Annual Report • Jun 2, 2013
Annual Report
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Annual report 2013
| 2013 | 2012* |
|---|---|
| £134.6m | £131.0m |
| £135.6m | £131.0m |
| £20.2m | £15.6m |
| £1.0m | £3.5m |
| £21.3m | £19.1m |
| £21.4m | £19.5m |
| £31.9m | £28.0m |
| 51.5p | 46.8p |
| 58p | 63p |
| Chairman's preamble | 2 |
|---|---|
| CEO's commentary | 3 |
| Finance review | 6 |
| Directors' report | 8 |
| Corporate governance report | 13 |
| Remuneration report | 16 |
| Directors' responsibilities statement | 19 |
| Company directors and advisers | 20 |
| Independent auditors' report | 21 |
| Consolidated income statement | 23 |
| Consolidated and Company statements of comprehensive income and expense | 23 |
| Consolidated and Company balance sheets | 24 |
| Consolidated and Company statements of changes in total equity | 25 |
| Consolidated and Company cash flow statements | 26 |
| Notes to the financial statements | 27 |
| Five year summary | 53 |
| Financial calendar | 53 |
| Notice of meeting | 54 |
**Constant currency revenue is calculated by comparing results in the underlying currencies for 2013 and 2012, both converted at the 2012 average exchange rates as set out on page 7.
*For the 53 weeks ended 3 June 2012
During the year Mark Wells left Games Workshop. After more than ten years, five as chief executive, he has gone to graze in pastures new. His tenure as CEO saw our return on capital increase from around 10% to over 50%. He is a man who truly understands about shareholder value and put that understanding into good practice. Thank you Mark, and good luck.
We have also had a shift in the balance of our owners. For three entirely different reasons each of our largest holders has done some selling. This has allowed those who have wanted to own us for a while the opportunity to buy. The fact that we have been paying a lot of surplus cash out as dividends hasn't put them off! We'll see what happens when we have a bad year and stop.
I have written a great deal over the years about the 'greatest danger' facing Games Workshop. It has usually been in response to the expression of some fear of imminent doom. When will the world tire of miniatures? (It won't; these are not fashion items, they are hobby collectibles.) Won't all your customers move on to computer games instead? (They didn't; most of our current customers weren't born when the Atari ST came out.) How about other games like Pokémon or role-playing games? (Who can remember them, now?). The evidence is there for all to see, but when it wasn't I was seen as complacent in the face of these real dangers. I don't think that was complacency, it's just that we here all make a living from serving collectors and we understand them and their needs. These are paper tiger dangers. The real danger is us.
The world will not tire of miniatures, nor fantasy. The world can and does play computer games, online and on phones now, not old-style computers. Other people will produce great games and products.
The dangers lie not in these realities, but whether we keep making fantastic models and providing great services, in our management skills and just as night follows day, in our ability to find the right people to carry the business forward. This is why we put so much energy into our management training programmes and in particular how we recruit.
Put at its bluntest: we recruit for attitude, not for skills.
It makes for a lot of hard work. First every manager in the business has to take personal responsibility for the recruitment process. All of it, from start to finish. No handing it off to Human Resources, outside agencies, or anyone else. Then they have to prepare a job specification. What value does this job bring to the business? Not what is nice about it, but exactly how does it help us sell more or spend less? Then it describes what kind of person is likely to be successful at the job. That's right. What kind of person. It is centred on their character, on their attitudes and on the behaviour we expect to see. Then it lists the top few things they have to achieve in order to be successful at it. And that's it. No qualifications, no degrees, no reference to experience.
This is hard to do, and impossible alone. We spend hours on it, in groups, working at getting to the heart of the issue.
Then we advertise using that job specification as a template. All jobs, always. No 'appointments', no patronage. And we ask the applicants to write us a letter saying why they want this job. CV optional (but we won't look at it if the letter is pants).
The knee-jerk response from outsiders is nearly always either you are doing it wrong or you will fail. Neither is true. Companies who seek out skills at the expense of attitude are destroying culture, continuity and morale and thereby shareholder value. That is wrong. And our way works well.
The effort put in rewards us in knowing who we want and why, knowing how to ask for that person, how to recognise them when we see them, and how to check that they are being successful. Win, win, win, win. Sadly it takes effort, so don't expect to see our ways being adopted universally any time soon.
Risks. Management succession. Effort. I've managed to get all the key words in. Maybe the last of these is the most important.
Hard work. Accept no substitutes.
Tom Kirby Chairman and Acting CEO 29 July 2013
Our core business delivered a good performance in 2012/13. We have controlled costs well, maintained our gross margin and benefited from a small increase in sales. Profit before tax is up as a consequence and our cash flow has been good, allowing us to return £18.4 million to our owners during the year.
That small increase in sales (3% or so) is a mix of strong performance in our more hobby oriented Forge World and Black Library businesses (our 'Other businesses') and the North American region and less good performances in Continental Europe and the UK.
We are still experimenting with retail stores in Shanghai (there are now two) and have returned Japan to marginal profitability from a large loss.
Income from royalties, as expected, is down significantly by £2.5 million to £1.0 million.
We use return on capital as our most important measure internally. While we constantly pursue sales growth, we must always be aware of our return on capital so that we use our resources intelligently and effectively. (You can buy a lot of sales that gain you nothing but heartache and disappointment.) Our return on capital this year is 66%, up from 57% last year. Now we have reached 50+% each year it is harder to improve it and we need to be sensitive to what is a reasonable rate so we do not damage the long-term prospects of the business through clumsy and inappropriate cost saving or, worse, inadequate investment in our future. I am comfortable that gross margins that hover between 70% and 75% are good. Maybe good enough. We will always explore ways of doing better, doing more with less, but not to the detriment of the business.
This raises the premium on our judgment calls and re-emphasises that the number one risk to the business is its management. Of which more later.
We have written a lot and spoken a lot about how we aim to grow the business: opening good stores with well chosen staff in new places, increasing the number of independent stockists we do business with and producing an attractive and efficient online store.
Finding new places at attractive rents for our stores is not plain sailing, but is not as hard as finding the right people to run them in the right quantity. We have yet to get this as right as we would like and our new store openings in the period (net 6, 46 openings and 40 closings) is a reflection of that difficulty. In an ideal world we would be opening 40 or 50 net new stores every year.
If we are opening stores to pursue sales growth, then why close any? Over the past decade we had accumulated several stores that didn't work out, usually because the rent was too high. We are closing these as fast as makes sense. Sometimes it is more cost effective to pay to be released from our lease and sometimes it is better to wait for the end of the lease. This is a process that is mostly restricted to North America (and the USA, not Canada) and should be largely complete by the end of the year to May 2014.
During the last year we have introduced and delivered our new trade standards for our independent stockists. The aim is to get those products that will sell the fastest into whatever space the independents will allow us. That way their stock turn will rise and we will have more re-orders. It seems so obvious that it shouldn't need saying, but we deal in a product that sometimes allows passions to over-rule commerciality. Many of our independent stockists and our own sales people are fans as well as customers and it helps all round if we have a system that emphasises sales potential over aesthetics.
Our online shop is doing well. Sales are up to £14.4 million from £13.1 million. During the year we built a new one and will be testing it over the coming year. It is planned to be fully operational in April 2014. The online world is in constant flux. New things become possible, new ways of behaving become the norm, legislation requires extra safeguards, and so on. We need to continually invest and change to ensure it remains a pleasant shopping experience for our customers.
Royalty income is down from £3.5 million to £1.0 million. We expected a significant decline.
What has happened? Nearly all our royalty income (88% last year and 82% this) comes from licences sold to computer games companies. (The balance is from Fantasy Flight Games which makes card games and board games - and very good they are too!)
*
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, and the average capital employed is adjusted by deducting assets and adding back liabilities in respect of cash, borrowings, taxation and dividends.
Since the appearance of 'smart' phones and the iPad, the traditional computer games industry has changed utterly and permanently. Giants that bestrode the industry have vanished and the survivors are transformed out of recognition. New names and new companies have arisen with equal suddenness to replace them. Now the games have gestation periods of months, not years; sell for a few pounds, not dozens; cost millions to produce not hundreds of millions; and are downloaded directly to your machine cutting out packaging, distributors and stores.
We switched as fast as we could but were limited by the constraints of the deals we already had in place. Now a new stream of smaller games is starting to appear. The first of what we hope will be many is Warhammer Quest for iOS (Apple stuff). Buy it now! Good fun.
We hope that our average income levels (c.£3 million per year over the last five years) will return.
Within the business our number one and overwhelmingly important KPI is sales. 'Sales' is all the money we take in and we quantify it by counting it. Earlier I said our most important measure was return on capital. It is. Our KPIs are in place to see if we are where we want to be. That means our secondary KPIs are: what we spend on overheads and capital investment. Neither is mysterious and they are published in this document.
With capital investment we normally assume we will spend next year roughly what we spent last year. This year we spent £8.8 million and next year we think it may be £9.3 million. Take this number with a pinch of salt and remember that, as von Moltke said, 'No plan survives contact with the enemy'. We do not see a big increase in that number in the next few years. If something crops up, we'll tell you.
With overheads we try to have them not grow at all. Easy to say. Hard to do.
We do not set sales targets. We do want real sales growth (defined as an increase after our price rises, if any), the more the better, but we do not predict it. We follow the plan: more stores run by the right people and great products in them should yield sales growth. Our staff are rewarded if they achieve real growth.
In our own stores, after sales, we look at the average transaction value and the transaction count in each store. We use them to see where the problem lies if sales are not growing. We do not publish them and we do not use them in our forward planning.
In sales to independent retailers we check to see how many live accounts we have each month: did they order? This is a health check to make sure the guys are doing their jobs properly. We do not publish this number and we do not use it in our forward planning.
We look at many other things as well: how many staff per store we have (UK: 1.9, Continental Europe: 1.6, North America: 1.7, Australia: 1.5, Asia: 1.0), how many stores we have (UK: 137, Continental Europe: 135, North America: 99, Australia: 37, Asia: 4), how many we think we could open (close) next year (UK: 4 (1), Continental Europe: 10 (4), North America: 38 (28), Australia: 4 (4)). None of these is a KEY performance indicator. They are simply part of the huge complex of information we use all the time to keep tabs on what is going on and none of them is used to anticipate future performance.
So how do we plan our future? We run a tight ship, and do our damnedest to get more sales. Everything else is just whistling Dixie.
Our biggest risk is the people we employ.
The potential damage to the Group is enormous.
We mitigate this risk through internal recruitment and using our Academy to educate and train and ensure we recruit well.
I suppose that could be said of any company, but here it has real meaning. Knowing how our business model works is a critical necessity in all our staff and, of course, even more so in our leaders. What we do is unusual. We are the only company of our size making fantasy miniatures and the only one with a global presence. At one level it is all very simple: conceive, design, purchase, make, pack, ship, sell. Over the years we have learnt how to do those things well using Edison's methodology* . We therefore have to have leaders who truly understand not only what we do, but why we do it that way. In addition we value people's attitudes and behaviour even higher than their knowledge and skills. To ensure continuity and to mitigate the risks we have a policy of recruiting from within for all our senior roles, as far as we can. When the time comes to replace this acting CEO, it will most likely be an internal appointment.
* After 10,000 attempts to make an incandescent light bulb he was asked about the 9,999 failures. They weren't failures, he said, I now know 9,999 ways it won't work.
Our Academy runs courses on what we do and how and why we do it. In addition it runs quarterly training sessions for the most senior people on staff recruitment. We know that good people are at the core of running a good business. To get good people we need to know what we want, and by that we mean we need to know the attitudes and behaviour we are looking for. We then have to advertise in a way that will attract those people, followed by interviewing well and being tough minded about trying again if the first try didn't get what we need.
Fashion is a short-cycle phenomenon. We have been in business long enough to have lived through fantasy being on no-one's horizon (Lord of the Who?), through a huge surge in interest earlier this century, back to where we are today. We also know that games played on computers are not a threat, having lived through many cycles of their lives as well.
We are often asked about the threat caused by 'fashions', but we believe the evidence shows it is not a threat to the business. Just so long as we do our jobs properly (see above).
We are well insured against this risk (including business interruption cover) and have plans such that we could be back into full scale production within 12 months.
Cost inflation. This is a perennial problem, but has been with us since day one. At its most extreme (raw material costs escalating) it could affect sales, but we have been able to manage this risk through a combination of internal efficiencies and price increases. The test is our gross margin which is strong and steady.
Changes in VAT rates. We pass on to our customers all VAT changes, up or down, as soon as is practicable.
Recessions. Our customers are, on the whole, middle class and well placed in times of economic hardship. We cannot pretend that recessions (or booms) have no effect at all, but because we are a niche hobby they have less of an effect than for mass marketers. So long as we retain tight controls of our costs we can ride occasional rough weather.
Breach of intellectual property (IP) and counterfeit products. The risk is that we lose control of our IP and thus other people can take our market. There are two ways we mitigate this risk: product quality and IP protection. Product quality is the best defence. Our miniatures are of extraordinary detail and have very high costs associated with their production. We do the tooling and manufacturing here in Nottingham to ensure that quality. As it happens, even if we wanted to tool or manufacture elsewhere, we have never found anyone who can deliver the quality we need at the price we pay. In order to be able to duplicate that quality requires a level of capital investment that no one has, as yet, even tried to emulate. This also deals with the risk of counterfeit products. The few that are made are of poor quality and do not appeal to our customers.
Should that change, or we meet intransigent small infringers, we have copyright, trademark and passing off law to protect our imagery and we have never been shy of using legal redress if needed. Our legal department deals with dozens of cases each year with satisfactory results.
The scale upon which we do business is the biggest defence against this threat. The cases we deal with (and there are dozens each year) are nearly all single individuals or small businesses who 'cease and desist' as soon as they get the letter. Those who don't should be stopped more because we need to ensure everyone knows we are serious about defending our IP rather than because of the immediate threat of damage to our profits.
Games Workshop has had a mixed year. Sales were stronger in the first half than the second, but cost control and cash management have strengthened throughout the period. We finish the year with the most profit this company has generated since flotation and have returned £18.4 million to our owners.
As for the future, our objective is simple: we will continue to make the best fantasy miniatures in the world and sell them globally at a profit. We intend to do this forever.
The board believes the prospects for this business are good.
Tom Kirby Chairman and Acting CEO 29 July 2013
Reported sales increased by 2.7% to £134.6 million for the year. On a constant currency basis, sales were up by 3.5% from £131.0 million to £135.6 million; progress was achieved in North America (+7.8%), Export (+2.3%), Asia (+10%) and in Other sales businesses (+27.2%) while sales in the UK (-1.4%), Continental Europe (-0.3%) and Australia (-4%) were in decline.
To be consistent with how we manage the business, we now report development costs within cost of sales. In the year we reclassified £4.8 million (2012: £4.7 million) to cost of sales from operating expenses. This reclassification gave rise to a decrease in gross margin of 3.5% (2012: 3.6%).
Core business operating profit (operating profit before royalty income) increased by £4.6 million to £20.2 million (2012: £15.6 million). On a constant currency basis, core business operating profit increased by £5.2 million to £20.8 million (2012: £15.6 million). This result was delivered by sales growth of 2.7%, with maintenance of our gross margin, and a £2.5 million decrease in operating expenses; included in the period reported is the cost of £1.1 million related to payment of the profit share and cost of £0.2 million related to payment of performance related pay to Hobby centre managers. Costs remain a key area of focus.
After royalty income of £1.0 million (2012: £3.5 million) operating profit increased by £2.1 million to £21.3 million. On a constant currency basis, operating profit increased by £2.7 million to £21.8 million.
During the year, we continued with our retail store programme designed to improve our retail profitability and converted a further 82 stores to the one man format. This takes our total to 274 out of 412 stores (UK: 93, Continental Europe: 80, North America: 76, Australia: 22, Asia: 3). This programme will continue in 2013/14.
The sales and operating profits earned by the business over the last five years, split by half year, have been as follows:
During the year, the Group's core operating activities generated £25.5 million (2012: £19.6 million) of cash after tax payments. The Group also received cash of £1.1 million in respect of royalties in the year (2012: £3.4 million). After capital expenditure of £8.8 million (2012: £6.8 million) there were net funds at the year end of £13.9 million.
The term truly surplus cash is used as our measure of the scale of the funds available for distribution to shareholders. This term is not an IFRS measure and has been defined as the cash that is forecast to be left after making allowance for Hobby centre openings, regular capital expenditure and maintenance, investment in tooling, tax, plus a sum to ensure the business has sufficient working capital for its needs.
Inventory levels fell by £1.3 million in the year as we further optimised warehouse stock levels. Over the year capital additions have been as follows:
| 2013 | 2012 | |
|---|---|---|
| £m | £m | |
| Shop fits for new and existing Hobby centres | 1.2 | 0.8 |
| Production equipment and tooling | 2.7 | 2.9 |
| Computer equipment and software | 4.5 | 2.4 |
| Lenton site (infrastructure) | 0.4 | 0.7 |
| Total capital additions | 8.8 | 6.8 |
In the period reported we invested in shop fits: 46 new Hobby centres were opened and we refurbished 21 existing Hobby centres. During the year we continued with our phased replacement of production equipment, making investments in milling and injection moulding machines. Computer equipment includes £3.1 million of investment in our global web store. We expect that this investment will strengthen our internet sales capability and enable our web store to offer significantly enhanced customer service functionality.
