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Games Workshop Group (GAW)

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Tuesday 09 January, 2018

Games Workshop Group

Half-year Report

RNS Number : 2864B
Games Workshop Group PLC
09 January 2018
 

PRESS ANNOUNCEMENT

 

GAMES WORKSHOP GROUP PLC

 

                                                                                                                     9 January 2018

 

HALF-YEARLY REPORT

 

Games Workshop Group PLC ("Games Workshop" or the "Group") announces its half-yearly results for the six months to 26 November 2017.

 

Highlights:


 

Six months to

 

Six months to


26 November

27 November


2017

2016



Revenue

£108.9m

£70.9m

Revenue at constant currency*

£108.6m

£70.9m

Operating profit pre-change in accounting estimates and royalties receivable

£33.4m

£9.7m

Impact of change in accounting estimates

£1.2m

£0.8m

Operating profit pre-royalties receivable

£34.6m

£10.5m

Royalties receivable

£4.2m

£3.3m

Operating profit and pre-tax profit

£38.8m

£13.8m

Cash generated from operations

£41.2m

£19.6m

Basic earnings per share

97.6p

34.0p

Dividend per share declared in the period

61p

25p

 

Kevin Rountree, CEO of Games Workshop, said:

 

"Our business and our Warhammer Hobby are in great shape.

 

We are pleased to report record sales and profit levels in the period. It is encouraging that sales and profit growth continue across all regions and channels. Given the high levels of operational gearing and our relentless management of our costs, our improving sales performance has translated into record profit and cash levels.

 

Our sales for the month of December have also shown good growth trends."

…Ends…

 

 

For further information, please contact:






Games Workshop Group PLC


0115 900 4003

Kevin Rountree, CEO



Rachel Tongue, Group Finance Director






Investor relations website

investor.games-workshop.com

General website

www.games-workshop.com




 









 

*Constant currency revenue is calculated by comparing results in the underlying currencies for 2016 and 2017, both converted at the average exchange rates for the six months ended 27 November 2016.

 

 

FIRST HALF HIGHLIGHTS


 

Six months to

 

Six months to



26 November

27 November



2017

2016






Revenue

£108.9m

£70.9m


Revenue at constant currency*

£108.6m

£70.9m


Operating profit pre-change in accounting estimates and royalties receivable

£33.4m

 

£9.7m


Impact of change in accounting estimates

£1.2m

£0.8m


Operating profit pre-royalties receivable

£34.6m

£10.5m


Royalties receivable

£4.2m

£3.3m


Operating profit and pre-tax profit

£38.8m

£13.8m


Cash generated from operations

£41.2m

£19.6m


Basic earnings per share

97.6p

34.0p


Dividends per share declared in the period

61p

25p


 

Revenue by segment


 

Six months to

 

Six months to

 

Six months to

 

Six months to



26 November

27 November

26 November

27 November



2017

2016

2017

2016



Constant currency

Constant currency

Actual

rates

Actual

rates


Trade

£48.0m

£29.3m

£48.0m

£29.3m


Retail

£39.3m

£29.2m

£39.6m

£29.2m


Mail order

£21.3m

£12.4m

£21.3m

£12.4m


 

Operating profit by segment


 

Six months to

 

Six months to

 

Six months to

 

Six months to



26 November

27 November

26 November

27 November



2017

2016

2017

2016



Constant currency

Constant currency

Actual

rates

Actual

rates


Trade

£13.1m

£8.8m

£13.5m

£8.8m


Retail

£1.5m

£(2.4)m

£1.8m

£(2.4)m


Mail order

£13.6m

£6.7m

£13.6m

£6.7m


Product and supply

£18.4m

£6.4m

£17.9m

£6.4m


Royalties

£3.8m

£3.0m

£3.8m

£3.0m


Other costs

£(11.9)m

£(8.7)m

£(11.8)m

£(8.7)m


 

INTERIM MANAGEMENT REPORT

 

Our business and our Warhammer Hobby are in great shape.

 

We are pleased to report record sales and profit levels in the period. It is encouraging that sales and profit growth continue across all regions and channels. Given the high levels of operational gearing and our relentless management of our costs, our improving sales performance has translated into record profit and cash levels.

 

Our sales for the month of December have also shown good growth trends.

 

These cracking results are built on hard work continuing to focus on making and selling an ever better range of Warhammer miniatures. We're proud of the improving trends, but we are not taking anything for granted, our feet remain firmly on the ground as we stride into the year ahead. We will continue to focus on the core values and activities that drive our business. In the second half of this financial year I will continue to invest appropriately in my team and facilities to ensure we can deliver our ambitious operational plans.

 

One of our key measures of our performance is return on capital. During the period our return on capital grew from 40% at November 2016 to 119% at November 2017. This was driven by the increase in operating profit before royalties receivable, offset slightly by an increase in average capital employed**.

 

Sales

Reported sales grew by 54% to £108.9 million for the period. On a constant currency basis, sales were up by 53% from £70.9 million to £108.6 million; split by channel this comprised: retail £39.3 million (2016: £29.2 million), trade £48.0 million (2016: £29.3 million) and mail order £21.3 million (2016: £12.4 million).

 

Customer focused

Key to this sales performance has been our commitment to talking with our customers. We have a great, global community who are both loyal and passionate. Over the last six months we have - again - doubled the number of customers interacting with us on social media. 

