash in the period (1,548) Cash outflow from decrease in debt and lease financing 36 Net cash at 30 May 1999 1,845 ------- Net cash at 28 November 1999 333 ======= 7. Net cash inflow from operating activities Six months to Six months to Year to 28 November 29 November 30 May 1999 1998 1999 £000 £000 £000 Operating profit 3,852 5,441 12,800 Loss/(profit) on sale of fixed assets 18 (16) 7 Depreciation of tangible fixed assets 1,916 1,605 3,408 Amortisation of goodwill 52 53 107 Exchange adjustments (144) 7 77 Increase in stocks (1,322) (1,092) (927) (Increase)/decrease in debtors (3,075) (3,135) 650 Increase in creditors 1,939 2,237 139 ------- ------- ------- 3,236 5,100 16,261 ======= ======= ======= 8. Analysis of net cash As at As at 30 May 1999 Cash flow 28 Nov 1999 £000 £000 £000 Cash at bank and in hand 5,136 (1,548) 3,588 Debt due after more than one year (3,000) - (3,000) Hire purchase agreements (291) 36 (255) ------- ------- ------- Net cash/(debt) 1,845 (1,512) 333 ======= ======= ======= 9. Interim financial statements The interim financial statements have been prepared on the basis of the accounting policies set out in the Group's statutory financial statements for the year ended 30 May 1999. Copies of the interim financial statements will be sent to shareholders and are available to members of the public at the Company's registered office. The financial statements for the year to 30 May 1999 are not full financial statements within the meaning of section 240 of the Companies Act 1985. Full financial statements for that year, incorporating an unqualified audit report, have been delivered to the Registrar of Companies. The interim financial statements for 1998 and 1999 are unaudited.

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