During the year we followed our principle of returning truly surplus cash to shareholders and declared dividends of 18p per share in November 2012, 24p per share in February 2013 and 16p per share in May 2013 (2012: 63p). As before, shareholders are offered the opportunity automatically to reinvest their dividends in the Company's shares. The dividend reinvestment plan is a simple and costeffective way to increase holdings and is administered by our registrars Equiniti Limited.
The effective tax rate for the year was 23.7% (2012: 24.4%). We would expect a rate above that of businesses with activities based solely in the UK due to higher overseas tax rates, however, the rate remains below the UK corporation tax rate due to the release of provision for items now agreed with the tax authorities.
The objective of our treasury operation is the management of financial risk at optimal cost. The relationship with the Group's external credit facility provider is managed centrally. It operates within a range of board approved policies. No transactions of a speculative nature are permitted.
The Group finances its operations from shareholders' funds. The objective is to maintain an appropriate amount of reasonably priced funding for the Group's operational and strategic needs for the foreseeable future.
Net interest receivable for the year (excluding net foreign exchange gains and unwinding of discounts on provisions) was £176,000 (2012: £142,000). The need for protection against higher interest rates has been considered by the board and is not considered appropriate in the short term.
The principal exchange rates used to translate our earnings and the balance sheet are as follows:
| euro | US dollar | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| Year end rate used for the balance sheet | 1.17 | 1.24 | 1.52 | 1.54 |
| Average rate used for earnings | 1.22 | 1.17 | 1.57 | 1.59 |
We report our results in pounds sterling and the net impact in the year ended 2 June 2013 of these exchange rate fluctuations on our operating profit was a reduction of £0.6 million (2012: £0.2 million).
The geographical spread of the Group's activities means that there is an element of natural hedging in place against the transactional exposure to foreign currency exchange rate fluctuations. Translational exposures for the trading results of non-sterling denominated subsidiaries are not hedged.
Kevin Rountree COO 29 July 2013
The directors present their annual report together with the financial statements and independent auditors' report for the year ended 2 June 2013.
The principal activities of the Group are the design and manufacture of miniature figures and games and the retail and wholesale distribution of these products.
The CEO's commentary on pages 3 to 5 and the finance review on pages 6 to 7 provide a review of the business and progress against its key performance indicators during the year and descriptions of possible future developments and the principal risks and uncertainties facing the Group (page 7 of the finance review and pages 4 and 5 of the CEO's commentary). Policies on employees, the environment and social and community issues form part of this directors' report. This review contains or cross references the information required by section 417 of the Companies Act 2006.
The following interests in 3% or more of the issued share capital of the Company as at 26 July 2013 have been disclosed to the Company:
| No. of shares | % | |
|---|---|---|
| The Nomad Investment Partnership LP | 3,450,545 | 10.9 |
| Investec Asset Management Limited | 3,087,765 | 9.7 |
| Ruffer LLP | 2,492,260 | 7.9 |
| Phoenix Asset Management Partners Limited | 1,865,218 | 5.9 |
| FIL Limited | 1,753,900 | 5.5 |
| Legal & General | 1,683,901 | 5.3 |
| Artemis Investment Management LLP | 1,620,001 | 5.1 |
The Company has not been notified of any other substantial shareholdings other than those of the directors, which are disclosed in the remuneration report on page 17.
The present directors of the Company are listed on page 20. All of the directors were members of the board throughout the year and up to the date of signing the financial statements. M N Wells resigned from the board on 31 January 2013.
Under the Company's articles of association one third of the directors are required to retire by rotation at each annual general meeting. Those who retire are the longest in office since their election or last re-election. Under this formula, at this year's annual general meeting, T H F Kirby is seeking re-election. In addition, as a result of their long service, independent directors C J Myatt and N J Donaldson are required to retire and are seeking re-election. In relation to the independent directors, the chairman has confirmed that, following formal performance evaluation, the performance of C J Myatt and N J Donaldson continues to be effective and they continue to demonstrate commitment to their roles as independent directors, including commitment of the necessary time to board and committee meetings and other duties. C J Myatt and N J Donaldson are considered by the board to be independent of the Group, as set out in the corporate governance report.
The interests of the directors in the shares of the Company, together with details of share options granted to the directors, are disclosed in the remuneration report on pages 17 and 18. None of the directors had a material interest in any contract of significance to which the Company, or any of its subsidiaries, was a party during the year.
The Company has made qualifying third party indemnity provisions for the benefit of its directors, as permitted by section 234 of the Companies Act 2006, which were in force during the year and up to 29 July 2013.
T H F Kirby (age 63), chairman and acting CEO. Tom Kirby joined Games Workshop in April 1986 as general manager and led the management buy-out in December 1991, becoming chief executive at that time. Between 1998 and 2000 he took on the role of nonexecutive chairman, returning to the role of chief executive in September 2000. He performed the role of chairman from December 2007 to January 2013 when he became chairman and acting CEO. Prior to joining Games Workshop, Tom worked for six years for a distributor of fantasy games in the UK and was previously an Inspector of Taxes.
K D Rountree (age 43), COO. Kevin Rountree joined Games Workshop in March 1998 as assistant group accountant. He then had various management roles within Games Workshop, including head of sales for the Other Activities division (including Black Library, licensing and Sabertooth Games). During the year ended 29 May 2011, he took on the responsibility of managing the Group's service centres globally. To reflect this, his title was changed to chief operating officer from chief financial officer. He, however, still retains responsibility for all financial matters within Games Workshop. He qualified as a chartered management accountant in August 2001. Prior to joining Games Workshop, Kevin was the management accountant at J Barbour & Sons Limited and trained at Price Waterhouse.
C J Myatt (age 69). Chris Myatt is the senior independent director, joining the board on 18 April 1996. He is a director of the Douglas Macmillan Hospice and was formerly a divisional managing director within Tarmac PLC.
N J Donaldson (age 59). Nick Donaldson was appointed to the board on 18 April 2002. A barrister by profession, Nick is a partner of London Bridge Capital Limited. Nick was, until 2003, head of corporate finance at Arbuthnot Securities Limited and previously held senior investment banking positions at Robert W Baird Limited and at Credit Lyonnais Securities. He is chairman of DP Poland PLC and a director of The Fulham Shore plc.
As at 26 July 2013, the Company's authorised share capital was £2,100,000 divided into 42,000,000 ordinary shares of 5p each nominal value ('ordinary shares'). On 26 July 2013 there were 31,732,576 (2012: 31,588,534) ordinary shares in issue. These ordinary shares are listed on the London Stock Exchange. All ordinary shares rank equally with respect to voting rights and the right to receive dividends. Shares acquired through the Company's share schemes rank pari passu with the shares in issue and have no special rights. The holders of ordinary shares are entitled to receive the Company's annual report; to attend and speak at general meetings of the Company; to appoint proxies and to exercise voting rights. There are no restrictions on transfer or limitations on the holding of any class of share and no requirements for prior approval of any transfers. The directors may refuse to register a transfer of shares if there is a failure to comply with certain requirements of the Company's articles of association. None of the shares carries any special rights with regard to control of the Company.
In accordance with the Company's articles of associations, each share (other than those held in treasury) entitles the holder to one vote at general meetings of the Company on votes taken on a poll. On a show of hands at a meeting, every member present in person or by one or more proxies and entitled to vote has one vote. Unless the directors decide otherwise, if a shareholder is given notice that he has failed to provide information required in relation to any shares pursuant to a notice under section 793 of the Companies Act 2006, that member will be unable to vote on those shares both in a general meeting and at a meeting of the shareholders of that class. If such shareholder holds more than 0.25% of the issued shares of a class (excluding treasury shares) and is in default of a section 793 notice, the directors may also state in the notice that: (i) the payment of any dividend shall be withheld; and (ii) that there can be no transfer of the shares held by such shareholder.
Subject to the provision of law, the Company may by ordinary resolution declare a dividend to be paid to the members according to their respective rights and interest, but no dividend may exceed the amount recommended by the directors. The directors may also declare and pay interim dividends. Subject to shareholder approval, the directors may pay dividends by issuing shares credited as fully paid up in lieu of cash dividends. If dividends remain unclaimed for 12 years they are forfeited and revert to the Company.
A director appointed by the board holds office only until the next annual general meeting ('AGM'). At each AGM one third of the directors will retire by rotation and be eligible for re-election. The directors to retire will be those who wish to retire and those who have been longest in office since their last appointment or re-appointment.
The rules about the appointment and replacement of directors are contained in the Company's articles of association. The Company's articles of association state that a director may be appointed by an ordinary resolution of the shareholders or by the directors, either to fill a vacancy or as an addition to the existing board but so that the total number of directors does not exceed the maximum number of directors allowed pursuant to the Company's articles of association. The Company's articles of association do not currently specify a maximum number of directors. The Company may by ordinary resolution remove a director from the board of directors.
The Company's articles of association also state that the board of directors is responsible for the management of the business of the Company and in doing so may exercise all the powers of the Company subject to the provision of relevant legislation and the Company's constitutional documentation. The powers of the directors set out in the Company's articles of association include those in relation to the issue and buy-back of shares.
Changes to the articles of association must be approved by the shareholders in accordance with the legislation in force from time to time.
As at 2 June 2013, the Company had an unexpired authority to repurchase shares up to a maximum of 4,706,691 shares. During the year no shares were purchased in the market for cancellation.
The Company does not have agreements with any director or employee that would provide compensation for loss of office or employment resulting from a takeover, except that the provisions of the Company's sharesave scheme may cause options to be exercised on a takeover.
The chairmen of the audit, the City and the remuneration and nomination committees will be available to answer questions at the annual general meeting. Separate resolutions are proposed for substantially separate issues at the meeting and the chairman of the Company will declare the number of proxy votes received both for and against each resolution. Details of the resolutions that are being proposed at the annual general meeting are detailed below:
This is a resolution to lay before shareholders the annual report in respect of the year ended 2 June 2013.
It is the Company's policy for all directors to retire at least every three years and to stand for re-election. T H F Kirby will retire and stand for re-election as a director at this meeting. In addition, as C J Myatt and N J Donaldson are independent directors who have served longer than nine years they are subject to annual re-election. Having considered the performance of and contribution made by each of the directors standing for re-election, the board remains satisfied that the performance of each of the relevant directors continues to be effective and to demonstrate commitment to the role and as such recommends their re-election. Brief biographical details of all directors standing for re-election are included on pages 8 and 9.
The remuneration report is in the 2013 annual report. Shareholders will be invited to approve the remuneration report.
This resolution deals with the directors' authority to allot Relevant Securities (as defined in the resolution) in accordance with section 551 of the Companies Act 2006 (the 'Act'). The maximum nominal amount of Relevant Securities which may be allotted under this resolution is £523,587 which represents approximately 33% of the Company's issued ordinary shares as at 26 July 2013. As at close of business on 26 July 2013, the Company did not hold any treasury shares. The authority granted by this resolution will expire on 17 December 2014 or, if earlier, the date of the next annual general meeting of the Company. The directors have no present intention to exercise this authority.
This resolution will give the directors power, pursuant to the authority to allot granted by resolution 7, to allot equity securities (as defined by section 560 of the Act) or sell treasury shares for cash without first offering them to existing shareholders in proportion to their existing holdings up to a maximum nominal amount of £79,331 which represents approximately 5% of the Company's issued ordinary shares as at 26 July 2013. In compliance with the guidelines issued by the Pre-emption Group, the directors will ensure that no more than 7.5% of the issued ordinary shares (excluding treasury shares) will be allotted for cash on a non pre-emptive basis over a rolling three year period unless shareholders have been notified and consulted in advance. The resolution also enables the Company, in event of a rights issue or open offer, to overcome certain practical difficulties which may arise in connection with fractional entitlements, or in respect of overseas shareholders as a result of local laws and which prevent shares from being issued on a strict pro rata basis. The power granted by this resolution will expire on 17 December 2014 or, if earlier, the date of the next annual general meeting of the Company. The directors have no present intention to exercise this authority.
This resolution seeks authority for the Company to make market purchases of its ordinary shares and is proposed as a special resolution. If passed, the resolution gives authority for the Company to purchase up to 4,728,153 of its ordinary shares, representing 14.9% of the Company's issued ordinary share capital as at 26 July 2013. The resolution specifies the minimum and maximum prices which may be paid for any ordinary shares purchased under this authority. The authority will expire on the earlier of 17 December 2014 and the Company's 2014 annual general meeting. The directors do not currently have any intention of exercising the authority granted by this resolution. The directors will only exercise the authority to purchase ordinary shares where they consider that such purchases will be in the best interests of shareholders generally. The Company may either cancel any shares it purchases under this authority or transfer them into treasury (and subsequently sell or transfer them out of treasury or cancel them).
On 2 June 2013, the total number of options to subscribe for ordinary shares in the Company amounted to 524,188 (2012: 556,008). This represented 1.7% of the Company's issued ordinary share capital on that date. If this authority to purchase shares was exercised in full the options would represent 1.9% of the issued ordinary share capital as at 2 June 2013. The Company does not have any outstanding share warrants.
Electronic Proxy Appointment ('EPA') is available for this year's AGM. EPA enables shareholders to lodge their proxy appointment by electronic means via a website provided by the Company's registrar, Equiniti Limited, at www.sharevote.co.uk. Further details can be found in the notes to the notice of meeting.
As at 29 July 2013, so far as each director is aware, there is no relevant audit information of which the auditors are unaware and each director has taken all steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the auditors are aware of that information.
The Company's statement on corporate governance is included in the corporate governance report on pages 13 to 15.
The Company's policy on financial risk management is detailed in note 21 to the accounts.
Games Workshop aims to make the best fantasy miniatures in the world without adversely affecting anyone's safety or health. Our health and safety policy has been restated in plainer English, committing us to the following objectives:
We require all staff to promote these objectives at all times and they apply worldwide.
The number of reported minor accidents increased in the year (40 in 2012/13 versus 36 in 2011/12) as reporting and awareness was further improved and encouraged. 21 of the management team successfully completed the IOSH Managing Safely course and the next 12 months will see all relevant front line managers attending this course.
Games Workshop recently purchased 1,950 user licences for e-training in safety courses that are being implemented throughout the Nottingham site and UK retail stores.
Energy efficient lighting systems have been installed throughout the Nottingham and Memphis sites, and we have started to replace end of life air conditioning systems with much more energy efficient evaporative cooling systems in Nottingham wherever possible. Overall electricity usage at our Nottingham headquarters and manufacturing base diminished by 4% in the year, as shown below:
Our Shanghai production facility was closed in 2012 and production was consolidated to Nottingham. Electricity prices per unit in the UK increased rapidly again (up by 8% in 2012/13) so more energy efficient systems and a focus on managing consumption will continue in 2013/14.
Games Workshop will continue its policy of not recharging employees the Workplace Parking Levy (which increased by 16% in April 2013 to £334 per year for each used workplace parking space). We continue to promote our cycle to work scheme, and in the Nottingham City Council backed workplace transport challenge (April-June 2013) aimed at encouraging cyclists and walkers, Games Workshop had the most participants (100 employees) of any Nottingham employer.
Under the Greenhouse Gas Emissions Regulations 2013 (coming into force from 1 October 2013) and enforced under the Companies Act 2006, we are working toward fulfilling our duty to report on greenhouse gas emissions from activities for which we are responsible and have purchased some software to record accurately our greenhouse gas emissions.
In 2012/13 we sent 65% of our waste by weight from our Nottingham site for re-use or recycling (2012: 75%). 35% of our waste was sent for heat recovery at the Nottingham City Council incinerator (2012: 25%).
Employees continue to carry out fund raising events for their chosen charities. Although we have decided that we will no longer make cash donations to charities, we are fully supportive of the work our employees do. We continue to donate old mobile phones and toner cartridges to charitable organisations.
No contributions are made to political parties.
The Group's policy is to consult and discuss with employees, at meetings, matters likely to affect employees' interests. Information on matters of concern to employees is given through information bulletins and reports which seek to achieve a common awareness on the part of all employees of the financial and economic factors affecting the Group's performance.
The Group operates an employee sharesave scheme as a means of further encouraging the involvement of employees in the Group's performance.
The Group's policy is to consider, for recruitment, disabled workers for those vacancies that they are able to fill. All necessary assistance with training courses is given. Once employed, a career plan is developed so as to ensure suitable opportunities for each disabled person. Arrangements are made, wherever possible, for retraining employees who become disabled, to enable them to perform work identified as appropriate to their aptitudes and abilities.
The Group's policy is to aim to source and manage our suppliers in ways that are ethically feasible. This includes review of all key suppliers for certain standards of, amongst other things, health and safety, working hours, levels of wages and employment practices.
The Company does not follow any code of practice or standard regarding payment of suppliers but seeks to agree the payment terms of suppliers prior to the placing of business and it is the Company's policy to settle liabilities prior to the due date. The number of days credit taken by the Group from its suppliers at the year end was 36 days (2012: 38 days). There are no contractual or other arrangements in place which are essential to the business.