 

We've supported these customers with daily content for Warhammer: Age of Sigmar and Warhammer 40,000, and increased our video output to more than one video every day, reaching over 100,000 people per day. We've also continued to develop warhammer-community.com and created new brand content sites. In the last six months alone, our content has had 16.3 million views from 2.5 million users, and this increase shows no sign of stopping.

 

Retail

This channel showed growth in all territories. We opened, including relocations, 17 stores. After closing 10 stores, our net total number of stores at the end of the period is 469. The key priority in the period reported has been to continue to offer our store managers the appropriate product and sales support to help them recruit new customers, retain our existing customers and re-recruit lapsed customers. Recruiting new store managers remains a key area of focus.

 

Trade

All key territories achieved growth. In the period, our net number of trade outlets increased by 199 accounts. In the period reported we changed our trade terms with our independent accounts in North America, implementing a minimum advertised pricing policy. This was implemented on time and as a direct result supported the growth in this territory in this channel.

 

Mail order

Sales in our online shops were up 71%. We continue to improve the online store shopping experience and functionality of the store. Our new games-workshop.com homepage, our email newsletters and the personalisation of page content and navigation through our range online remain an area of focus.

 

Digital sales

Sales of digital publications through Apple continue to grow, up 22%. In addition, the last six months saw us launch our digital titles onto Amazon and release our Black Library audio range onto Audible. The overall effect has been to increase our digital sales. In addition, this has increased our exposure to new customers and will help us recruit as we move into next year and beyond.

 

Operating profit

Operating profit before royalty income increased by £23.7 million to £33.4 million (2016: £9.7 million) before the change in accounting estimates described below. On a constant currency basis, operating profit before the change in accounting estimates increased by £23.4 million to £33.1 million.

 

With effect from 30 May 2016 the Group implemented a change in accounting estimates for the amortisation of development costs intangible assets and for the depreciation of moulding tools. The impact of the change for the six months to 26 November 2017 is an increase in operating profit of £1.2 million. The change in accounting estimates is described in note 2 to this half-yearly report.

 

On a constant currency basis, royalty income increased by £0.9 million to £4.2 million (2016: £3.3 million).

 

Total operating profit increased by £25.0 million to £38.8 million (2016: £13.8 million). The net impact in the six months to 26 November 2017 of exchange rate fluctuations was a gain of £0.3 million. It is not the Group's policy to hedge against foreign exchange rate exposure.

 

Operating expenses increased by £5.4 million due to an investment in sales facing activities relating to new retail store costs and increased retail variable pay, continued investment in marketing and IT teams, as well as an increased profit share payment paid to all employees.

 

Capital employed

Average capital employed** increased by £4.3 million to £46.1 million. The book value of tangible and intangible assets increased by £2.8 million, mainly due to the ongoing investment in the implementation of a new ERP system and the change in accounting estimates for development costs and moulding tools. Whilst trade and other receivables increased by £2.2 million, inventory increased by £2.8 million due to the timing of product launches, provisions decreased by £0.3 million and current liabilities increased by £3.8 million.

 

Cash generation

During the period, the Group's core operating activities generated £33.2 million of cash after tax payments (2016: £14.5 million). The Group also received cash of £2.8 million in respect of royalties in the year (2016: £3.6 million). After purchases of tangible and intangible assets and product development costs of £8.4 million (2016: £6.8 million), dividends of £17.7 million (2016: £8.0 million), proceeds from issue of share capital of £0.9 million (2016: £nil) and foreign exchange losses of £0.1 million (2016: gains of £0.8 million) there were net funds at the end of the period £28.6 million (2016: £15.9 million).

 

Dividends

In the period we paid dividends of 20 pence per share and 35 pence per share (2016: 25 pence) amounting to £6.4 million and £11.3 million respectively (2016: £8.0 million). Also in the period a further 6 pence per share, amounting to £1.9 million, was distributed by way of a rectification dividend. The rectification dividend was satisfied by the release of Company shareholders from the liability to repay the amount received in the year ended 28 May 2017 in the form of an unlawful dividend. In addition, a dividend of 30 pence per share was declared on 13 December 2017 amounting to £9.7 million.

 

Risks and uncertainties 

The board has overall responsibility for ensuring risk is appropriately managed across the Group. As discussed in the 2017 annual report, the top five risks to the Group are reviewed at each board meeting. The risks are rated as to their business impact and their likelihood of occurring. In addition, the Group has a disaster recovery plan to ensure ongoing operations are maintained. The principal risks for the balance of the year are the same as those identified in the 2017 annual report and are discussed below:

 

ERP change - we are changing our core ERP system in the UK. This is a complicated project with the risk of widespread business disruption if it is not implemented well. Our new Global Head of IT and her team are making steady progress.

Store manager recruitment - this comprises both recruitment of managers for new stores as well as replacing poor performing managers. Retail is our primary method of recruiting new customers and so we need great managers in all our stores. Our new recruiting website and tools are on track to go live in 2018.

Supply chain - our new mail order warehouse system went live in September 2017. This is part of an ongoing programme of continuous improvement for our warehouse systems. We have strengthened the team with a new Global Head of Logistics joining us in January 2018. In relation to factory capacity, given the step change in our performance in the last two years we need to ensure we have the appropriate infrastructure to support the new levels of product volumes in our vertically integrated business. We are making the necessary and appropriate investments in factory capacity to manage these risks. 

Range management - we are reviewing our range to ensure that we are exploring all opportunities. The risk is that we don't fully exploit all the opportunities that are available to us. We have strengthened the team and a new Global Head of Merchandising will be joining us in February 2018.

Distractions - this is anything else that gets in the way of us delivering our goals.

 

Games Workshop relies upon the continued availability and integrity of its IT systems. Our business critical systems are monitored and disaster recovery plans are in place and reviewed to ensure they remain up to date. The security of our systems is reviewed with software updates applied and equipment updated as required.

 

We do not consider that we have material solvency or liquidity risks. We also feel that it is too early to tell what the effects will be on Games Workshop of the UK Government invoking Article 50 of the Treaty of Lisbon, notifying the European Council of its intention to withdraw from the European Union.

 

The greatest risk is the same one that we repeat each year, namely, management. So long as we have great people we will be fine. Problems will arise if the board allows egos and private agendas to rule. I will do my utmost to ensure that this does not happen.

 

Going concern

After making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the condensed consolidated interim financial information. For this reason they have adopted the going concern basis in preparing this condensed consolidated interim financial information.

 

Statement of directors' responsibilities

The directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely: an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of (i) the principal risks and uncertainties for the remaining six months of the financial year; (ii) material related-party transactions in the first six months and (iii) any material changes in the related-party transactions described in the last annual report.

 

Tom Kirby retired from the board at the 2017 AGM and Nick Donaldson was appointed as non-executive chairman. There have been no other changes to the board since the annual report for the year to 28 May 2017. A list of all current directors is maintained on the investor relations website at investor.games-workshop.com.

 

 

By order of the board

 

K D Rountree

CEO

 

R F Tongue

Group Finance Director

 

9 January 2018

 

*Constant currency revenue is calculated by comparing results in the underlying currencies for 2016 and 2017, both converted at the average exchange rates for the six months ended 27 November 2016.

 

**We use average capital employed to take account of the significant fluctuation in working capital which occurs as the business builds both inventories and trade receivables in the pre-Christmas trading period. Return is defined as operating profit before royalty income, and the average capital employed is adjusted by deducting assets and adding back liabilities in respect of cash, borrowings, taxation and dividends.

 


CONSOLIDATED INCOME STATEMENT





 




 




 

 


 Six months to

 26 November 2017

Six months to

 27 November 2016

Year to

28 May

2017

 

 

Notes

£000

£000

£000

 

 





Revenue

3

108,852

70,935

158,114

 

Cost of sales pre-change in accounting estimates*


(31,103)

(22,171)

(45,224)

 

Cost of sales impact of change in accounting estimates*


    1,233

       798

    1,533

 

Cost of sales


(29,870)

(21,373)

(43,691)

 



----------

----------

----------

 

Gross profit


78,982

49,562

114,423

 






 

Operating expenses


(44,425)

(39,065)

(83,591)

 

Other operating income - royalties receivable


4,216

3,261

7,491

 



----------

----------

----------

 

Operating profit pre-change in accounting estimates*


37,540

12,960

36,790

 

Operating profit impact of change in accounting estimates*


  1,233

     798

  1,533

 

Operating profit

3

38,773

13,758

38,323

 






 

Finance income


51

29

87

 

Finance costs


(50)

-

(7)

 



----------

----------

----------

 

Profit before taxation

5

38,774

13,787

38,403

 






 

Income tax expense

6

(7,371)

(2,857)

(7,856)

 



----------

----------

----------

 

Profit attributable to owners of the parent


31,403

10,930

30,547

 



======

======

======

 






 

Basic earnings per ordinary share

7

97.6p

34.0p

95.1p

 

Diluted earnings per ordinary share

7

96.8p

33.9p

94.5p

 

Basic earnings per ordinary share pre-change in accounting estimates*

7

94.5p

32.0p

91.2p

 

Diluted earnings per ordinary share pre-change in accounting estimates*

7

93.7p

31.9p

90.7p

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE

 






Six months to 26 November 2017

Six months to

27 November

2016

Year to

28 May

2017

 


£000

£000

£000

 





 

Profit attributable to owners of the parent

31,403

10,930

30,547

 





 

Other comprehensive (expense)/income




 

Items that may be subsequently reclassified to profit or loss




 

Exchange differences on translation of foreign operations

(419)

2,687

2,663

 


---------

---------

----------

 

Other comprehensive (expense)/income for the period

(419)

2,687

2,663

 


---------

---------

----------

 

Total comprehensive income attributable to owners of the parent

30,984

13,617

33,210

 

 

======

======

=======

 

 

The following notes form an integral part of this condensed consolidated interim financial information.

 

 

*With effect from 30 May 2016 the Group implemented a change in accounting estimates for the amortisation of development costs intangible assets and for the depreciation of moulding tools. The change in accounting estimates is described in note 2 to this condensed consolidated interim financial information.