The Group does not undertake research activities. Development activities relate to the development of new product lines. The charge to the income statement for the year in respect of development activities is detailed in note 8 to the financial statements.
After making appropriate enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Group's and Company's financial statements.
R F Tongue Company Secretary 29 July 2013
The Listing Rules of the Financial Conduct Authority require listed companies to disclose, in relation to section 1 of the UK Corporate Governance Code 2010 (the Code), how they have applied its principles and whether they have complied with its provisions throughout the accounting period. The UK Corporate Governance Code can be found at http://www.frc.org.uk.
This statement, together with the remuneration report on pages 16 to 18, explains how the Company has applied the principles and complied with the provisions set out in the Code.
The board operates through monthly meetings which senior executives attend on a regular basis. Major strategic decisions and the approval of any significant capital expenditure are reserved for decision by the board. The board is updated of operational decisions through the monthly meetings. Terms of reference for the board committees (as set out below) are available on the Company's website.
Detailed reviews of the performance of the Group's main business activities are included in the CEO's commentary and the finance review. The board presents these reviews, together with the directors' report on pages 8 to 12, to give a balanced and understandable assessment of the Group's position and prospects.
The board comprises the chairman and acting CEO, the COO and two independent directors. It is chaired by the chairman and acting CEO, T H F Kirby. This arrangement does not comply with provision A.2.1 of the Code, which states that the roles of chairman and chief executive should not be exercised by the same person.
On 18 January 2013, the Company announced that M N Wells, the Company's CEO for five years, was stepping down from that role and that, pending the appointment of a new CEO, the chairman, T H F Kirby, would be chairman and acting CEO.
Before concluding that this interim arrangement was in the best interests of the Company and the shareholders as a whole, the board considered carefully the existing division of responsibilities between the chairman and the CEO and the likely requirements of the Company in the future, in terms of leadership, to underpin and promote its successful development. The Company's remuneration and nomination committee discussed the matter and came to the unanimous conclusion that the interim arrangement described above was appropriate.
The senior independent director is C J Myatt. The senior independent director is the lead independent director. His principal responsibilities include:
The two independent directors have a breadth of successful commercial and professional experience and are considered by the board to be independent of the Group. The Code states that the board should identify each independent director it considers to be independent, and the Code then lists various circumstances which may appear relevant to its determination. This includes (amongst others) if the director has served on the board for more than nine years.
At Games Workshop the board has had to confront one of these circumstances, as both of the independent directors have served for more than nine years.
In making this assessment as to independence, the board has taken into account the personal attributes of each director in relation to the current and future needs of the board. In the opinion of the board, independence (like judgement and wisdom) is not an attribute which can be measured by reference to a checklist. It is rather an attribute which the members of the board can observe being demonstrated by a director in his actions and interactions with other members of the board as it faces the various issues which are placed before it. Independence is the absence of complacency, lazy thinking and acceptance of the status quo.
Regarding the specific Code circumstance of service of over nine years, the board's position is as follows:
The 'nine year rule' is a helpful guide to the risk of directors becoming 'stale'. The board considers this risk periodically, but has not yet found it to be an issue at Games Workshop. If it did, it would react accordingly. At present the board feels that the requirement for members of the board to have a real understanding of, and empathy with, the Games Workshop Hobby to be a point in favour of retaining the experience which the board currently has.
Based upon its assessment, which focuses on each director's attitude towards making his best contribution to the progress of the Company, the board considers that both of the independent directors are independent.
The board operates primarily through its monthly meetings and is responsible for leading and controlling the Group and monitoring executive management. It meets at least nine times a year. In 2012/13 the board and its committees had 10 scheduled meetings, each of which was attended by all members of the board.
All directors bring an independent judgement to bear on issues of strategy, performance, resources (including key appointments) and standards of conduct. The board considers that it has been supplied with sufficient timely and accurate information to enable it to discharge its duties.
All members of the board have access to the services and advice of the Company secretary. There is a procedure for directors to take independent professional advice at the Company's expense where relevant to the execution of their duties. The executive directors attach great importance to ensuring that the independent directors are provided with accurate, timely and clear information on the Group. In addition, the independent directors are actively encouraged to update continually their knowledge of and familiarity with the Group and the issues affecting it, so as to enable them to fulfil effectively their roles on both the board and its committees.
The board has established a process for the ongoing assessment of its own performance and that of its committees. In 2011/12 this review was conducted by way of private discussions, based upon a bespoke questionnaire, between the head of the Games Workshop Academy and a selection of internal and external stakeholders. These include the directors, senior managers, external advisers and shareholders. The results of the discussions were shared with the board. This will be an iterative process which will inform the board's development agenda on a regular basis.
The board has three principal committees, all with written terms of reference which are published on the Company's website and which are available on application to the Company secretary at the Company's registered office. The Company secretary serves as secretary to all three committees. The chairmen of the audit, the City and the remuneration and nomination committees will be available to answer questions at the Company's annual general meeting.
The audit committee comprises the two independent directors under the chairmanship of C J Myatt, who is a chartered management accountant and has significant relevant financial and accounting knowledge and experience. The audit committee's terms of reference include monitoring the appropriateness of accounting policies, financial reporting, internal control and risk assessment and keeping under review the scope, results and effectiveness of the external and internal audits and the independence of the Company's external auditors.
The committee reviews the independence of the external auditors by assessing the arrangements for the day to day management of the audit relationship as well as reviewing the auditors' report which describes their procedures for identifying and reporting conflicts of interest. To maintain the auditors' independence, the committee has also established the policy that the primary role of the external auditors is to perform services directly related to their audit responsibilities. The Group uses other advisers for taxation advice and other services. The audit fees are disclosed in note 8.
During the year, in discharging its duties, the audit committee undertook the following actions:
The committee calls upon the external auditors, the internal auditors and the executive directors to attend formal meetings as required. These meetings are held at least three times a year. The external and internal auditors are given the opportunity to raise any matters or concerns they may have in the absence of the executive directors at separate meetings with the audit committee or its chairman. The audit committee held four meetings during the year, each of which was attended by all members of the committee.
The audit committee considers the reappointment of the external auditors each year, as well as remuneration and other terms of engagement. PricewaterhouseCoopers LLP have acted as external auditors of the Group since the 2005 year end, which was the last time the external audit process was put out to tender. There are no contractual obligations which restrict the choice of external auditors.
The City committee comprises the independent directors and is chaired by N J Donaldson. It normally meets at least twice a year and is responsible for corporate governance, investor relations, City presentations and liaison with City advisers. The City committee held two meetings during the year, each of which was attended by all members of the committee.
The remuneration and nomination committee comprises the independent directors and is chaired by N J Donaldson. It normally meets at least twice a year and is responsible for making recommendations to the board on remuneration policy for senior executives and all executive directors (including determining specific remuneration packages, terms of employment and performance incentive arrangements). It is also responsible for nominating, for approval by the board, candidates for appointment to the board, and for vetting and approving the appointment of senior executives. The procedures and guidelines used by the remuneration and nomination committee in determining remuneration are outlined in the separate remuneration report. The remuneration and nomination committee held two meetings in the year, which were attended by all members of the committee. The committee meets without the executive directors at least annually to appraise the executive directors' performance.
The directors recognise that they have overall responsibility for ensuring that the Group maintains a sound system of internal control to safeguard shareholders' investment and the Group's assets, and for reviewing its effectiveness. The system is designed to manage risks that may prevent the Group from achieving its business objectives, rather than to eliminate these risks. However, even the most effective system can provide only reasonable, and not absolute, assurance against material misstatement or loss.
The directors have established an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which has been in place from the start of the year until the date of approval of this report. This process is regularly reviewed by the board throughout the period in accordance with the document 'Internal Control: Revised Guidance for Directors on the Combined Code' (the revised Turnbull guidance).
The effectiveness of the Group's system of internal control is continuously reviewed by the board. The review covers all material controls, including financial, operational and compliance controls and risk management. The monitoring of control procedures is achieved through regular review by the COO, reporting to the board. This review process considers whether significant risks have been identified, evaluated and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. Regular reporting by senior management ensures that, as far as possible, the controls and safeguards are being operated appropriately. This process is considered by the audit committee, alongside the external auditors' reports.
The Group has continued its programme of internal audit reviews during the year. The audit committee agrees an annual internal audit plan, focusing on business specific issues. Actions agreed by management in response to recommendations made are followed up.
The board, with advice from the audit committee, has completed its annual review of the system of internal control in accordance with the guidance as set out in the revised Turnbull guidance, and is satisfied that it has acted appropriately and in accordance with that guidance. During the course of its review of the system of internal control, the board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore a confirmation in respect of necessary actions is not considered appropriate.
The Company attaches great importance to its annual general meeting, which it considers to be the primary platform of communication between the Company and its shareholders. On a continuing basis the Company encourages two way communication with its institutional and private shareholders and responds promptly to queries received verbally, in writing or directly through its investor relations website investor.games-workshop.com.
The chairman and acting CEO and the COO are available to meet with major shareholders to update them on the Company's progress and to discuss any issues which shareholders may have. Any issues arising at such meetings are reported to and considered by the board.
The Company's policy on executive remuneration and details of the executive directors' salaries, profit share and pensions, and fees for the independent directors are set out in the board report on remuneration on pages 16 to 18.
During the year, the executive directors participated in the Company's profit share scheme which applies equally to all employees. The maximum bonus that can be earned is £1,000 per person.
With the exception of provision A.2.1, the Company has complied with all of the provisions set out in section 1 of the Code.
By order of the board
R F Tongue Company Secretary 29 July 2013
The committee comprises solely the independent directors, namely, N J Donaldson (chairman) and C J Myatt. T H F Kirby and K D Rountree present proposals as and when required and attend meetings at the committee's request. No external advisers are currently retained by the committee.
Throughout the year the Company complied with the provisions of the UK Corporate Governance Code relating to the design of performance-related remuneration for directors. In preparing this report the board has followed the provisions of the Code.
The remuneration of the independent directors is reviewed on an annual basis by the executive directors. A recommendation is made to the board which determines any increase in their remuneration. The independent directors are only entitled to fees and do not participate in any of the Company's profit share, pension or share schemes.
The overall policy for executive directors is set out below:
The fixed and variable related components of the remuneration packages for executive directors are as follows:
Salaries are reviewed annually and, in deciding the appropriate salary levels, the committee takes into consideration a number of factors, including the executive director's performance, his experience and responsibility. The committee also takes into consideration pay and employment conditions of employees elsewhere in the Group and in addition, from time to time, takes independent advice on salary benchmarking to assist in its review of remuneration packages of the executive directors. Salaries, excluding profit share, are pensionable.
During the year, the executive directors participated in a profit share scheme which applies equally to all employees. The maximum payment that can be earned is £1,000 per person (before tax). There will be profit share payments of £661 each in respect of 2012/13.
Each executive director was provided with private medical insurance to January 2013 when the benefit was bought out. T H F Kirby is also provided with fuel for his car.
Executive directors are only able to participate in the sharesave scheme which is available to all employees. There are no performance conditions relating to sharesave share options.
Each of the executive directors has a service agreement with the Company which is capable of termination by either party on giving 12 months' notice. If the Company gives notice then the Company reserves the right to pay salary in lieu of notice. The service agreements are silent regarding the payment that may be due in the event of early termination by the Company.
The service agreements are also capable of termination by the Company on giving three months' notice in the event of an executive director's absence for ill health in excess of 120 business days in any 12 month period. No compensation is payable in the event of termination of the agreement due to gross misconduct.
Contracts on this basis were entered into by T H F Kirby on 4 June 2009 and K D Rountree on 25 February 2009. The contracts are for an unlimited duration.
Under the service agreements of the independent directors, the period of appointment is one year and may be terminated by either party on giving six months' notice. The service agreements are also capable of termination by the Company on giving summary notice in the event of an independent director's absence in excess of six calendar months in any 12 month period. There is no entitlement to compensation for loss of office in the event of termination of the agreement. Agreements on this basis were entered into by C J Myatt and N J Donaldson on 16 July 2013. The effective date for both contracts was 1 April 2013.
The articles provide that at least one third of the directors be subject to re-election by rotation at each general meeting.
The graph below represents the comparative total shareholder return performance of the Company against that of the index of the FTSE small cap companies during the previous five years. The index of the FTSE small cap companies has been used because the constituents of this index most appropriately reflect the Company's size when compared to alternative indices.
The directors' interests (including their families) in the shares of the Company were as follows:
| As at | As at | |||
|---|---|---|---|---|
| 2 June 2013 | 3 June 2012 | |||
| ordinary shares | ordinary shares | |||
| of 5p each | of 5p each | |||
| Non | Non | |||
| Beneficial | beneficial | Beneficial | beneficial | |
| T H F Kirby | 2,106,009 | 25,385 | 2,098,009 | 25,385 |
| K D Rountree | 12,028 | - | 6,146 | - |
| C J Myatt | 66,500 | - | 66,500 | - |
| N J Donaldson | 20,000 | - | 20,000 | - |
The following sections of the remuneration report have been audited:
| Compensation | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Profit | Benefits | for loss of | Total | Total | Pension | Pension | |||
| Fees | Salary | share | in kind | office | emoluments | emoluments | contributions | contributions | |
| 2013 | 2013 | 2013 | 2013 | 2013 | 2013 | 2012 | 2013 | 2012 | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| Executive directors | |||||||||
| T H F Kirby M N Wells (until |
- | 352 | 1 | 5 | - | 358 | 378 | 35 | 35 |
| resignation) | - | 177 | - | 2 | 569 | 748 | 268 | 26 | 39 |
| K D Rountree | - | 202 | 1 | 11 | - | 214 | 203 | 24 | 24 |
| Independent directors | |||||||||
| C J Myatt | 50 | - | - | - | - | 50 | 50 | - | - |
| N J Donaldson | 42 | - | - | - | - | 42 | 42 | - | - |
| 92 | 731 | 2 | 18 | 569 | 1,412 | 941 | 85 | 98 |
In addition, Mrs K Kirby received £73,620 (2012: £38,815) during the year from the Group for her work as an IT consultant/head of IT. During the year Mrs Kirby was appointed as interim head of IT for the Group.
The Company contributes into a self invested personal pension scheme for T H F Kirby. The Company contributes into the Group's personal pension scheme for K D Rountree. These are defined contribution schemes and so the Company's contributions set out above reflect the full cost during the year of providing pension benefits to these directors.
Share options granted to the directors were as follows:
| Number as at | Exercise dates | Exercise | ||||
|---|---|---|---|---|---|---|
| At 3 June 2012 | Lapsed | 2 June 2013 | Commencement | Expiry | price | |
| K D Rountree | 2,513 | - | 2,513 | Nov-14 | Apr-15 | 358p |
| T H F Kirby | 2,641 | - | 2,641 | Nov-13 | Apr-14 | 340.7p |
| M N Wells | 2,513 | (2,513) | - | Nov-14 | Apr-15 | 358p |
The options above were granted under the Games Workshop Group PLC 2005 Savings-Related Share Option Scheme. This scheme is open to all eligible employees and directors who satisfy a service qualification of at least three months.
There were no other movements in directors' share options during the year. No other directors have been granted share options in the shares of the Company.
On 5 July 2013, K D Rountree acquired 246 of the Company's shares under the Company's dividend reinvestment plan. This is the only movement in directors' interests in shares of the Company between 2 June 2013 and the date of this report.
The mid-market price of the Company's shares on 2 June 2013 was 717.5p (3 June 2012: 562.5p) and the range of the market prices during the year was 562.5p to 742p (2012: 405p to 580p).
Apart from the interests disclosed above, no directors had any interest at any time in the year in the share capital of the Company or other Group companies.
Chairman Remuneration and nomination committee 29 July 2013
The directors are responsible for preparing the annual report, the remuneration report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under Company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.
In preparing these financial statements, the directors are required to:
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements and the remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the directors, whose names and functions are listed on page 20, confirms that, to the best of his knowledge:
By order of the board
R F Tongue Company Secretary 29 July 2013
T H F Kirby, chairman and acting chief executive officer K D Rountree, chief operating officer C J Myatt, senior independent director N J Donaldson, independent director M N Wells, chief executive officer (to 31 January 2013)
R F Tongue
Registered office Willow Road, Lenton, Nottingham, NG7 2WS
Registered number 2670969
Financial advisers and stockbrokers Peel Hunt LLP, Moor House, 120 London Wall, London, EC2Y 5ET
Principal bankers Bank of Scotland, 2 nd Floor, 125 Colmore Row, Birmingham, B3 3SF
PricewaterhouseCoopers LLP, Donington Court, Pegasus Business Park, Castle Donington, East Midlands, DE74 2UZ
Equiniti Limited, Aspect House, Spencer Road, Lancing, BN99 6DA
Browne Jacobson, Victoria Square House, Victoria Square, Birmingham, B2 4BU
We have audited the financial statements of Games Workshop Group PLC for the period ended 2 June 2013 which comprise the consolidated income statement, the consolidated and Company statements of comprehensive income and expense, the consolidated and Company balance sheets, the consolidated and Company statements of changes in total equity, the consolidated and Company cash flow statements and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the Company financial statements as applied in accordance with the provisions of the Companies Act 2006.