 

 

CONSOLIDATED BALANCE SHEET

 



 

As at

 

As at

 

As at



26 November

27 November

28 May



2017

2016

2017


Notes

£000

£000

£000

 





Non-current assets










Goodwill


1,433

1,433

1,433

Other intangible assets

9

14,271

12,824

12,917

Property, plant and equipment

10

24,367

22,112

22,132

Trade and other receivables


1,505

1,413

1,081

Deferred tax assets


4,509

2,881

5,399



----------

----------

----------



46,085

40,663

42,962



----------

----------

----------

Current assets










Inventories


16,277

11,224

12,421

Trade and other receivables


15,329

11,507

12,976

Current tax assets


513

982

596

Cash and cash equivalents


28,639

15,877

17,910



----------

----------

----------



60,758

39,590

43,903



----------

----------

----------

Total assets


106,843

80,253

86,865



----------

----------

----------

Current liabilities










Trade and other payables


(22,622)

(16,761)

(16,515)

Current tax liabilities


(6,579)

(2,689)

(5,840)

Provisions for other liabilities and charges

11

(757)

(838)

(689)



----------

----------

----------



(29,958)

(20,288)

(23,044)



----------

----------

----------

Net current assets


30,800

19,302

20,859



----------

----------

----------

Non-current liabilities










Other non-current liabilities


(537)

(416)

(494)

Provisions for other liabilities and charges

11

(536)

(662)

(495)



----------

----------

----------

 


(1,073)

(1,078)

(989)

 


----------

----------

----------

Net assets


75,812

58,887

62,832

 


======

======

======

 





Capital and reserves





 





Called up share capital


1,617

1,606

1,607

Share premium account


11,531

10,533

10,599

Other reserves


3,911

4,354

4,330

Retained earnings


58,753

42,394

46,296



----------

----------

----------

Total equity


75,812

58,887

62,832

 


======

======

======

 

The following notes form an integral part of this condensed consolidated interim financial information.

 

CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY

 


Called up

Share





share

premium

Other

Retained

Total


capital

account

reserves

earnings

equity


£000

£000

£000

£000

£000







At 28 May 2017 and 29 May 2017

1,607

10,599

4,330

46,296

62,832







Profit for the six months to 26 November 2017

-

-

-

31,403

31,403

Exchange differences on translation of foreign operations

-

-

(419)

-

(419)


----------

----------

----------

----------

----------

Total comprehensive (expense)/income for the period

-

-

(419)

31,403

30,984

 






Transactions with owners:






Share-based payments

-

-

-

60

60

Shares issued under employee sharesave scheme

10

932

-

-

942

Deferred tax credit relating to share options

-

-

-

279

279

Corporate tax credit relating to exercised share options

-

-

-

292

292

Dividends paid to Company shareholders

-

-

-

(19,577)

(19,577)


----------

----------

----------

----------

----------

Total transactions with owners

10

932

-

(18,946)

(18,004)

 

----------

----------

----------

----------

----------

At 26 November 2017

1,617

11,531

3,911

58,753

75,812

 

======

======

======

======

======

 


Called up

Share





share

premium

Other

Retained

Total


capital

account

reserves

earnings

equity


£000

£000

£000

£000

£000







At 29 May 2016 and 30 May 2016

1,606

10,519

1,667

39,371

53,163







Profit for the six months to 27 November 2016

-

-

-

10,930

10,930

Exchange differences on translation of foreign operations

-

-

2,687

-

2,687


----------

----------

----------

----------

----------

Total comprehensive income for the period

-

-

2,687

10,930

13,617

 






Transactions with owners:






Share-based payments

-

-

-

82

82

Shares issued under employee sharesave scheme

-

14

-

-

14

Deferred tax credit relating to share options

-

-

-

42

42

Dividends paid to Company shareholders

-

-

-

(8,031)

(8,031)


----------

----------

----------

----------

----------

Total transactions with owners

-

14

-

(7,907)

(7,893)

 

----------

----------

----------

----------

----------

At 27 November 2016

1,606

10,533

4,354

42,394

58,887

 

======

======

======

======

======

 


Called up

Share





share

premium

Other

Retained

Total


capital

account

reserves

earnings

equity


£000

£000

£000

£000

£000







At 29 May 2016 and 30 May 2016

1,606

10,519

1,667

39,371

53,163







Profit for the year to 28 May 2017

-

-

-

30,547

30,547

Exchange differences on translation of foreign operations

-

-

2,663

-

2,663


----------

----------

----------

----------

----------

Total comprehensive income for the period

-

-

2,663

30,547

33,210







Transactions with owners:






Share-based payments

-

-

-

160

160

Shares issued under employee sharesave scheme

1

80

-

-

81

Deferred tax credit relating to share options

-

-

-

14

14

Current tax credit relating to exercised share options

-

-

-

5

5

Dividends paid to Company shareholders

-

-

-

(23,801)

(23,801)

 

----------

----------

----------

----------

----------

Total transactions with owners

1

80

-

(23,622)

(23,541)

 

----------

----------

----------

----------

----------

At 28 May 2017

1,607

10,599

4,330

46,296

62,832

 

======

======

======

======

======

 

The following notes form an integral part of this condensed consolidated interim financial information.

 

CONSOLIDATED CASH FLOW STATEMENT



 

Six months to

 

Six months to

 

Year to



26 November

27 November

28 May



2017

2016

2017


Notes

£000

£000

£000






Cash flows from operating activities










Cash generated from operations

8

41,206

19,621

49,370

UK corporation tax paid


(4,602)

(1,313)

(5,212)

Overseas tax paid


(566)

(155)

(270)



----------

----------

----------

Net cash generated from operating activities


36,038

18,153

43,888



----------

----------

----------

Cash flows from investing activities










Purchases of property, plant and equipment


(4,948)

(2,484)

(5,409)

Proceeds on disposal of property, plant and equipment


1

-

-

Purchases of other intangible assets


(927)

(1,187)

(1,749)

Expenditure on product development


(2,554)

(3,167)

(5,686)

Interest received


51

35

87



----------

----------

----------

Net cash used in investing activities


(8,377)

(6,803)

(12,757)



----------

----------

----------

Cash flows from financing activities










Proceeds from issue of ordinary share capital


942

14

81

Interest paid


(49)

-

(4)

Loans to Company shareholders


-

-

(1,901)

Dividends paid to Company shareholders


(17,676)

(8,031)

(23,801)



----------

----------

----------

Net cash used in financing activities


(16,783)

(8,017)

(25,625)

 


----------

----------

----------

Net increase in cash and cash equivalents


10,878

3,333

5,506

 





Opening cash and cash equivalents


17,910

11,775

11,775

 





Effects of foreign exchange rates on cash and cash equivalents


 

(149)

 

769

629



----------

----------

----------

Closing cash and cash equivalents


28,639

15,877

17,910



======

======

======

 

The following notes form an integral part of this condensed consolidated interim financial information.

 

NOTES TO THE FINANCIAL INFORMATION

 

1.      Basis of preparation

 

The Company is a limited liability company, incorporated and domiciled in the United Kingdom. The address of its registered office is Willow Road, Lenton, Nottingham, NG7 2WS.

 

The Company has its listing on the London Stock Exchange.

 

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 28 May 2017 were approved by the board of directors on 24 July 2017 and have been delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under either section 498 (2) or section 498 (3) of the Companies Act 2006.

 

This condensed consolidated interim financial information has not been audited or reviewed pursuant to the Auditing Practices Board guidance on 'Review of Interim Financial Information' and does not include all of the information required for full annual financial statements.

 

This condensed consolidated interim financial information for the six months ended 26 November 2017 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 28 May 2017 which have been prepared in accordance with IFRSs as adopted by the European Union.

 

After making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they have adopted the going concern basis in preparing this condensed consolidated interim financial information.

 

This condensed consolidated interim financial information was approved for issue on 9 January 2018.

 

This condensed consolidated interim financial information is available to shareholders and members of the public on the Company's website at investor.games-workshop.com.

 

The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenues and expenses. Actual results may differ from these estimates.

 

In preparing this condensed consolidated interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 28 May 2017.

 

The accounting policies applied are consistent with those of the annual financial statements for the year ended 28 May 2017, as described in those financial statements. With effect from 30 May 2016 the Group implemented a change in accounting estimate for the amortisation of development costs intangible assets and the accounting estimate for the depreciation of moulding tools. These are described in note 2 below along with the impact on the results for the six months to 26 November 2017.

 

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

 

There are no new accounting standards or interpretations effective in the current period which are relevant to the Group. 
 
New standards, amendments to standards and interpretations which have been published but are not yet effective which are relevant to the Group are:

 

-IFRS 16 'Leases' (effective for the year ending 31 May 2020). Under this new standard all leases will be required to be recognised on balance sheet. Currently under IAS 17 'Leases' only leases categorised as finance leases are recognised on balance sheet, with leases categorised as operating leases not recognised. In broad terms the impact will be to recognise a lease liability and corresponding asset for the Group's operating lease commitments. The Group is assessing the impact of the new standard.

-IFRS 15 'Revenue from contracts with customers' (effective for the year ending 2 June 2019). Under this new standard the royalty minimum guarantee income is expected to be taken as revenue up front. Currently the minimum guarantee income is deferred and released in line with licensee sales. In addition, amounts receivable from customers in respect of delivery charges will be recognised as revenue. Currently these are offset against the carriage cost to the Group within cost of sales. The Group is assessing the impact of the new standard and expects to have a clearer view of the financial impact by the year end.

-IFRS 9 'Financial instruments' (effective for the year ending 2 June 2019). Under this new standard, provisions for impairment of trade receivables will be recognised at an amount based on expected credit losses and will be calculated from the initial recognition of the asset. Currently provisions for impairment of trade receivables are not recognised until there is an indication of impairment. The Group is assessing the impact of the new standard and expects to have a clearer view of the financial impact by the year end.

 

The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant effect on the financial statements.

 

2.          Change in accounting estimates

With effect from 30 May 2016 the Group implemented a change in accounting estimates for the amortisation of development costs intangible assets and the depreciation of moulding tools. Previously product development costs recognised as intangible assets were amortised on a straight line basis over periods ranging between 1 and 48 months. These development costs intangible assets are now amortised on a reducing balance basis with rates ranging from 50% to 80%. Previously moulding tools were depreciated on a straight line basis over a period of 48 months. Moulding tools relating to specific products are now amortised on a reducing balance basis at 50%.

 

The changes were made in order to better match the expenditure incurred to the expected revenue generated from the subsequent product release. In accordance with IAS 8 'Accounting policies, changes in accounting estimates and errors', the changes have been recognised prospectively since 30 May 2016.