As explained more fully in the directors' responsibilities statement set out on page 19, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's and the parent Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
In our opinion:
In our opinion:
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review:
Mark Smith(Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Independent Auditors East Midlands 29 July 2013
| Restated* | |||
|---|---|---|---|
| 52 weeks ended | 53 weeks ended | ||
| 2 June 2013 | 3 June 2012 | ||
| Notes | £000 | £000 | |
| Revenue | 3 | 134,597 | 131,009 |
| Cost of sales | (36,243) | (34,820) | |
| Gross profit | 98,354 | 96,189 | |
| Operating expenses | 4 | (78,125) | (80,586) |
| Other operating income - royalties receivable | 1,025 | 3,537 | |
| Operating profit | 3 | 21,254 | 19,140 |
| Finance income | 6 | 176 | 434 |
| Finance costs | 7 | (35) | (100) |
| Profit before taxation | 8 | 21,395 | 19,474 |
| Income tax expense | 9 | (5,077) | (4,760) |
| Profit attributable to owners of the parent | 27 | 16,318 | 14,714 |
Earnings per share for profit attributable to the owners of the parent during the period (expressed in pence per share):
| Basic earnings per ordinary share | 11 | 51.5p | 46.8p |
|---|---|---|---|
| Diluted earnings per ordinary share | 11 | 51.2p | 46.6p |
| 52 weeks ended | Group | Company | ||
|---|---|---|---|---|
| 53 weeks ended | 52 weeks ended | 53 weeks ended | ||
| 2 June 2013 | 3 June 2012 | 2 June 2013 | 3 June 2012 | |
| £000 | £000 | £000 | £000 | |
| Profit attributable to owners of the parent | 16,318 | 14,714 | 17,050 | 19,235 |
| Other comprehensive income and expense | ||||
| Exchange differences on translation of foreign operations | 445 | (298) | - | - |
| Other comprehensive income and expense for the period | 445 | (298) | - | - |
| Total comprehensive income attributable to owners of the parent | 16,763 | 14,416 | 17,050 | 19,235 |
As permitted by section 408 of the Companies Act 2006, the Company's income statement has not been included in these financial statements.
The notes on pages 27 to 52 are an integral part of these financial statements.
*Prior periods have been restated to reflect a change in the classification of product design and development costs within the income statement with effect from 29 May 2011 (see note 10).
| Group | Company | ||||
|---|---|---|---|---|---|
| 2 June 2013 | 3 June 2012 | 2 June 2013 | 3 June 2012 | ||
| Notes | £000 | £000 | £000 | £000 | |
| Non-current assets | |||||
| Goodwill | 13 | 1,433 | 1,433 | - | - |
| Other intangible assets | 14 | 8,033 | 5,177 | - | - |
| Property, plant and equipment | 15 | 20,604 | 20,567 | - | - |
| Investments in subsidiaries | 16 | - | - | 30,584 | 30,584 |
| Trade and other receivables | 19 | 1,638 | 1,529 | 3,900 | 3,900 |
| Deferred tax assets | 17 | 7,221 | 7,335 | 5 | 6 |
| 38,929 | 36,041 | 34,489 | 34,490 | ||
| Current assets | |||||
| Inventories | 18 | 8,170 | 9,477 | - | - |
| Trade and other receivables | 19 | 10,864 | 11,068 | 1,142 | 1,207 |
| Current tax assets | 524 | 407 | - | - | |
| Cash and cash equivalents | 20 | 13,931 | 17,358 | 5,727 | 5,932 |
| 33,489 | 38,310 | 6,869 | 7,139 | ||
| Total assets | 72,418 | 74,351 | 41,358 | 41,629 | |
| Current liabilities | |||||
| Trade and other payables | 22 | (19,637) | (19,603) | (5,801) | (5,332) |
| Current tax liabilities | (2,863) | (3,479) | - | - | |
| Provisions | 24 | (946) | (1,172) | (9) | (2) |
| (23,446) | (24,254) | (5,810) | (5,334) | ||
| Net current assets | 10,043 | 14,056 | 1,059 | 1,805 | |
| Non-current liabilities | |||||
| Other non-current liabilities | 23 | (360) | (301) | - | - |
| Provisions | 24 | (758) | (1,189) | - | (8) |
| (1,118) | (1,490) | - | (8) | ||
| Net assets | 47,854 | 48,607 | 35,548 | 36,287 | |
| Capital and reserves | |||||
| Called up share capital | 25 | 1,586 | 1,579 | 1,586 | 1,579 |
| Share premium account | 25 | 9,059 | 8,737 | 9,059 | 8,737 |
| Other reserves | 26 | 2,888 | 2,443 | 101 | 101 |
| Retained earnings | 27 | 34,321 | 35,848 | 24,802 | 25,870 |
| Total equity | 47,854 | 48,607 | 35,548 | 36,287 |
The notes on pages 27 to 52 are an integral part of these financial statements.
The financial statements on pages 23 to 52 were approved by the board of directors on 29 July 2013 and were signed on its behalf by:
T H F Kirby, Director
K D Rountree, Director
Registered number 2670969
| Share | Retained | ||||
|---|---|---|---|---|---|
| Called up | premium | Other reserves | earnings | Total | |
| share capital | account | (note 26) | (note 27) | equity | |
| £000 | £000 | £000 | £000 | £000 | |
| At 29 May 2011 and 30 May 2011 | 1,561 | 8,048 | 2,741 | 40,777 | 53,127 |
| Profit for the 53 weeks to 3 June 2012 | - | - | - | 14,714 | 14,714 |
| Exchange differences on translation of foreign operations | - | - | (298) | - | (298) |
| Total comprehensive (expense)/income for the period | - | - | (298) | 14,714 | 14,416 |
| Transactions with owners: | |||||
| Share-based payments | - | - | - | 254 | 254 |
| Shares issued under employee sharesave scheme | 18 | 689 | - | - | 707 |
| Deferred tax charge relating to share options | - | - | - | (67) | (67) |
| Dividends to Company shareholders | - | - | - | (19,830) | (19,830) |
| Total transactions with owners | 18 | 689 | - | (19,643) | (18,936) |
| At 3 June 2012 and 4 June 2012 | 1,579 | 8,737 | 2,443 | 35,848 | 48,607 |
| Profit for the 52 weeks to 2 June 2013 | - | - | - | 16,318 | 16,318 |
| Exchange differences on translation of foreign operations | - | - | 445 | - | 445 |
| Total comprehensive income for the period | - | - | 445 | 16,318 | 16,763 |
| Transactions with owners: | |||||
| Share-based payments | - | - | - | 286 | 286 |
| Shares issued under employee sharesave scheme (note 25) | 7 | 322 | - | - | 329 |
| Deferred tax credit relating to share options | - | - | - | 41 | 41 |
| Corporation tax credit relating to exercised share options | - | - | - | 232 | 232 |
| Dividends to Company shareholders | - | - | - | (18,404) | (18,404) |
| Total transactions with owners | 7 | 322 | - | (17,845) | (17,516) |
| At 2 June 2013 | 1,586 | 9,059 | 2,888 | 34,321 | 47,854 |
| Share | Capital | ||||
|---|---|---|---|---|---|
| Called up | premium | redemption | Retained | Total | |
| share capital | account | reserve | earnings | equity | |
| £000 | £000 | £000 | £000 | £000 | |
| At 29 May 2011 and 30 May 2011 | 1,561 | 8,048 | 101 | 26,211 | 35,921 |
| Profit for the 53 weeks to 3 June 2012 | - | - | - | 19,235 | 19,235 |
| Total comprehensive income for the period | - | - | - | 19,235 | 19,235 |
| Transactions with owners: | |||||
| Share-based payments | - | - | - | 254 | 254 |
| Shares issued under employee sharesave scheme | 18 | 689 | - | - | 707 |
| Dividends to Company shareholders | - | - | - | (19,830) | (19,830) |
| Total transactions with owners | 18 | 689 | - | (19,576) | (18,869) |
| At 3 June 2012 and 4 June 2012 | 1,579 | 8,737 | 101 | 25,870 | 36,287 |
| Profit for the 52 weeks to 2 June 2013 | - | - | - | 17,050 | 17,050 |
| Total comprehensive income for the period | - | - | - | 17,050 | 17,050 |
| Transactions with owners: | |||||
| Share-based payments | - | - | - | 286 | 286 |
| Shares issued under employee sharesave scheme | 7 | 322 | - | - | 329 |
| Dividends to Company shareholders | - | - | - | (18,404) | (18,404) |
| Total transactions with owners | 7 | 322 | - | (18,118) | (17,789) |
| At 2 June 2013 | 1,586 | 9,059 | 101 | 24,802 | 35,548 |
The notes on pages 27 to 52 are an integral part of these financial statements.
| Group | Company | ||||
|---|---|---|---|---|---|
| 52 weeks ended | 53 weeks ended | 52 weeks ended | 53 weeks ended | ||
| 2 June 2013 | 3 June 2012 | 2 June 2013 | 3 June 2012 | ||
| Notes | £000 | £000 | £000 | £000 | |
| Cash flows from operating activities | |||||
| Cash generated from operations 28 |
31,908 | 28,034 | 17,750 | 19,453 | |
| UK corporation tax paid | (4,291) | (4,476) | - | - | |
| Overseas tax paid | (976) | (532) | - | - | |
| Net cash from operating activities | 26,641 | 23,026 | 17,750 | 19,453 | |
| Cash flows from investing activities | |||||
| Purchases of property, plant and equipment | (5,361) | (4,822) | - | - | |
| Proceeds on disposal of property, plant and equipment 28 |
113 | 33 | - | - | |
| Purchases of other intangible assets | (3,398) | (1,626) | - | - | |
| Expenditure on product development | (3,531) | (2,977) | - | - | |
| Interest received | 176 | 142 | 90 | 9 | |
| Net cash from investing activities | (12,001) | (9,250) | 90 | 9 | |
| Cash flows from financing activities | |||||
| Proceeds from issue of ordinary share capital | 329 | 707 | 329 | 707 | |
| Repayments of borrowings by related parties | - | - | - | 220 | |
| Interest paid | (13) | - | - | - | |
| Dividends paid to Company shareholders | (18,381) | (14,776) | (18,381) | (14,776) | |
| Net cash from financing activities | (18,065) | (14,069) | (18,052) | (13,849) | |
| Net (decrease)/increase in cash and cash equivalents | (3,425) | (293) | (212) | 5,613 | |
| Opening cash and cash equivalents | 17,358 | 17,572 | 5,932 | 254 | |
| Effects of foreign exchange rates on cash and cash equivalents | (2) | 79 | 7 | 65 | |
| Closing cash and cash equivalents 20 |
13,931 | 17,358 | 5,727 | 5,932 |
The notes on pages 27 to 52 are an integral part of these financial statements.
Games Workshop Group PLC (the 'Company') and its subsidiaries (together the 'Group') designs and manufactures miniature figures and games and distributes these through its own network of Hobby centres, independent retailers and direct via the internet and mail order. The Group has manufacturing activities in the UK and sells mainly in Western Europe, North America and Asia Pacific.
The Company is a public listed company, incorporated and domiciled in the United Kingdom. The address of its registered office is Willow Road, Lenton, Nottingham, NG7 2WS, United Kingdom.
The Company's ordinary share capital is listed on the London Stock Exchange.
The principal accounting policies applied in these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.
These financial statements are prepared under the going concern basis and in accordance with International Financial Reporting Standards (IFRSs), International Financial Reporting Interpretations Committee (IFRIC) interpretations and Standing Interpretations Committee (SIC) interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to those companies reporting under IFRSs.
The consolidated financial statements are prepared in accordance with the historical cost convention, except for the measurement of certain financial instruments to their fair value.
The consolidated financial statements include the Company and its subsidiary undertakings drawn up for the 52 weeks ended 2 June 2013 and for the 53 weeks ended 3 June 2012. Subsidiaries are entities over which the Group has the power to govern the financial and operating policies and are fully consolidated from the date on which control is transferred to the Group.
Inter-company transactions, balances and unrealised gains and losses on transactions between group companies are eliminated on consolidation. Accounting policies of subsidiaries are consistent with the policies adopted by the Group. The financial statements of all subsidiaries are prepared to the same reporting date as the parent Company with the exception of the financial statements of Games Workshop Good Hobby (Shanghai) Commercial Co. Ltd which are prepared to 31 December. The management accounts of Games Workshop Good Hobby (Shanghai) Commercial Co. Ltd, prepared to 2 June 2013 and 3 June 2012 have been used for consolidation purposes.
Goodwill arising on acquisition of subsidiaries represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses. Provision is made for any impairment by comparing the value in use to the net carrying value. Goodwill is allocated to cash generating units for the purpose of impairment testing.
Goodwill arising on acquisitions prior to 31 May 1998 was written off to reserves in accordance with the accounting standard then in force. As permitted by the current accounting standard, the goodwill previously written off to reserves has not been reinstated in the balance sheet.
Costs incurred in respect of product design and development activities are recognised as intangible assets provided that a number of criteria are satisfied. These include the intention to use or sell the asset, technical feasibility, adequate resources being available to complete the development and probable future economic benefits being generated.
Product development costs recognised as intangible assets are amortised on a straight line basis over periods ranging between 6 and 48 months to match the expenditure incurred to the expected revenue generated from the subsequent product release.
Research expenditure is written off as incurred.
Acquired computer software licences and related development expenditure are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Computer software licences are held at cost and amortised over the expected useful lives of the assets concerned. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:
Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred.
Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. The principal annual amortisation rates are:
| % of cost | |
|---|---|
| Core business systems computer software | 15-33 |
| Website computer software | 20 |
| Other computer software | 33-50 |
Property, plant and equipment are stated at cost, net of accumulated depreciation and any provision for impairment. The cost of property, plant and equipment is their purchase cost, together with any incidental costs of acquisition.
Depreciation is calculated so as to write off the cost of property, plant and equipment, less any assigned residual value, on a straight line basis over the expected useful economic lives of the assets concerned and commences from the date the asset is available for use. The principal annual depreciation rates are:
| % of cost | |
|---|---|
| Freehold buildings | 2-4 |
| Plant and equipment and vehicles | 15-33 |
| Fixtures and fittings | 20-25 |
| Moulding tools | 25 |
Leasehold improvements are amortised over the period of the lease. Freehold land is not depreciated. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Trade receivables are recognised initially at fair value, which is typically the original invoice amount, and carried at amortised cost thereafter. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. The amount of the provision is recognised in the income statement immediately.
Finance costs are recognised as an expense in the period in which they are incurred.
Finance income is recognised as income in the period in which it is earned.
Leases in which a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The Group's commitment in respect of its Hobby centres is included within this category. Payments in respect of operating leases and any benefits received as an incentive to sign a lease, are charged or credited to the income statement on a straight line basis over the period of the entire lease term.
Finance leases which transfer to the Group substantially all the benefits and risks of ownership of an asset are treated as if the asset had been purchased outright. The assets are included in property, plant and equipment at the lower of the fair value of the leased property and the present value of minimum lease payments. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset's life and the lease term.
Inventories are valued at the lower of cost and net realisable value. Cost is determined using a standard costing method. In respect of finished goods, cost includes raw materials, direct labour, other direct costs and related production overheads based on a normal level of production. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Where necessary, provisions are made for obsolete, slow moving and defective inventories.
The consolidated financial statements are presented in sterling, which is the Company's functional and presentation currency. Items included in the financial statements of each of the Group entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency).
Monetary assets and liabilities expressed in currencies that are not the functional currency are translated into the functional currency at rates of exchange ruling at the balance sheet date.
The financial statements of overseas subsidiary companies prepared in functional currencies other than sterling are translated into sterling as follows:
For the purposes of the cash flow statement, cash and cash equivalents comprise deposits with banks and bank and cash balances, net of overdrafts. In the balance sheet, bank overdrafts are included in current financial liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
The Group operates an equity-settled employee sharesave scheme. Options are granted on an annual basis and are subject to either a two or three year service vesting condition. The fair value of the employee services received under the scheme, which is determined by use of the Black-Scholes Option Pricing Model, is recognised as an expense in the income statement with a corresponding increase in equity over the vesting period. At each balance sheet date, the Group revises its estimates of the number of share options that are expected to vest, with any revisions being recognised in the income statement. When an employee ceases saving and withdraws from the sharesave scheme, the remaining future charges in relation to the associated options are immediately recognised in the income statement.
The fair value of the employee services received under the scheme is recognised as an expense in the income statement of the subsidiary that benefits from the services.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
The Group operates defined contribution schemes and a group personal pension plan. Pension contributions are charged to the income statement as they accrue.
The costs of annual bonus schemes are charged to the income statement as they accrue.
The Group operates a long service incentive scheme under which employees receive a one off additional holiday entitlement of two weeks when they reach 10 years of employment (10 Year Veterans). The costs of these benefits are accrued over the period of employment based on expected staff retention rates and the anticipated future employment costs discounted to present value.
Shares and loans in subsidiary undertakings are stated at cost less provision for impairment.
Revenue, which excludes value added tax and sales between group companies, represents the invoiced value of goods supplied (net of trade discounts for sales to independent retailers). Revenue is recognised on dispatch of goods to the customer for sales via the global web store or mail order and for sales to independent retailers. This represents when the significant risks and rewards of ownership of the goods have transferred to the customer. For revenue earned through the Group's Hobby centres and for digital products, revenue is recognised at the point of sale. Revenue for magazine subscriptions is recognised on a straight line basis over the subscription period.
Revenue on goods sold to customers on a sale or return basis (which includes book sales) is recognised after making full provision for the level of expected returns, based on past experience. The level of returns is reviewed on a regular basis and the provision is amended accordingly. Revenue on a sale or return basis represents no more than 3% of consolidated revenue (2012: no more than 3%).
Royalty income is recognised in the income statement when it can be reliably measured by reference to the underlying licensee performance, after allowing for expected returns and price protection claims, as notified to the Group by the licensee and following validation of the amounts receivable by the Group. Cash received as guarantees and advances are deferred on balance sheet whilst it is considered probable that future royalty earnings will at least equal the amounts received. Such amounts are recognised in the income statement at the point at which they are earned as royalties. In the event that it is no longer considered probable that future royalty earnings will at least equal the guarantees and advances received, the guarantee and advance payments are taken to the income statement on a straight line basis over the remaining term of the licence agreement.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive directors.
The charge for current tax is based on the results for the period as adjusted for items which are non-assessable or disallowed. It is calculated using rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the rates that are expected to apply when the asset or liability is settled. Deferred tax is charged or credited in the income statement, except where it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Dividend distributions are recognised in the financial statements in the period in which they are declared.
Assets that have an indefinite useful economic life are not subject to amortisation but are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped together at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Discount rates reflecting the asset specific risks and the time value of money are used for the value in use calculation.
Provisions are made when:
the Group has a present legal or constructive obligation as a result of past events;
it is more likely than not that an outflow of resources will be required to settle the obligation; and
Provisions are made for committed costs outstanding under onerous or vacant property leases and the estimated liability is discounted to its present value.
Provisions are made for property dilapidations where a legal obligation exists and when the decision has been made to exit a property, or where the end of the lease commitment is imminent and a reliable estimate of the exit liability can be made.
The estimated employee benefit liability arising from the 10 Year Veterans incentive scheme is classified within provisions. Amounts relating to employees who reach 10 years' service in more than one year are classified as non-current.
Provisions are made for redundancy costs once the employees affected have a valid expectation that their roles will become redundant.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and disclosure of contingencies at the balance sheet date. If in future such estimates and assumptions, which are based on management's best judgement at the date of the consolidated financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified, as appropriate, in the period in which the circumstances change. The following areas are considered of greater complexity and/or particularly subject to the exercise of judgement:
There are no new standards or amendments to standards which are mandatory for the first time for the financial period ended 2 June 2013 which have a significant impact on the Group.
New standards, amendments to standards and interpretations which have been published but are not yet effective are not expected to have a significant impact on the Group.
The chief operating decision-maker has been identified as the executive directors. They review the Group's internal reporting in order to assess performance and allocate resources. Management has determined the segments based on these reports.
As Games Workshop is a vertically integrated business, management assess the performance of sales businesses and manufacturing and distribution businesses separately. At 2 June 2013, the Group is organised as follows:
The chief operating decision-maker assesses the performance of each business based on operating profit, excluding share option charges recognised under IFRS 2, 'Share-based payment' and charges in respect of the Group's profit share scheme. This has been reconciled to the Group's total profit before taxation below.
The segment information reported to the executive directors for the 52 weeks ended 2 June 2013 is as follows:
| External revenue | Internal revenue | Total | |||||
|---|---|---|---|---|---|---|---|
| 52 weeks ended | 53 weeks ended | 52 weeks ended | 53 weeks ended | 52 weeks ended | 53 weeks ended | ||
| 2 June 2013 | 3 June 2012 | 2 June 2013 | 3 June 2012 | 2 June 2013 | 3 June 2012 | ||
| £000 | £000 | £000 | £000 | £000 | £000 | ||
| Sales businesses | |||||||
| UK | 30,922 | 31,648 | - | - | 30,922 | 31,648 | |
| Continental Europe | 39,452 | 40,757 | - | - | 39,452 | 40,757 | |
| North America | 36,688 | 33,621 | - | - | 36,688 | 33,621 | |
| Australia | 10,943 | 11,328 | - | - | 10,943 | 11,328 | |
| Export | 1,741 | 1,700 | - | - | 1,741 | 1,700 | |
| Asia | 1,854 | 1,737 | - | - | 1,854 | 1,737 | |
| All other sales businesses | 12,997 | 10,218 | 1,719 | 1,900 | 14,716 | 12,118 | |
| Other segments | |||||||
| Product and Supply | - | - | 67,062 | 62,465 | 67,062 | 62,465 | |
| Total | 134,597 | 131,009 | 68,781 | 64,365 | 203,378 | 195,374 | |
| Intra-group sales eliminations | - | - | (68,781) | (64,365) | (68,781) | (64,365) | |
| Total revenue | 134,597 | 131,009 | - | - | 134,597 | 131,009 |
Segment revenue and segment profit include transactions between business segments; these transactions are eliminated on consolidation. Sales between segments are carried out at arm's length. The revenue from external parties reported to the executive directors is measured in a manner consistent with that in the income statement.
Total segment operating profit is as follows and is reconciled to profit before taxation below:
| 52 weeks ended | 53 weeks ended 3 June 2012 |
|
|---|---|---|
| 2 June 2013 | ||
| £000 | £000 | |
| Operating profit | ||
| Sales businesses | ||
| UK | 5,227 | 4,663 |
| Continental Europe | 4,689 | 4,000 |
| North America | 3,336 | 4,211 |
| Australia | 756 | (735) |
| Export | 457 | 89 |
| Asia | 155 | (624) |
| All other sales businesses | 6,554 | 4,732 |
| Other segments | ||
| Product and Supply | 27,425 | 26,028 |
| Total segment core business operating profit | 48,599 | 42,364 |
| Logistics and stock management | (10,980) | (9,835) |
| Licensing costs | (321) | (273) |
| Service centre costs | (8,463) | (7,156) |
| Web costs | (1,673) | (2,271) |
| Central costs | (5,610) | (5,176) |
| Profit in stock | 51 | (932) |
| Share-based payment charge | (286) | (254) |
| Profit share scheme charge | (1,088) | (864) |
| Total group core business operating profit | 20,229 | 15,603 |
| Royalty income | 1,025 | 3,537 |
| Total group operating profit | 21,254 | 19,140 |
| Finance income | 176 | 434 |
| Finance costs | (35) | (100) |
| Profit before taxation | 21,395 | 19,474 |
Costs of £172,000 for the 53 weeks ended 3 June 2012 relating to the UK property team have been restated since the last annual report into the UK sales business rather than being shown in Service centre costs. This reflects the current management structure in place.
Costs of £1,659,000 for the 53 weeks ended 3 June 2012 relating to finance, IT and personnel teams based in North America have been restated since the last annual report into Service centre costs rather than being shown in Product and Supply. This reflects the current management structure in place.
Costs of £906,000 for the 53 weeks ended 3 June 2012 in All other sales businesses, and costs of £3,796,000 for the 53 weeks to 3 June 2012 in Product and Supply have been reclassified from operating expenses to cost of sales to reflect a change in the classification of development costs with effect from 29 May 2011 (see note 10).
Operating profit as reported above includes impairment, depreciation and amortisation charges as follows:
| Depreciation and | |||||
|---|---|---|---|---|---|
| Impairment | |||||
| 52 weeks ended | 53 weeks ended | 52 weeks ended | 53 weeks ended | ||
| 2 June 2013 | 3 June 2012 | 2 June 2013 | 3 June 2012 | ||
| £000 | £000 | £000 | £000 | ||
| Sales businesses | |||||
| UK | 3 | 10 | 331 | 300 | |
| Continental Europe | 10 | (22) | 477 | 625 | |
| North America | (77) | 170 | 468 | 631 | |
| Australia | (5) | 27 | 188 | 286 | |
| Export | - | - | - | 23 | |
| Asia | - | 6 | 35 | 20 | |
| All other sales businesses | - | - | 1,070 | 1,077 | |
| Other segments | |||||
| Product and Supply | - | - | 5,445 | 6,188 | |
| Total segment charges | (69) | 191 | 8,014 | 9,150 | |
| Logistics and stock management | - | (280) | 584 | 353 | |
| Web costs | - | - | 379 | 584 | |
| Total group (credit)/charge | (69) | (89) | 8,977 | 10,087 |
The prior period impairment charges related to fixtures and fittings within loss making Hobby centres (£76,000) and impairment of computer software (£111,000). These charges were offset by the reversal of an amount of £280,000 in respect of the previous period impairment of the Group's European distribution hub.
An impairment reversal of £69,000 (2012: impairment of £76,000) relates to fixtures and fittings within loss making Hobby centres previously written down to estimated value in use for which impairment is no longer required. This has been credited or charged in selling costs in both periods.
Operating expenses by segment are regularly reviewed by the executive directors and are provided below:
| Restated* | ||
|---|---|---|
| 52 weeks ended | 53 weeks ended 3 | |
| 2 June 2013 | June 2012 | |
| £000 | £000 | |
| Operating expenses | ||
| Sales businesses | ||
| UK | 13,767 | 14,776 |
| Continental Europe | 19,908 | 21,060 |
| North America | 13,792 | 13,939 |
| Australia | 5,449 | 6,664 |
| Export | 260 | 639 |
| Asia | 964 | 1,469 |
| All other sales businesses | 1,892 | 2,169 |
| Other segments | ||
| Product and Supply | 4,592 | 4,010 |
| Total segment operating expenses | 60,624 | 64,726 |
| Logistics and stock management | 131 | (56) |
| Licensing costs | 321 | 273 |
| Service centre costs | 8,463 | 7,156 |
| Web costs | 1,775 | 2,193 |
| Central costs | 5,437 | 5,176 |
| Share-based payment charge | 286 | 254 |
| Profit share scheme charge | 1,088 | 864 |
| Total group operating expenses | 78,125 | 80,586 |
*Prior periods have been restated to reflect a change in the classification of product design and development costs within the income statement with effect from 29 May 2011 (see note 10).
External revenue analysed by customer geographical location is as follows:
| 52 weeks ended | 53 weeks ended | |
|---|---|---|
| 2 June 2013 | 3 June 2012 | |
| £000 | £000 | |
| UK | 34,316 | 33,989 |
| Continental Europe | 43,519 | 43,998 |
| North America | 40,693 | 37,694 |
| Asia Pacific | 13,979 | 14,169 |
| Rest of the World | 2,090 | 1,159 |
| 134,597 | 131,009 |
The Group is not reliant on any one individual customer.
Non-current assets (excluding deferred tax assets) are located in the following countries:
| 2013 | 2012 | |
|---|---|---|
| £000 | £000 | |
| UK | 27,896 | 24,110 |
| All other countries | 3,812 | 4,596 |
| Total non-current assets (excluding deferred tax assets) | 31,708 | 28,706 |
Other non-cash charges and significant costs included in operating profit are as follows:
| Redundancy costs and | ||||||||
|---|---|---|---|---|---|---|---|---|
| Net charge/(credit) to | Impairment/(reversal of compensation for loss of |
Net charge/(credit) to property provisions |
||||||
| inventory provisions | impairment) of receivables | office | ||||||
| 52 weeks | 53 weeks | 52 weeks | 53 weeks | 52 weeks | 53 weeks | 52 weeks | 53 weeks | |
| ended | ended | ended | ended | ended | ended | ended | ended | |
| 2 June 2013 | 3 June 2012 | 2 June 2013 | 3 June 2012 | 2 June 2013 | 3 June 2012 | 2 June 2013 | 3 June 2012 | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| Sales businesses | ||||||||
| UK | 99 | (10) | 88 | (11) | 134 | 57 | 50 | 35 |
| Continental Europe | - | - | 89 | 144 | 453 | 618 | 44 | 3 |
| North America | 65 | 91 | 16 | 372 | 57 | 140 | 38 | 116 |
| Australia | (1) | (5) | 7 | 14 | 75 | 1 | (37) | 133 |
| Export | - | - | - | 10 | - | 142 | - | - |
| Asia | (5) | 7 | - | 1 | - | 253 | - | (21) |
| All other sales businesses | - | 67 | 79 | (16) | 5 | 101 | - | - |
| Other segments | ||||||||
| Product and Supply | 1,124 | 1,099 | - | - | 346 | 119 | (58) | (83) |
| Total segment expense | 1,282 | 1,249 | 279 | 514 | 1,070 | 1,431 | 37 | 183 |
| Logistics and stock management | - | - | - | - | 18 | 4 | - | - |
| Service centre costs | - | - | - | - | 72 | 236 | - | - |
| Web costs | - | - | 59 | - | - | - | - | - |
| Central costs | - | - | - | - | 865 | - | - | - |
| Total group expense | 1,282 | 1,249 | 338 | 514 | 2,025 | 1,671 | 37 | 183 |
Asset and liability information is not reported to the chief operating decision-maker on a segment basis and therefore has not been disclosed.
| Restated* | ||
|---|---|---|
| 52 weeks ended | 53 weeks ended | |
| 2 June 2013 | 3 June 2012 | |
| £000 | £000 | |
| Selling costs | 48,254 | 51,919 |
| Administrative expenses | 29,871 | 28,667 |
| 78,125 | 80,586 |
*Prior periods have been restated to reflect a change in the classification of development costs with effect from 29 May 2011 (see note 10).
| Group | Company | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 52 weeks ended | 53 weeks ended | 52 weeks ended | 53 weeks ended | ||||||||||||||||
| 2 June 2013 3 June 2012 |
2 June 2013 | ||||||||||||||||||
| £000 | £000 | £000 | £000 | ||||||||||||||||
| Total directors' and employees' costs: | |||||||||||||||||||
| Wages and salaries | 43,888 | 45,166 | 1,522 | 1,781 | |||||||||||||||
| Social security costs | 5,272 | 5,483 | 183 | 227 | |||||||||||||||
| Other pension costs | 1,556 | 1,454 | 109 | 122 | |||||||||||||||
| Share-based payment | 286 | 254 | - | - | |||||||||||||||
| 51,002 | 52,357 | 1,814 | 2,130 |
Details of capitalised salary costs, included in the above, are provided in note 14. Redundancy costs and compensation for loss of office, not included in the above, are provided in note 8.
The remuneration of the directors and other key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'.
| 52 weeks ended | 53 weeks ended | ||
|---|---|---|---|
| 2 June 2013 | 3 June 2012 | ||
| £000 | £000 | ||
| Salaries and other short-term employee benefits | 1,157 | 1,237 | |
| Post-employment benefits | 148 | 149 | |
| Share-based payment | 4 | 6 | |
| Other employee benefits | 17 | 29 | |
| Compensation for loss of office | 569 | - | |
| 1,895 | 1,421 |
Further information relating to directors' emoluments, shareholdings and share options is disclosed in the remuneration report on pages 16 to 18. Key management are the directors of the Company, the head of sales and the head of product and supply.