 

The impact of the change on the results for the six months to 26 November 2017 is shown in the table below:

 

 


 

Pre-change in accounting estimates

Impact of change in accounting estimates

Total

 six months to

 26 November 2017


£000

£000

£000





Cost of sales

(31,103)

1,233

(29,870)

Gross profit

77,749

1,233

78,982

Operating profit

37,540

1,233

38,773

Income tax expense

(7,137)

(234)

(7,371)

Profit attributable to owners of the parent

30,404

999

31,403

Retained earnings brought forward

45,054

1,242

46,296

Other intangible assets

10,952

3,319

14,271

Property, plant and equipment

24,919

(552)

24,367

Deferred tax assets

4,404

105

4,509

Current tax liabilities

(5,948)

(631)

(6,579)

Net assets

73,571

2,241

75,812

Basic earnings per share

94.5p

3.1p

97.6p

Diluted earnings per share

93.7p

3.1p

96.8p

 

The impact of the change in accounting estimates in future periods will depend on the release mix and nature of products being developed in those years. A benefit relating to the changes in accounting estimates is expected until the year ending 31 May 2020, when the change will no longer materially impact the financial statements.

 

3.          Segment information

As Games Workshop is a vertically integrated business, management assesses the performance of sales channels and manufacturing and distribution channels separately. At 26 November 2017, the Group is organised as follows:

 

Sales channels. These channels sell product to external customers, through the Group's network of retail stores, independent retailers and directly via the global web stores. The sales channels have been aggregated into segments where they sell products of a similar nature, have similar production processes, similar customers, similar distribution methods, and if they are affected by similar economic factors. The segments are as follows:

-     Trade. This sales channel sells globally to independent retailers, agents and distributors. It also includes the Group's magazine newsstand business and the distributor sales from the Group's publishing business (Black Library).

-     Retail. This includes sales through the Group's retail stores, the Group's visitor centre in Nottingham and global exhibitions.

-     Mail order. This includes sales through the Group's global web stores and digital sales through external affiliates.

Product and supply. This includes the design and manufacture of the products and incorporates the production facility in the UK and the Group logistics and stock management costs. This also includes adjustments for the profit in stock arising from inter-segment sales and charges for inventory provisions.

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

Service centre costs. Provides support services (IT, accounting, payroll, personnel, procurement, legal, health and safety, customer services and credit control) to activities across the Group and undertakes strategic projects.

Royalties. This is royalty income earned from third party licensees after deducting associated licensing costs.

 

The chief operating decision-maker assesses the performance of each segment based on operating profit, excluding share option charges recognised under IFRS 2, 'Share-based payment', charges in respect of the Group's profit share scheme and, for the year to 28 May 2017, the discretionary payment to employees. This has been reconciled to the Group's total profit before taxation below.

 

The segment information reported to the executive directors for the periods included in this financial information is as follows:

 


 

Six months to

 

Six months to

 

Year to


26 November

27 November

28 May


2017

2016

2017


£000

£000

£000









Trade

47,961

29,341

61,254

Retail

39,615

29,168

64,848

Mail order

21,276

12,426

32,012


-------------

-------------

------------

Total external revenue

108,852

70,935

158,114


========

========

=======

 

For information, we analyse external revenue further below:


 

 

Six months to

 

Restated*

Six months to

 

 

Year to


26 November

27 November

28 May


2017

2016

2017


£000

£000

£000





Trade




UK and Continental Europe

19,652

12,958

25,442

North America

21,345

12,178

27,207

Australia and New Zealand

2,407

1,261

2,472

Asia

2,025

1,109

2,257

Rest of world

1,260

648

1,580

Black Library

1,272

1,187

2,296


-------------

-------------

-------------

Total Trade

47,961

29,341

61,254


-------------

-------------

-------------





Retail




UK

13,077

10,275

22,474

Continental Europe

10,321

7,869

16,859

North America

10,587

7,141

16,759

Australia and New Zealand

4,586

3,338

7,471

Asia

1,044

545

1,285


-------------

-------------

-------------

Total Retail

39,615

29,168

64,848


-------------

-------------

-------------





Mail order

21,276

12,426

32,012


-------------

-------------

-------------

Total external revenue

108,852

70,935

158,114


========

========

========

 

*Segment revenue of £5,915,000 for the six months to 27 November 2016 previously reported as non-core trade has been reclassified within the trade segment as UK and Continental Europe (£2,542,000), North America (£1,047,000), Australia and New Zealand (£128,000), Asia (£363,000), Rest of world (£648,000) and Black Library (£1,187,000) to reflect the management structure in place at 28 May 2017 and 26 November 2017.

Segment revenue of £1,752,000 for the six months to 27 November 2016 previously reported as non-core retail has been reclassified within the retail segment as UK (£1,648,000), North America (£97,000) and Asia (£7,000) to reflect the management structure in place at 28 May 2017 and 26 November 2017.

In addition mail order segment revenue of £2,143,000 for the six months to 27 November 2016 previously reported as non-core mail order and £10,283,000 previously reported as Citadel and Forge World are now reported together as Mail order which reflects the management structure in place at 28 May 2017 and 26 November 2017.