| Employee numbers | Group | Company | |||
|---|---|---|---|---|---|
| 52 weeks ended | 53 weeks ended | 52 weeks ended | 53 weeks ended | ||
| Monthly average number of employees | 2 June 2013 | 3 June 2012 | 2 June 2013 | 3 June 2012 | |
| (including executive directors) by activity: | Number | Number | Number | Number | |
| Design and development | 145 | 114 | - | - | |
| Production | 168 | 172 | - | - | |
| Selling: | |||||
| - Full time | 916 | 1,010 | - | - | |
| - Part time | 232 | 254 | - | - | |
| Administration | 414 | 412 | 13 | 15 | |
| 1,875 | 1,962 | 13 | 15 |
| 52 weeks ended | 53 weeks ended | ||
|---|---|---|---|
| 2 June 2013 | 3 June 2012 | ||
| £000 | £000 | ||
| Interest income: | |||
| - On cash and cash equivalents | 175 | 141 | |
| - Net foreign exchange gains on financing activities | - | 292 | |
| - Other interest income receivable | 1 | 1 | |
| 176 | 434 |
| 52 weeks ended | 53 weeks ended | ||
|---|---|---|---|
| 2 June 2013 | 3 June 2012 | ||
| £000 | £000 | ||
| Interest expense: | |||
| - Unwinding of discount on provisions | 12 | 100 | |
| - Other interest payable | 14 | - | |
| - Net foreign exchange losses on financing activities | 9 | - | |
| 35 | 100 |
| 52 weeks ended 2 June 2013 |
53 weeks ended 3 June 2012 |
|
|---|---|---|
| £000 | £000 | |
| Profit before taxation is stated after charging/(crediting): | ||
| Depreciation: | ||
| - Owned property, plant and equipment | 5,099 | 5,785 |
| - Impairment of property, plant and equipment | (69) | (200) |
| Amortisation: | ||
| - Owned computer software | 1,178 | 1,123 |
| - Development costs | 2,700 | 3,179 |
| - Impairment of computer software | - | 111 |
| Non-capitalised development costs | 2,087 | 1,523 |
| Staff costs (excluding capitalised salary costs shown in note 14 and non-capitalised development costs above) | 45,997 | 48,894 |
| Impairment of trade receivables | 338 | 514 |
| Operating leases: | ||
| - Hobby centres | 9,945 | 10,330 |
| - Other property | 920 | 1,009 |
| - Plant and equipment | 105 | 96 |
| - Other | 210 | 195 |
| Cost of inventories included in cost of sales | 21,381 | 20,391 |
| Net inventory provision creation (note 18) | 1,282 | 1,249 |
| Profit on disposal of property, plant and equipment | (7) | (8) |
| Loss on disposal of intangible assets | 403 | 11 |
| Redundancy costs and compensation for loss of office | 2,025 | 1,671 |
| Net charge to property provisions including closed or loss making Hobby centres (note 24) | 37 | 183 |
| Auditors' remuneration and services provided | ||
| Services provided by the Group's auditors and network firms are analysed as follows: | ||
| 52 weeks ended | 53 weeks ended | |
| 2 June 2013 | 3 June 2012 | |
| £000 | £000 | |
| Audit services | ||
| Audit of the Group and Company's financial statements | 61 | 61 |
| Other services | ||
| The audit of the Company's subsidiaries pursuant to legislation | 143 | 167 |
| All other services | 10 | 10 |
| Total services provided | 214 | 238 |
| 52 weeks ended | 53 weeks ended | |
|---|---|---|
| 2 June 2013 | 3 June 2012 | |
| £000 | £000 | |
| Current UK taxation: | ||
| UK corporation tax on profits for the period | 4,200 | 4,803 |
| Over provision in respect of prior periods | (104) | (44) |
| 4,096 | 4,759 | |
| Current overseas taxation: | ||
| Overseas corporation tax on profits for the period | 802 | 880 |
| Over provision in respect of prior periods | (107) | (96) |
| Total current taxation | 4,791 | 5,543 |
| Deferred taxation: | ||
| Origination and reversal of timing differences | 192 | (851) |
| Under provision in respect of prior periods | 94 | 68 |
| Tax expense recognised in the income statement | 5,077 | 4,760 |
| Current tax credit relating to sharesave scheme | (232) | - |
| Deferred tax (credit)/charge relating to sharesave scheme | (41) | 67 |
| (Credit)/charge taken directly to equity | (273) | 67 |
The tax on the Group's profit before taxation differs from the standard rate of corporation tax in the UK as follows:
| 52 weeks ended | 53 weeks ended | |
|---|---|---|
| 2 June 2013 | 3 June 2012 | |
| £000 | £000 | |
| Profit before taxation | 21,395 | 19,474 |
| Profit before taxation multiplied by the standard rate of corporation tax in the UK of 23.83% (2012: 25.67%) | 5,098 | 4,999 |
| Effects of: | ||
| Items not (assessable)/deductible for tax purposes | (384) | 455 |
| Movement in deferred tax not recognised | - | 198 |
| Deferred tax on losses now recognised | - | (1,437) |
| Higher tax rates on overseas earnings | 480 | 617 |
| Adjustments to tax charge in respect of prior periods | (117) | (72) |
| Total tax charge for the period | 5,077 | 4,760 |
Included within the £480,000 disclosed above, £9,000 relates to changes in rates of UK corporation tax in the year. Further changes to the UK corporation tax rates were announced in the 2012 Autumn Statement and the March 2013 Budget. These include further reductions to the main rate to reduce the rate to 21% from 1 April 2014 and to 20% from 1 April 2015. These changes had not been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements.
The proposed reductions to the main rate of corporation tax were substantively enacted as part of the Finance Act 2013 on 2 July 2013. The overall effect of these further changes, if applied to the deferred tax balance at the balance sheet date, would be to further reduce the deferred tax asset by an additional £52,000.
Since the last annual report the Group has changed the application of its accounting policy for the classification of development costs within the income statement. Previously development costs were recognised in the income statement within operating expenses. Under the new policy, development costs are recognised in the income statement within cost of sales. Comparative amounts have been restated for the prior period as if the application of the new accounting policy had always been applied in accordance with IAS 1 (revised), 'Presentation of financial statements'. The Group believes that the new policy results in a fairer reflection of the nature of development costs in the Group income statement.
There is no impact on assets or liabilities reported at either 3 June 2012 or 29 May 2011, hence no balance sheet has been presented as at 29 May 2011.
The change in accounting policy has resulted in an increase in cost of sales and a decrease in operating expenses of £4,702,000 in the income statement for the 53 weeks to 3 June 2012.
The impact of the change in policy for the current financial period is an increase in cost of sales and a decrease in operating expenses of £4,787,000 in the consolidated income statement.
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 during the period.
| 52 weeks ended | 53 weeks ended | |
|---|---|---|
| 2 June 2013 | 3 June 2012 | |
| Profit attributable to owners of the parent (£000) | 16,318 | 14,714 |
| Weighted average number of ordinary shares in issue (thousands) | 31,671 | 31,423 |
| Basic earnings per share (pence per share) | 51.5 | 46.8 |
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 period, adjusted for the dilutive effect of share options outstanding at the period end.
| 52 weeks ended | 53 weeks ended | |
|---|---|---|
| 2 June 2013 | 3 June 2012 | |
| Profit attributable to owners of the parent (£000) | 16,318 | 14,714 |
| Weighted average number of ordinary shares in issue (thousands) | 31,671 | 31,423 |
| Adjustment for share options (thousands) | 192 | 184 |
| Weighted average number of ordinary shares for diluted earnings per share (thousands) | 31,863 | 31,607 |
| Diluted earnings per share (pence per share) | 51.2 | 46.6 |
A dividend of 18 pence per share, amounting to a total dividend of £5,711,000 and a dividend of 24 pence per share, amounting to a total dividend of £7,616,000 were declared and paid during the period. A further dividend of 16 pence per share, amounting to a total dividend of £5,077,000 was declared during the period and paid after the period end. The dividend payable is included in trade and other payables at 2 June 2013.
A dividend of 18 pence per share, amounting to a total dividend of £5,620,000 and a dividend of 29 pence per share, amounting to a total dividend of £9,156,000 were paid during the 53 weeks ended 3 June 2012. A further dividend of 16 pence per share, amounting to a total dividend of £5,054,000 was declared during the 53 weeks ended 3 June 2012 and paid during the current period.
| 2013 | 2012 | |
|---|---|---|
| Group | £000 | £000 |
| Cost at beginning of period and end of period | 2,355 | 2,355 |
| Accumulated amortisation at beginning of period and end of period | (922) | (922) |
| Net book value at beginning of period and end of period | 1,433 | 1,433 |
The Company had no goodwill at either period end.
The goodwill arose on the acquisition of TJA Tooling Limited and Triple K Plastic Injection Moulding Limited.
In accordance with the requirements of IAS 36 'Impairment of Assets' the Group completed a review of the carrying value of goodwill as at each period end. The impairment review was performed to ensure that the carrying value of the Group's assets are stated at no more than their recoverable amount, being the higher of fair value less costs to sell and value in use. The key assumptions for the recoverable amount of the goodwill are the long-term growth rate and the discount rate. The long-term growth rate used is purely for the impairment testing of goodwill under IAS 36 'Impairment of Assets' and does not reflect the long-term planning assumptions used by the Group for any other assessments.
In determining the value in use, the calculations use cash flow projections for a period no greater than five years based on plans approved by management and, for the Group's cash-generating unit concerned, a long term growth rate no higher than 2% (2012: 2%). The estimated future cash flows expected to arise from the continuing use of the assets are calculated using a pre-tax discount rate of 10.25% (2012: 10.5%).
Management determined the planned sales growth and gross margin on the investment in future product releases and initiatives currently being undertaken to deliver the expected future performance.
Goodwill is allocated to the Group's cash-generating units (CGUs) for impairment testing. All of the current goodwill arises in the Product and Supply segment.
Sensitivity analysis has not been disclosed in these financial statements since management consider that there is no reasonably possible change in key assumptions that would cause the carrying value of goodwill to fall below its recoverable amount.
| Computer | Development | ||
|---|---|---|---|
| software | costs | Total | |
| Group | £000 | £000 | £000 |
| Cost | |||
| At 29 May 2011 and 30 May 2011 | 9,321 | 18,239 | 27,560 |
| Additions | 1,626 | 2,977 | 4,603 |
| Exchange differences | 42 | - | 42 |
| Disposals | (84) | (11) | (95) |
| At 3 June 2012 and 4 June 2012 | 10,905 | 21,205 | 32,110 |
| Additions | 3,605 | 3,531 | 7,136 |
| Exchange differences | 58 | - | 58 |
| Disposals | (1,617) | (2,722) | (4,339) |
| At 2 June 2013 | 12,951 | 22,014 | 34,965 |
| Amortisation | |||
| At 29 May 2011 and 30 May 2011 | (6,878) | (15,714) | (22,592) |
| Amortisation charge | (1,123) | (3,179) | (4,302) |
| Exchange differences | (12) | - | (12) |
| Impairment | (111) | - | (111) |
| Disposals | 83 | 1 | 84 |
| At 3 June 2012 and 4 June 2012 | (8,041) | (18,892) | (26,933) |
| Amortisation charge | (1,178) | (2,700) | (3,878) |
| Exchange differences | (57) | - | (57) |
| Disposals | 1,214 | 2,722 | 3,936 |
| At 2 June 2013 | (8,062) | (18,870) | (26,932) |
| Net book amount | |||
| At 3 June 2012 | 2,864 | 2,313 | 5,177 |
| At 2 June 2013 | 4,889 | 3,144 | 8,033 |
Amortisation of £2,949,000 (2012 as restated: £3,236,000) has been charged in cost of sales and £929,000 (2012 as restated: £1,066,000) in operating expenses.
The net book amount of internally generated intangible assets is £3,561,000 (2012: £2,591,000) and acquired intangible assets is £4,472,000 (2012: £2,586,000). All development costs are internally generated and £2,569,000 (2012: £1,868,000) is capitalised salary costs.
Salary costs of £349,000 (2012: £88,000) were capitalised during the period as part of computer software.
Assets in the course of development, and not amortised, amount to £3,142,000 (2012: £nil). These are included in computer software above and relate to the new web store which is planned to be launched in April 2014.
An impairment loss of £nil (2012: £111,000) was recognised in relation to computer software.
The Company had no other intangible assets at either period end.
| Freehold | Plant and | Fixtures | |||
|---|---|---|---|---|---|
| land and | equipment | and | Moulding | ||
| buildings | and vehicles | fittings | tools | Total | |
| Group | £000 | £000 | £000 | £000 | £000 |
| Cost | |||||
| At 29 May 2011 and 30 May 2011 | 14,417 | 18,337 | 21,493 | 23,440 | 77,687 |
| Additions | 346 | 1,898 | 1,134 | 1,750 | 5,128 |
| Exchange differences | - | 33 | (173) | 48 | (92) |
| Disposals | - | (840) | (847) | (29) | (1,716) |
| At 3 June 2012 and 4 June 2012 | 14,763 | 19,428 | 21,607 | 25,209 | 81,007 |
| Additions | 7 | 1,556 | 1,472 | 2,091 | 5,126 |
| Exchange differences | - | 110 | 424 | (13) | 521 |
| Disposals | - | (2,398) | (2,007) | (1,032) | (5,437) |
| At 2 June 2013 | 14,770 | 18,696 | 21,496 | 26,255 | 81,217 |
| Depreciation | |||||
| At 29 May 2011 and 30 May 2011 | (4,358) | (14,829) | (18,600) | (18,853) | (56,640) |
| Charge for the period | (365) | (1,590) | (1,548) | (2,282) | (5,785) |
| Exchange differences | - | (31) | 173 | (48) | 94 |
| Impairment | 280 | (4) | (76) | - | 200 |
| Disposals | - | 833 | 838 | 20 | 1,691 |
| At 3 June 2012 and 4 June 2012 | (4,443) | (15,621) | (19,213) | (21,163) | (60,440) |
| Charge for the period | (265) | (1,702) | (1,308) | (1,824) | (5,099) |
| Exchange differences | - | (100) | (387) | 13 | (474) |
| Impairment | - | - | 69 | - | 69 |
| Disposals | - | 2,365 | 1,996 | 970 | 5,331 |
| At 2 June 2013 | (4,708) | (15,058) | (18,843) | (22,004) | (60,613) |
| Net book amount | |||||
| At 3 June 2012 | 10,320 | 3,807 | 2,394 | 4,046 | 20,567 |
| At 2 June 2013 | 10,062 | 3,638 | 2,653 | 4,251 | 20,604 |
Depreciation expense of £3,292,000 (2012 as restated: £3,440,000) has been charged in cost of sales, £1,446,000 (2012: £1,646,000) in selling costs and £361,000 (2012: £699,000) in administrative expenses.
Freehold land amounting to £3,836,000 (2012: £3,836,000) has not been depreciated.
Assets in the course of construction, and not depreciated, amount to £140,000 (2012: £556,000). These are included in moulding tools above.
An impairment reversal of £69,000 (2012: impairment of £76,000) relates to fixtures and fittings within loss making Hobby centres previously written down to estimated value in use for which impairment is no longer required. This has been credited or charged in selling costs in both periods.
The Company held no property, plant and equipment at either period end.
| 2013 | 2012 | |
|---|---|---|
| Company | £000 | £000 |
| Shares in group undertakings – cost | ||
| Beginning of period and end of period | 30,584 | 30,584 |
Investments in group undertakings are stated at cost less any provision for impairment.
The directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. A list of principal subsidiary undertakings is given below.
The following information relates to those subsidiary undertakings whose results or financial position, in the opinion of the directors, principally affect the Group:
| Proportion of nominal value | |||||
|---|---|---|---|---|---|
| of issued shares held by: | |||||
| Country of | |||||
| incorporation | Description of | Subsidiary | |||
| Name of undertaking | or registration | shares held | Company | Company | Principal business activity |
| Games Workshop Limited | England and | £1 ordinary | 100% | Manufacturer, distributor and | |
| Wales | retailer of games and miniatures | ||||
| Games Workshop Retail Inc. | United States | \$1 common | 100% | Distributor and retailer of games | |
| of America | stock | and miniatures | |||
| Games Workshop (Queen Street) | Canada | Can \$1 | 100% | Distributor and retailer of games | |
| Limited | and miniatures | ||||
| EURL Games Workshop | France | euro 1 | 100% | Distributor and retailer of games | |
| and miniatures | |||||
| Games Workshop SL | Spain | euro 1 | 100% | Distributor and retailer of games | |
| and miniatures | |||||
| Games Workshop Oz Pty Limited | Australia | Aus \$1 | 100% | Distributor and retailer of games | |
| and miniatures | |||||
| Games Workshop Deutschland GmbH | Germany | euro 1 | 100% | Distributor and retailer of games | |
| and miniatures | |||||
| Games Workshop Limited | New Zealand | NZ \$1 | 100% | Distributor and retailer of games | |
| and miniatures | |||||
| Games Workshop Italia SRL | Italy | euro 1 | 100% | Distributor and retailer of games | |
| and miniatures | |||||
| Games Workshop International Limited | England and | £1 ordinary | 100% | Holding company for overseas | |
| Wales | subsidiary companies | ||||
| Games Workshop US Limited | England and | £1 ordinary | 100% | Holding company for US subsidiary | |
| Wales | companies | ||||
| Games Workshop US (Holdings) Limited | England and | £1 ordinary | 100% | Intermediary holding company for US | |
| Wales | subsidiary companies | ||||
| Games Workshop Good Hobby | China | Owners capital | 100% | Retailer of games and miniatures | |
| (Shanghai) Commercial Co. Ltd |
All of the above entities are included in the consolidated accounts for the Group and 100% of the voting rights of all entities is held.
All of the above companies operate principally in their country of incorporation or registration.
The directors consider the value of the investments is supported by the underlying assets of the relevant subsidiary.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority. The amounts are as follows:
| Group | Company | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| £000 | £000 | £000 | £000 | |
| Deferred tax assets: | ||||
| - deferred tax asset to be recovered after more than 12 months |
2,704 | 2,984 | 2 | 2 |
| - deferred tax asset to be recovered within 12 months |
4,517 | 4,351 | 3 | 4 |
| 7,221 | 7,335 | 5 | 6 | |
| The gross movement on the deferred tax account is as follows: | Group | Company | ||
| 2013 | 2012 | 2013 | 2012 | |
| £000 | £000 | £000 | £000 | |
| Beginning of period | 7,335 | 6,475 | 6 | 21 |
| Exchange differences | 131 | 144 | - | - |
| Income statement (charge)/credit | (286) | 783 | (1) | (15) |
| Credited/(charged) directly to retained earnings | 41 | (67) | - | - |
| End of period | 7,221 | 7,335 | 5 | 6 |
Analysis of the movement in deferred tax assets and liabilities is as follows:
| At 2 June 2013 | 2,025 | (723) | 3,407 | 2,512 | 7,221 |
|---|---|---|---|---|---|
| Exchange differences | 43 | - | 69 | 19 | 131 |
| Credited to equity | - | - | - | 41 | 41 |
| (Charged)/credited to the income statement | (197) | (168) | (284) | 363 | (286) |
| At 3 June 2012 and 4 June 2012 | 2,179 | (555) | 3,622 | 2,089 | 7,335 |
| Exchange differences | (31) | - | 171 | 4 | 144 |
| Charged to equity | - | - | - | (67) | (67) |
| Credited/(charged) to the income statement | 101 | 101 | (579) | 1,160 | 783 |
| At 29 May 2011 and 30 May 2011 | 2,109 | (656) | 4,030 | 992 | 6,475 |
| Group | £000 | £000 | £000 | £000 | £000 |
| depreciation | costs | for offset | Other | Total | |
| Accelerated | Development | available | |||
| Losses |
Other deferred tax assets include deferred tax on adjustments for profit in stock arising from intra-group sales of £1,480,000 (2012: £800,000).