 

Operating expenses by segment are regularly reviewed by the executive directors and are provided below:


 

 

Six months to

 

Restated*

Six months to

 

 

Year to


26 November

27 November

28 May


2017

2016

2017


£000

£000

£000





Trade

(5,734)

(5,388)

(10,855)

Retail

(23,020)

(21,222)

(42,849)

Mail order

(2,719)

(2,595)

(5,290)

Product and supply

(1,412)

(1,261)

(2,618)

Central costs

(3,743)

(3,143)

(6,215)

Service centre costs

(6,360)

(4,738)

(11,824)

Royalties

(352)

(192)

(371)


-------------

-------------

-------------

Total segment operating expenses

(43,340)

(38,539)

(80,022)





Share-based payment charge

(60)

(82)

(160)

Profit share scheme charge

(1,025)

(444)

(444)

Discretionary payment to employees

-

-

(2,965)


-------------

-------------

------------

Total group operating expenses

(44,425)

(39,065)

(83,591)


========

========

========

 

*Operating expenses of £18,000 for the six months to 27 November 2016 relating to certain marketing costs have been reclassified from product and supply to central costs which reflects the management structure in place at 28 May 2017 and 26 November 2017.

 

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


 

 

 

Six months to

 

 

Restated*

Six months to

 

 

 

Year to


26 November

27 November

28 May


2017

2016

2017


£000

£000

£000









Trade

13,471

8,791

17,956

Retail

1,813

(2,369)

461

Mail order

13,626

6,651

18,788

Product and supply

17,901

6,356

16,286

Central costs

(4,397)

(3,406)

(6,724)

Service centre costs

(6,360)

(4,738)

(11,824)

Royalties

3,804

2,999

6,949


-------------

-------------

----------

Total segment operating profit

39,858

14,284

41,892





Share-based payment charge

(60)

(82)

(160)

Profit share scheme charge

(1,025)

(444)

(444)

Discretionary payment to employees

-

-

(2,965)


-------------

-------------

----------

Total group operating profit

38,773

13,758

38,323





Finance income

51

29

87

Finance costs

(50)

-

(7)


-------------

-------------

-------------

Profit before taxation

38,774

13,787

38,403


========

========

========

 

*A segment loss of £281,000 for the six months to 27 November 2016 relating to certain marketing costs has been reclassified from product and supply to central costs. This reflects the management structure in place at 28 May 2017 and 26 November 2017.

 

4.          Dividends

Dividends of £6,428,000 (20 pence per share) and £11,248,000 (35 pence per share) were declared and paid in the six months to 26 November 2017. In addition a further £1,901,000 (6 pence per share) was distributed in the six months to 26 November 2017 by way of a rectification dividend. The rectification dividend was satisfied by the release of Company shareholders from the liability to repay the amount received in the year ended 28 May 2017 in the form of an unlawful dividend.

 

A dividend of £8,031,000 (25 pence per share) was declared and paid in the six months to 27 November 2016.

 

Dividends of £8,031,000 (25 pence per share), £9,638,000 (30 pence per share), and £6,132,000 (19 pence per share) were declared and paid during the year ended 28 May 2017.

 

5.          Profit before taxation

 

The following costs have been incurred in the reported periods in respect of ongoing redundancies, inventory provisions, impairments and loss-making retail stores:

 


 

Six months to

 

Six months to

 

Year to


26 November

27 November

28 May


2017

2016

2017


£000

£000

£000





Redundancy costs and compensation for loss of office

177

345

1,009

(Reversal) of/charge for impairment of property, plant and equipment

(17)

16

(55)

Charge for impairment of computer software

-

-

833

Net charge/(credit) to property provisions including closed or loss-making retail stores

28

197

(185)

Net inventory provision creation

1,610

235

1,376

 

6.          Tax

 

The taxation charge for the six months to 26 November 2017 is based on an estimate of the full year effective rate of 19.0% (2016: 20.7%). Although overseas tax rates are higher than the UK rate of 19%, these are offset by the release of prior provisions against tax uncertainties.

 

7.          Earnings per share

 

Basic earnings per share

 

Basic earnings per share is calculated by dividing the profit attributable to owners of the parent by the weighted average number of ordinary shares in issue throughout the relevant period.

 


 

Six months to

 

Six months to

 

Year to


26 November

27 November

28 May


2017

2016

2017





Profit attributable to owners of the parent (£000)

31,403

10,930

30,547


-------------

-------------

-------------

Weighted average number of ordinary shares in issue (thousands)

32,166

32,121

32,126


-------------

-------------

-------------

Basic earnings per share (pence per share)

97.6

34.0

95.1

 

 

========

========

========

Basic earnings per share pre-change in accounting estimates

 

Basic earnings per share pre-change in accounting estimates is calculated by dividing the profit attributable to owners of the parent, before the impact of the change in accounting estimates, by the weighted average number of ordinary shares in issue throughout the relevant period.

 


 

Six months to

 

Six months to

 

Year to


26 November

27 November

28 May


2017

2016

2017





Profit attributable to owners of the parent pre-change in accounting estimates (£000)

30,404

10,286

29,305


-------------

-------------

-------------

Weighted average number of ordinary shares in issue (thousands)

32,166

32,121

32,126


-------------

-------------

-------------

Basic earnings per share pre-change in accounting estimates (pence per share)

94.5

32.0

91.2


========

========

========

 

Diluted earnings per share

 

The calculation of diluted earnings per share has been based on the profit attributable to owners of the parent and the weighted average number of shares in issue throughout the relevant period, adjusted for the dilution effect of share options outstanding at the period end.