Deferred tax assets are recognised in respect of tax losses and temporary differences to the extent that the realisation of the related tax benefit through future taxable profits is probable. This is based on a review of the track record of profitability in the country concerned. There was no unrecognised deferred tax at 3 June 2012 or 2 June 2013 in either the Group or the Company.
The Group did not obtain a current tax benefit from previously unrecognised tax losses in either of the periods presented.
| At 2 June 2013 | 2 | 3 | 5 |
|---|---|---|---|
| Charged to the income statement | - | (1) | (1) |
| At 3 June 2012 and 4 June 2012 | 2 | 4 | 6 |
| Charged to the income statement | (3) | (12) | (15) |
| At 29 May 2011 and 30 May 2011 | 5 | 16 | 21 |
| Company | depreciation £000 |
Other £000 |
Total £000 |
| Accelerated |
| 2013 | 2012 | |
|---|---|---|
| Group | £000 | £000 |
| Raw materials | 534 | 901 |
| Work in progress | 594 | 1,160 |
| Finished goods and goods for resale | 7,042 | 7,416 |
| 8,170 | 9,477 |
The Group holds no inventories at fair value less costs to sell.
There is no material difference between the balance sheet value of inventories and their replacement cost.
During the period, the Group utilised an inventory provision of £935,000 (2012: £819,000) and £1,282,000 (2012: £1,249,000) has been charged to the income statement.
The Company holds no inventories at either period end.
| Group | Company | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| £000 | £000 | £000 | £000 | |
| Trade receivables | 6,555 | 7,462 | - | - |
| Less provision for impairment of receivables | (416) | (684) | - | - |
| Trade receivables - net | 6,139 | 6,778 | - | - |
| Prepayments and accrued income | 4,427 | 4,034 | 35 | 17 |
| Other receivables | 1,936 | 1,785 | - | - |
| Receivables from related parties | - | - | 1,107 | 1,190 |
| Loans to related parties | - | - | 3,900 | 3,900 |
| Total trade and other receivables | 12,502 | 12,597 | 5,042 | 5,107 |
| Non-current receivables: | ||||
| Prepayments and accrued income | 205 | 183 | - | - |
| Other receivables | 1,433 | 1,346 | - | - |
| Loans to related parties | - | - | 3,900 | 3,900 |
| Non-current portion | 1,638 | 1,529 | 3,900 | 3,900 |
| Current portion | 10,864 | 11,068 | 1,142 | 1,207 |
Trade receivables are recorded at amortised cost, reduced by estimated allowances for doubtful debts. The fair value of trade and other receivables does not differ materially from the book value.
The effective interest rate on non-current loans to related parties is charged at LIBOR plus 1% in both periods.
There is no significant concentration of credit risk with respect to trade receivables as the Group has a large number of customers which are internationally dispersed.
The maximum exposure to credit risk at the balance sheet date is the carrying value of each class of asset above. The Group does not hold any collateral over these balances.
All non-current receivables are due within five years of the balance sheet date.
Trade receivables that are more than three months past due are considered to be impaired unless a payment plan has been agreed with the customer and is being adhered to. Trade receivables that are less than three months past due are not considered impaired unless amounts are specifically identified as irrecoverable. The ageing analysis of the Group's past due trade receivables is as follows:
| 2013 | 2012 | |||||
|---|---|---|---|---|---|---|
| Not impaired | Impaired | Total | Not impaired | Impaired | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Up to 3 months past due | 350 | 63 | 413 | 569 | 108 | 677 |
| 3 to 12 months past due | 135 | 255 | 390 | 109 | 279 | 388 |
| Over 12 months past due | - | 62 | 62 | 3 | 194 | 197 |
| 485 | 380 | 865 | 681 | 581 | 1,262 |
In addition to the above, current debt of £36,000 (2012: £103,000) has been impaired.
Movements on the provision for impairment of trade receivables are as follows:
| Group | £000 |
|---|---|
| At 29 May 2011 and 30 May 2011 | 762 |
| Charge for the period | 728 |
| Unused amounts reversed | (214) |
| Receivables written off during the period as uncollectible | (592) |
| At 3 June 2012 and 4 June 2012 | 684 |
| Charge for the period | 362 |
| Unused amounts reversed | (24) |
| Receivables written off during the period as uncollectible | (606) |
| At 2 June 2013 | 416 |
The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:
| 2013 | 2012 | |
|---|---|---|
| £000 | £000 | |
| Sterling | 4,835 | 4,721 |
| Euro | 3,507 | 3,718 |
| US dollar | 2,418 | 2,242 |
| Other currencies | 1,742 | 1,916 |
| Total trade and other receivables | 12,502 | 12,597 |
| Group | Company | |||
|---|---|---|---|---|
| 2013 | 2012 2013 |
2012 £000 |
||
| £000 | £000 | £000 | ||
| Cash at bank and in hand | 13,019 | 13,945 | 5,727 | 5,932 |
| Short-term bank deposits | 912 | 3,413 | - | - |
| Cash and cash equivalents | 13,931 | 17,358 | 5,727 | 5,932 |
The Group's cash and cash equivalents are repayable on demand and include a right of set-off between sterling and other currencies held in the UK. Cash and cash equivalents and short-term deposits are floating rate assets which earn interest at various rates with reference to the prevailing interest rates. Short-term deposits have an average maturity of 95 days (2012: 85 days).
No borrowing facilities were in place at 3 June 2012 or 2 June 2013.
The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), liquidity risk, capital risk and credit risk. The Group's financial risk management objective is to understand the nature and impact of the financial risks and exposures facing the business.
The majority of the Group's business is transacted in sterling, euros and US dollars. The principal currency of the Group is sterling.
The Group is exposed to foreign exchange risk principally via:
The Group does not use foreign currency borrowings or forward foreign currency contracts to hedge foreign currency risk. The level of the Group's exposure to foreign currency risk is regularly reviewed by the Group's chief operating officer and the Group's treasury policies, including hedging policies, are reviewed to ensure they remain appropriate.
The impact on the Group's financial assets and liabilities from foreign currency volatility is shown in the sensitivity analysis below.
The sensitivity analysis has been prepared based on all material financial assets and liabilities held at the balance sheet date and does not reflect all the changes in revenue or expenses that may result from changing exchange rates. The analysis is prepared for the euro and US dollar given that these represent the major foreign currencies in which financial assets and liabilities are denominated. The sensitivities shown act as a reasonable benchmark considering the movements in currencies over the last two financial periods.
The following assumptions were made in calculating the sensitivity analysis:
Using the above assumptions, the following table shows the sensitivity of the Group's income statement to movements in foreign exchange rates on US dollar and euro financial assets and liabilities:
| 2013 | 2012 | |
|---|---|---|
| Income | Income | |
| gain/(loss) | gain/(loss) | |
| Group | £000 | £000 |
| 10% appreciation of the US dollar (2012: 10%) | 887 | 546 |
| 10% appreciation of the euro (2012: 10%) | (374) | (306) |
A depreciation of the stated currencies would have an equal and opposite effect.
There is no impact on equity gains or losses.
The Group no longer has a significant exposure to interest rate risk following repayment of its borrowings and hence no interest rate sensitivity has been shown.
Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions as well as credit exposures to independent retailers. The Group controls credit risk from a treasury perspective by only entering into transactions involving financial instruments with authorised counter-parties with a credit rating of at least 'A', and by ensuring that such positions are monitored regularly. Credit risk on cash and short-term deposits is limited because the counter-parties are banks with high credit ratings assigned by international credit rating agencies.
There is no significant concentration of credit risk with respect to trade receivables, as the Group has a large number of customers that are internationally dispersed. Policies are also in place to ensure the wholesale sales of products are made to customers with an appropriate credit history and credit limits are periodically reviewed. Amounts recoverable from customers are reviewed on an ongoing basis and appropriate provision made for bad and doubtful debts (note 19). Provision requirements are determined with reference to ageing of invoices, credit history and other available information.
Sales made through our own Hobby centres or via direct are made in cash or with major credit cards.
The capital structure of the Group consists of net funds (see note 29) and owners' equity (see note 27). The Group manages its capital to safeguard the ability to operate as a going concern and to optimise returns to shareholders. The Group's objective is not to use long-term debt to finance the business. Overdraft facilities will be used to finance the working capital cycle if required.
The Group manages its capital structure and makes adjustments to it in light of changes to economic conditions and its strategic objectives. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, buy back shares and cancel them or issue new shares.
Liquidity is managed by maintaining sufficient cash balances to meet working capital needs.
Cash flow requirements are monitored by short and long-term rolling forecasts both within the local operating units and for the overall Group. In addition, the Group's liquidity management policy involves projecting cash flows in the major currencies and considers the level of liquid assets necessary to meet these, monitoring working capital levels and liquidity ratios.
The undiscounted contractual maturity dates of the Group's financial liabilities, including interest charges where applicable, are shown below. All trade payables are contractually due within 12 months and therefore the fair values do not differ from their carrying values.
| 2013 | 2012 | |||||||
|---|---|---|---|---|---|---|---|---|
| Between | Between | More | Between | Between | More | |||
| Within | 1 and 2 | 2 and 5 | than | Within | 1 and 2 | 2 and 5 | than | |
| 1 year | years | years | 5 years | 1 year | years | years | 5 years | |
| Group | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
| Trade and other payables | 16,728 | - | - | - | 16,107 | - | - | - |
| Provisions for redundancies and property | 633 | 147 | 142 | - | 860 | 469 | 219 | - |
| 17,361 | 147 | 142 | - | 16,967 | 469 | 219 | - | |
| 2013 | 2012 | |
|---|---|---|
| Within | Within | |
| 1 year | 1 year | |
| Company | £000 | £000 |
| Trade and other payables | 5,782 | 5,285 |
| 5,782 | 5,285 |
| Group | Company | ||||
|---|---|---|---|---|---|
| Loans and receivables | Loans and receivables | ||||
| 2013 | 2012 | 2013 | 2012 | ||
| £000 | £000 | £000 | £000 | ||
| Financial assets as per balance sheet | |||||
| Trade receivables | 6,139 | 6,778 | - | - | |
| Accrued income | 166 | 10 | - | - | |
| Other receivables | 1,936 | 1,785 | - | - | |
| Receivables from related parties | - | - | 1,107 | 1,190 | |
| Loans to related parties | - | - | 3,900 | 3,900 | |
| Cash and cash equivalents | 13,931 | 17,358 | 5,727 | 5,932 | |
| Total | 22,172 | 25,931 | 10,734 | 11,022 |
Prepayments have been excluded from the above as they are not financial assets.
| Group | Company | |||
|---|---|---|---|---|
| Financial liabilities at | Financial liabilities at amortised cost |
|||
| amortised cost | ||||
| 2013 | 2012 | 2013 | 2012 | |
| £000 | £000 | £000 | £000 | |
| Financial liabilities as per balance sheet | ||||
| Trade payables | 4,899 | 4,628 | 154 | 31 |
| Other payables | 3,945 | 4,081 | 18 | 20 |
| Accruals | 2,807 | 2,344 | 155 | 180 |
| Payables to related parties | - | - | 378 | - |
| Dividends payable to Company shareholders | 5,077 | 5,054 | 5,077 | 5,054 |
| Total | 16,728 | 16,107 | 5,782 | 5,285 |
Deferred income balances and other taxes and social security payables have been excluded from the above as they are not financial liabilities.
| Group | Company | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| Current | £000 | £000 | £000 | £000 |
| Trade payables | 4,899 | 4,628 | 154 | 31 |
| Other taxes and social security | 872 | 1,640 | 19 | 47 |
| Other payables | 3,945 | 4,081 | 18 | 20 |
| Accruals | 3,556 | 3,199 | 155 | 180 |
| Deferred income | 1,288 | 1,001 | - | - |
| Payables to related parties | - | - | 378 | - |
| Dividends payable to Company shareholders | 5,077 | 5,054 | 5,077 | 5,054 |
| 19,637 | 19,603 | 5,801 | 5,332 |
The fair value of trade and other payables does not materially differ from the book value.
| Group | Company | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| £000 | £000 | £000 | £000 | |
| Accruals | 360 | 300 | - | - |
| Deferred income | - | 1 | - | - |
| 360 | 301 | - | - |
The fair value of other non-current liabilities does not materially differ from the book value.
The carrying amounts of the Group's trade and other payables and other non-current liabilities are denominated in the following currencies:
| 2013 | 2012 | |
|---|---|---|
| £000 | £000 | |
| Sterling | 12,841 | 12,394 |
| Euro | 3,604 | 3,488 |
| US dollar | 2,201 | 2,509 |
| Other currencies | 1,351 | 1,513 |
| Total trade and other payables and other non-current liabilities | 19,997 | 19,904 |
Analysis of total provisions:
| Group | Company | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| £000 | £000 | £000 | £000 | |
| Current | 946 | 1,172 | 9 | 2 |
| Non-current | 758 | 1,189 | - | 8 |
| 1,704 | 2,361 | 9 | 10 |
| Employee | |||
|---|---|---|---|
| benefits | Property | Total | |
| Group | £000 | £000 | £000 |
| At 3 June 2012 | 832 | 1,529 | 2,361 |
| Charged/(credited) to the income statement: | |||
| - Additional provisions |
73 | 403 | 476 |
| - Unused amounts reversed |
(87) | (366) | (453) |
| Exchange differences | 15 | 6 | 21 |
| Discount unwinding (note 7) | - | 12 | 12 |
| Utilised | (82) | (631) | (713) |
| At 2 June 2013 | 751 | 953 | 1,704 |
| At 2 June 2013 | 9 | 9 | |
|---|---|---|---|
| - Unused amounts reversed |
(8) | (8) | |
| - Additional provisions |
7 | 7 | |
| Charged/(credited) to the income statement: | |||
| At 3 June 2012 | 10 | 10 | |
| Company | £000 | £000 | |
| benefits | Total | ||
| Employee |
The fair value of provisions does not differ from the book value.
The Group operates a long service incentive scheme under which employees receive a one off additional holiday entitlement of two weeks when they reach 10 years of employment (10 Year Veterans). The costs of these benefits are accrued over the period of employment based on expected staff retention rates and the anticipated employment costs and are utilised once an employee reaches 10 years of employment.
Property provisions relate to property dilapidations and to committed costs outstanding under onerous or vacant lease commitments and will diminish over the lives of the underlying leases. The above provision is expected to be utilised by 2016. The estimated liability is discounted to its present value using a discount rate of 3.0% (2012: 2.0%).
| At 2 June 2013 | 31,733 | 1,586 | 9,059 | 10,645 |
|---|---|---|---|---|
| Shares issued under employee sharesave scheme | 144 | 7 | 322 | 329 |
| At 3 June 2012 | 31,589 | 1,579 | 8,737 | 10,316 |
| Group and Company | (thousands) | £000 | £000 | £000 |
| shares | shares | account | Total | |
| Number of | Ordinary | premium | ||
| Share |
During the period 143,805 ordinary shares were issued (2012: 367,131). The total authorised number of shares is 42,000,000 shares (2012: 42,000,000 shares) with a par value of 5p per share (2012: 5p per share). All issued shares are fully paid.
Share options outstanding at the end of the period have the following expiry dates and exercise prices:
| Number of shares | Exercise price in | ||||
|---|---|---|---|---|---|
| Date granted | 2013 | 2012 | pence per share | Exercise dates | |
| 28 September 2009 | - | 138,499 | 220.7p | Nov 2012 to Apr 2013 | |
| 27 September 2010 | 119,906 | 127,830 | 340.7p | Nov 2013 to Apr 2014 | |
| 27 September 2010 | 1,729 | 1,729 | 346.4p | Nov 2013 to Apr 2014 | |
| 1 October 2010 | - | 4,864 | 367.6p | Nov 2012 | |
| 28 September 2011 | 232,114 | 279,127 | 358.0p | Nov 2014 to Apr 2015 | |
| 1 October 2011 | 3,094 | 3,959 | 359.8p | Nov 2013 | |
| 1 October 2012 | 151,912 | - | 535.3p | Nov 2015 to Apr 2016 | |
| 1 October 2012 | 2,067 | - | 537.7p | Nov 2015 to Apr 2016 | |
| 1 October 2012 | 13,366 | - | 573.8p | Oct 2014 | |
| 524,188 | 556,008 |
Movements in the number of share options outstanding are as follows:
| 2013 | 2012 | |
|---|---|---|
| Approved and | Approved and | |
| unapproved | unapproved | |
| share schemes | share schemes | |
| At start of period | 556,008 | 674,306 |
| Granted | 191,140 | 298,465 |
| Forfeited | (79,155) | (49,632) |
| Exercised | (143,805) | (367,131) |
| At end of period | 524,188 | 556,008 |
The weighted average share price at the time of exercise of options during the current period was 650.2p (2012: 478.6p).
Movements in the weighted average exercise price of the approved and unapproved share schemes are as follows:
| 2013 | 2012 | |
|---|---|---|
| At start of period | 320p | 233p |
| Granted | 538p | 358p |
| Forfeited | 406p | 312p |
| Exercised | 229p | 193p |
| At end of period | 412p | 320p |
Out of the 524,188 outstanding options (2012: 556,008 options), no options (2012: no options) were exercisable at 2 June 2013.
IFRS 2, 'Share-based payment', requires the fair value of all share options granted after 7 November 2002 to be charged to the income statement. For options granted after 7 November 2002, the fair value of the option must be assessed on the date of each grant.
The fair value of share options granted is determined using the Black-Scholes valuation model. The significant inputs into the model were as follows:
| Fair | ||||||||
|---|---|---|---|---|---|---|---|---|
| Option | Risk free | value | ||||||
| exercise | rate of | Dividend | per | |||||
| Share price | price | Vesting | Option | Expected | return | yield | option | |
| Group and Company | (pence) | (pence) | period | life | volatility | (%) | (%) | (pence) |
| Employee sharesave schemes: | ||||||||
| Games Workshop Group PLC 2005 | ||||||||
| Savings-Related Share Option Scheme | ||||||||
| 2009 granted options non-US employees | 297p | 220.7p | 36 mths | 42 mths | 48% | 4.6% | - | 138.9p |
| Games Workshop Group PLC 2005 | ||||||||
| Savings-Related Share Option Scheme | ||||||||
| 2010 granted options | ||||||||
| non-US and French employees | 450p | 340.7p | 36 mths | 42 mths | 47% | 4.2% | 5.6% | 153.3p |
| Games Workshop Group PLC 2005 | ||||||||
| Savings-Related Share Option Scheme | ||||||||
| 2010 granted options US employees | 434p | 367.6p | 24 mths | 24 mths | 45% | 4.2% | 5.6% | 117.7p |
| Games Workshop Group PLC 2005 | ||||||||
| Savings-Related Share Option Scheme | ||||||||
| 2010 granted options French employees | 450p | 346.4p | 36 mths | 42 mths | 47% | 4.2% | 5.6% | 151.1p |
| Games Workshop Group PLC 2005 | ||||||||
| Savings-Related Share Option Scheme | ||||||||
| 2011 granted options non-US employees | 448p | 358.0p | 36 mths | 42 mths | 42% | 2.8% | 10.3% | 92.6p |
| Games Workshop Group PLC 2005 | ||||||||
| Savings-Related Share Option Scheme | ||||||||
| 2011 granted options US employees | 423p | 359.8p | 24 mths | 24 mths | 31% | 2.3% | 10.3% | 59.4p |
| Games Workshop Group PLC 2005 | ||||||||
| Savings-Related Share Option Scheme | ||||||||
| 2012 granted options non-US and French | ||||||||
| employees | 669p | 535.3p | 36 mths | 42 mths | 49% | 3.0% | 7.4% | 193.8p |
| Games Workshop Group PLC 2005 | ||||||||
| Savings-Related Share Option Scheme | ||||||||
| 2012 granted options French employees | 672p | 537.7p | 36 mths | 42 mths | 49% | 3.0% | 7.4% | 194.7p |
| Games Workshop Group PLC 2005 | ||||||||
| Savings-Related Share Option Scheme 2012 granted options US employees |
675p | 573.8p | ||||||
| 24 mths | 24 mths | 26% | 3.8% | 7.4% | 107.3p |
The expected volatility was determined by reference to the volatility in the share price using rolling one year periods for the three years immediately preceding the grant date. The risk free rate of return is based upon UK gilt rates with an equivalent term to the options granted. Dividend yield is based on historic performance.
| 2013 | 2012 | |||||||
|---|---|---|---|---|---|---|---|---|
| Capital | Capital | |||||||
| redemption | Translation | Other | redemption | Translation | Other | |||
| reserve | reserve | reserve | Total | reserve | reserve | reserve | Total | |
| Group | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
| Beginning of period | 101 | 3,392 | (1,050) | 2,443 | 101 | 3,690 | (1,050) | 2,741 |
| Exchange differences on | ||||||||
| translation of foreign operations | - | 445 | - | 445 | - | (298) | - | (298) |
| End of period | 101 | 3,837 | (1,050) | 2,888 | 101 | 3,392 | (1,050) | 2,443 |
The other reserve was created on flotation following a payment to the previous holders of the Company's ordinary shares.
As at 2 June 2013, the Company's capital redemption reserve was £101,000 (2012: £101,000). The Company had no other reserves in addition to the capital redemption reserve at either period end.
| Group | £000 |
|---|---|
| At 29 May 2011 and 30 May 2011 | 40,777 |
| Profit attributable to owners of the parent | 14,714 |
| Deferred tax on share options | (67) |
| Share-based payments | 254 |
| Dividends to Company shareholders | (19,830) |
| At 3 June 2012 and 4 June 2012 | 35,848 |
| Profit attributable to owners of the parent | 16,318 |
| Deferred tax on share options | 41 |
| Corporation tax on share options | 232 |
| Share-based payments | 286 |
| Dividends to Company shareholders | (18,404) |
| At 2 June 2013 | 34,321 |
Cumulative goodwill relating to acquisitions made prior to 1998, which has been eliminated against reserves, amounts to £1,159,000 (2012: £1,159,000).
| Group | Company | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| £000 | £000 | £000 | £000 | |
| Operating profit/(loss) | 21,254 | 19,140 | (2,766) | (2,455) |
| Depreciation of property, plant and equipment | 5,099 | 5,785 | - | - |
| Net impairment reversal on property, plant and equipment | (69) | (200) | - | - |
| Net impairment charge on intangible assets | - | 111 | - | - |
| Profit on disposal of property, plant and equipment (see below) | (7) | (8) | - | - |
| Loss on disposal of intangible assets (see below) | 403 | 11 | - | - |
| Amortisation of capitalised development costs | 2,700 | 3,179 | - | - |
| Amortisation of other intangibles | 1,178 | 1,123 | - | - |
| Share-based payments | 286 | 254 | - | - |
| Dividend income from investments in subsidiary undertakings | - | - | 19,101 | 21,050 |
| Changes in working capital: | ||||
| - Decrease/(increase) in inventories | 1,422 | (861) | - | - |
| - Decrease/(increase) in trade and other receivables | 315 | (1,091) | 975 | 928 |
| - Increase/(decrease) in trade and other payables | 17 | 1,392 | 440 | (74) |
| - (Decrease)/increase in provisions | (690) | (801) | - | 4 |
| Net cash from operating activities | 31,908 | 28,034 | 17,750 | 19,453 |
In the cash flow statement, proceeds from the sale of property, plant and equipment comprise:
| 2013 | 2012 | |
|---|---|---|
| £000 | £000 | |
| Net book amount | 106 | 25 |
| Profit on sale of property, plant and equipment | 7 | 8 |
| Proceeds from sale of property, plant and equipment | 113 | 33 |
The Company sold no property, plant and equipment during either period.
The Group disposed of intangible assets with a net book amount of £403,000 during the period (2012: £11,000). There were no proceeds on disposal in either period and hence a loss on disposal equivalent to the net book amount was recorded.
The Company sold no other intangibles during either period.
| As at | Cash | Exchange | As at | |
|---|---|---|---|---|
| 3 June 2012 | flow | movement | 2 June 2013 | |
| Group | £000 | £000 | £000 | £000 |
| Cash at bank and in hand | 17,358 | (3,425) | (2) | 13,931 |
| Net funds | 17,358 | (3,425) | (2) | 13,931 |
| As at | Cash | Exchange | As at | |
|---|---|---|---|---|
| 3 June 2012 | flow | movement | 2 June 2013 | |
| Company | £000 | £000 | £000 | £000 |
| Cash at bank and in hand | 5,932 | (212) | 7 | 5,727 |
| Net funds | 5,932 | (212) | 7 | 5,727 |
| Group | Company | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| £000 | £000 | £000 | £000 | |
| (Decrease)/increase in cash and cash equivalents in the period resulting from cash flows | (3,425) | (293) | (212) | 5,613 |
| Change in net funds resulting from cash flows | (3,425) | (293) | (212) | 5,613 |
| Exchange movement | (2) | 79 | 7 | 65 |
| Net funds at start of period | 17,358 | 17,572 | 5,932 | 254 |
| Net funds at end of period | 13,931 | 17,358 | 5,727 | 5,932 |
Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:
| 2013 | 2012 | |
|---|---|---|
| Group | £000 | £000 |
| Property, plant and equipment | 484 | 1,894 |
The Company had no capital commitments at either period end.
The future aggregate minimum lease payments under non-cancellable operating leases are payable as follows:
| 2013 | 2012 | |||||
|---|---|---|---|---|---|---|
| Hobby | Other | Hobby | Other | |||
| centres | property | Other | centres | property | Other | |
| Group | £000 | £000 | £000 | £000 | £000 | £000 |
| Within 1 year | 6,161 | 673 | 228 | 7,310 | 1,011 | 216 |
| Between 2 and 5 years inclusive | 14,289 | 1,269 | 299 | 13,261 | 1,447 | 262 |
| In over 5 years | 2,028 | 52 | - | 1,830 | 109 | 1 |
| 22,478 | 1,994 | 527 | 22,401 | 2,567 | 479 |
The Company had no operating lease commitments at either period end.
| 2013 | 2012 | |
|---|---|---|
| Group | £000 | £000 |
| Raw materials | 214 | 1,146 |
The Company had no inventory purchase commitments at either period end.
The Group and Company operate defined contribution schemes. Commitments in respect of pensions are included within prepayments and accruals.
The Group and Company had no contingent liabilities that are expected to give rise to material liabilities at either period end.
The Group has contingent liabilities in respect of the potential reversionary interest in sub-let leasehold properties amounting to £189,000 (2012: £383,000).
The Company provides indemnities to third parties in respect of contracts regarding their use of the Group's intellectual property, under commercial terms in the normal course of business.
The Company has also guaranteed the bank overdrafts of certain Group undertakings for which the aggregate amount outstanding under these arrangements at the balance sheet date was £1,585,000 (2012: £1,964,000).
During the period the Company provided management and similar services to Games Workshop Limited, a subsidiary undertaking.
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation for the Group.
The Group had no related-party transactions in the current or prior period.
Transactions between the Company and its subsidiaries are shown below:
| 2013 | 2012 | ||
|---|---|---|---|
| Subsidiary | Nature of transaction | £000 | £000 |
| Games Workshop International Limited | Dividends receivable | 1,000 | 15,250 |
| Games Workshop Limited | Recharges | 405 | 404 |
| Dividends receivable | 14,500 | 5,800 | |
| Games Workshop Retail Inc. | Dividends receivable | 3,601 | - |
Receivables/(payables) outstanding between the Company and its subsidiaries are shown below:
| Amounts owed by subsidiaries |
Amounts owed to subsidiaries |
|||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| Subsidiary | £000 | £000 | £000 | £000 |
| Games Workshop Group PLC Employee Share Trust | 48 | 45 | - | - |
| Games Workshop Limited | 897 | 929 | - | - |
| Games Workshop Retail Inc. | - | 22 | (87) | - |
| EURL Games Workshop | 4 | 19 | - | - |
| Games Workshop SL | 13 | 6 | - | - |
| Games Workshop Oz Pty Limited | 3 | 14 | - | - |
| Games Workshop Deutschland GmbH | 11 | 6 | - | - |
| Games Workshop (Shanghai) Co. Limited | - | 5 | - | - |
| Games Workshop International Limited | - | 43 | (291) | - |
| Games Workshop (Queen Street) Limited | 5 | 1 | - | - |
| Games Workshop Italia SRL | 120 | 98 | - | - |
| Games Workshop Stockholm AB | 5 | 1 | - | - |
| Games Workshop Limited (New Zealand) | 1 | 1 | - | - |
| 1,107 | 1,190 | (378) | - |
Non-current loans outstanding between the Company and its subsidiaries are shown below:
| Amounts owed by | ||
|---|---|---|
| subsidiaries | ||
| 2013 | 2012 | |
| Subsidiary | £000 | £000 |
| Games Workshop Interactive Limited | 6,779 | 6,779 |
| Less provision for impairment | (6,779) | (6,779) |
| Games Workshop Limited | 3,900 | 3,900 |
| 3,900 | 3,900 |
| 2013 | 2012 | 2011 | 2010 | 2009 | |
|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | |
| Continuing operations | |||||
| Revenue | 134,597 | 131,009 | 123,052 | 126,511 | 125,706 |
| Continuing operations | |||||
| Operating profit - pre-royalties receivable | 20,229 | 15,603 | 12,789 | 12,989 | 5,462 |
| Royalties receivable | 1,025 | 3,537 | 2,455 | 3,991 | 4,234 |
| Operating profit | 21,254 | 19,140 | 15,244 | 16,980 | 9,696 |
| Finance income | 176 | 434 | 132 | 442 | 333 |
| Finance costs | (35) | (100) | (89) | (367) | (1,808) |
| Profit before taxation | 21,395 | 19,474 | 15,287 | 17,055 | 8,221 |
| Income tax expense | (5,077) | (4,760) | (4,047) | (1,302) | (2,321) |
| Profit attributable to owners of the parent - continuing | 16,318 | 14,714 | 11,240 | 15,753 | 5,900 |
| Profit attributable to owners of the parent - discontinued | - | - | - | - | 118 |
| Basic earnings per ordinary share | 51.5p | 46.8p | 36.0p | 50.6p | 19.3p |
Annual general meeting 18 September 2013 Announcement of half year results January 2014 Financial year end 1 June 2014 Announcement of final results July 2014
Notice is hereby given that the annual general meeting of Games Workshop Group PLC (the 'Company') will be held at the Company's registered office, Willow Road, Lenton, Nottingham, NG7 2WS at 10.00am on 18 September 2013 for the following purposes:
As ordinary business to consider and, if thought fit, to pass the following resolutions 1 to 6 as ordinary resolutions:
To receive the Company's annual accounts for the year ended 2 June 2013 together with the directors' report, the remuneration report and the auditor's report on those accounts, the auditable part of the remuneration report and the directors' report.
To re-elect T H F Kirby as a director.
To re-elect C J Myatt as a director.
To re-elect N J Donaldson as a director.
To re-appoint PricewaterhouseCoopers LLP as auditors to hold office until the conclusion of the next general meeting at which accounts are laid by the Company and to authorise the directors to fix their remuneration.
To approve the remuneration report for the year ended 2 June 2013.
To consider and, if thought fit, pass the following resolutions, of which resolution 7 will be proposed as an ordinary resolution and resolutions 8 and 9 will be proposed as special resolutions.
That the directors of the Company be generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 (the 'Act') to exercise all the powers of the Company to allot Relevant Securities (as defined below) up to an aggregate nominal amount of £523,587 provided that this authority shall, unless renewed, varied or revoked by the Company, expire on 17 December 2014 or, if earlier, the date of the next annual general meeting of the Company save that the Company may, before such expiry, make offers or agreements which would or might require Relevant Securities to be allotted and the directors may allot Relevant Securities in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired. This resolution revokes and replaces all unexercised authorities previously granted to the directors to allot Relevant Securities but without prejudice to any allotment of shares or grant of rights already made, offered or agreed to be made pursuant to such authorities. Relevant Securities means: (i) shares in the Company other than shares allotted pursuant to an employee share scheme (as defined by section 1166 of the Act), a right to subscribe for shares in the Company where the grant of the right itself constituted a Relevant Security or a right to convert securities into shares in the Company where the grant of the right itself constituted a Relevant Security; (ii) any right to subscribe for or to convert any security into shares in the Company other than rights to subscribe for or convert any security into shares allotted pursuant to an employee share scheme (as defined by section 1166 of the Act). References to the allotment of Relevant Securities in this resolution include the grant of such rights.
That subject to the passing of resolution 7 above, the directors of the Company be given the general power pursuant to sections 570 to 573 of the Companies Act 2006 (the 'Act') to allot or make offers or agreements to allot equity securities for cash, either pursuant to the authority conferred by resolution 7 above or by way of a sale of treasury shares, as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to:
The power granted by this resolution will expire on 17 December 2014 or, if earlier, the conclusion of the Company's next annual general meeting (unless renewed, varied or revoked by the Company prior to or on such date) save that the Company may, before such expiry make offers or agreements which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred by this resolution has expired. This resolution revokes and replaces all unexercised powers previously granted to the directors to allot equity securities as if either section 89(1) of the Companies Act 1985 or section 561(1) of the Act did not apply but without prejudice to any allotment of equity securities already made or agreed to be made pursuant to such authorities. For the purposes of this resolution the expression 'equity securities' and references to 'allotment of equity securities' respectively have the meanings given to them in section 560 of the Act.
That the Company be and is hereby granted general and unconditional authority for the purposes of section 701 of the Companies Act 2006 (the 'Act') to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 5p each in the capital of the Company ('ordinary shares') on such terms and in such manner as the directors may from time to time determine provided that:
By order of the board
Company Secretary 29 July 2013 Registered office: Willow Road, Lenton Nottingham NG7 2WS Registered in England and Wales under number 2670969
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