 


 

Six months to

 

Six months to

 

Year to


26 November

27 November

28 May


2017

2016

2017





Profit attributable to owners of the parent (£000)

31,403

10,930

30,547


-------------

-------------

-------------

Weighted average number of ordinary shares in issue (thousands)

32,166

32,121

32,126





Adjustment for share options (thousands)

280

77

199


-------------

-------------

-------------

Weighted average number of ordinary shares for diluted earnings per share (thousands)

 

32,446

 

32,198

 

32,325


-------------

-------------

-------------

Diluted earnings per share (pence per share)

96.8

33.9

94.5

 

 

========

========

========

Diluted earnings per share pre-change in accounting estimates

 

The calculation of diluted earnings per share has been based on the profit attributable to owners of the parent, before the impact of the change in accounting estimates, and the weighted average number of shares in issue throughout the relevant period, adjusted for the dilution effect of share options outstanding at the period end.


 

Six months to

 

Six months to

 

Year to


26 November

27 November

28 May


2017

2016

2017





Profit attributable to owners of the parent pre-change in accounting estimates (£000)

30,404

10,286

29,305


-------------

-------------

-------------

Weighted average number of ordinary shares in issue (thousands)

32,166

32,121

32,126





Adjustment for share options (thousands)

280

77

199


-------------

-------------

-------------

Weighted average number of ordinary shares for diluted earnings per share (thousands)

 

32,446

 

32,198

 

32,325


-------------

-------------

-------------

Diluted earnings per share pre-change in accounting estimates (pence per share)

93.7

31.9

90.7


========

========

========

 

8.          Reconciliation of profit to net cash from operating activities

 


 

Six months to

 

Six months to

 

Year to


26 November

27 November

28 May


2017

2016

2017


£000

£000

£000





Operating profit

38,773

13,758

38,323

 

Depreciation of property, plant and equipment

2,635

3,156

6,107

 

Net (reversal) of impairment/impairment of  property, plant and equipment

(17)

16

(55)

 

Loss on disposal of property, plant and equipment

20

23

111

 

Impairment of intangible assets

-

-

833

 

Loss on disposal of intangible assets

-

-

14

 

Amortisation of capitalised development costs

1,630

1,557

2,900

 

Amortisation of other intangibles

651

604

1,217

 

Share-based payments

60

82

160

 

Changes in working capital:




 

-Increase in inventories

(4,128)

(1,805)

(2,984)

 

-Increase in trade and other receivables

(4,813)

(1,298)

(379)

 

-Increase in trade and other payables

6,279

3,585

3,491

 

-Increase/(decrease) in provisions

116

(57)

(368)

 


----------

----------

---------

 

Net cash from operating activities

41,206

19,621

49,370

 


======

======

======





9.          Other intangible assets

 


26 November

27 November

28 May


2017

2016

2017


£000

£000

£000





Net book value at beginning of period

12,917

10,501

10,501

Additions

3,635

4,479

7,376

Exchange differences

-

5

4

Disposals

-

-

(14)

Amortisation charge

(2,281)

(2,161)

(4,117)

Impairment

-

-

(833)


----------

----------

----------

Net book value at end of period

14,271

12,824

12,917

 

 

 

======

======

======

10.        Property, plant and equipment

 


26 November

27 November

28 May


2017

2016

2017


£000

£000

£000





Net book value at beginning of period

22,132

22,621

22,621

Additions

4,912

2,348

5,372

Exchange differences

(39)

338

302

Disposals

(20)

(23)

(111)

Charge for the period

(2,635)

(3,156)

(6,107)

Reversal of impairment/(impairment)

17

(16)

55


----------

----------

----------

Net book value at end of period

24,367

22,112

22,132


======

======

======

 

11.        Provisions for other liabilities and charges

 

Analysis of total provisions:

 


26 November

27 November

28 May


2017

2016

2017


£000

£000

£000





Current

757

838

689

Non-current

536

662

495


----------

----------

----------


1,293

1,500

1,184


======

======

======

 



Employee




Other

benefits

Property

Total


£000

£000

£000

£000






At 29 May 2016

-

547

897

1,444






Charged to the income statement

-

99

197

296

Exchange differences

-

53

60

113

Utilised

-

(47)

(306)

(353)


----------

----------

----------

----------

At 27 November 2016

-

652

848

1,500


======

======

======

======

 

 







Employee




Other

benefits

Property

Total


£000

£000

£000

£000






At 29 May 2016

-

547

897

1,444

Charged/(credited) to the income statement

-

153

(185)

(32)

Exchange differences

-

47

57

104

Utilised

-

(67)

(265)

(332)


--------

--------

--------

----------

At 28 May 2017

-

680

504

1,184






Charged to the income statement

50

150

28

228

Exchange differences

(1)

(5)

(6)

(12)

Utilised

-

(61)

(46)

(107)


----------

----------

----------

----------

At 26 November 2017

49

764

480

1,293


======

======

======

======

 

12.        Seasonality

 

The Group's monthly sales profile demonstrates an element of seasonality around the Christmas period which impacts sales in the month of December.

 

13.        Commitments

 

Capital expenditure contracted for at the balance sheet date but not yet incurred is £2,480,000 (2016: £996,000).

 

14.        Related-party transactions

 

There were no material related-party transactions during the period.

 


This information is provided by RNS
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