Annual Report • May 31, 2015
Annual Report
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Annual report 2015
| 2015 | 2014 | |
|---|---|---|
| Revenue | £119.1m | £123.5m |
| Revenue at constant currency* | £123.1m | £123.5m |
| Operating profit – pre-exceptional items and royalties receivable |
£15.0m | £15.4m |
| Exceptional costs | - | £4.5m |
| Royalties receivable | £1.5m | £1.4m |
| Operating profit | £16.5m | £12.3m |
| Profit before taxation | £16.6m | £12.4m |
| Cash generated from operations | £25.6m | £25.0m |
| Earnings per share | 38.3p | 25.2p |
| Pre-exceptional earnings per share | 38.2p | 36.1p |
| Dividends per share declared in the year | 52p | - |
| Chairman's preamble | 2 |
|---|---|
| Strategic report | 3 |
| Directors' report | 11 |
| Corporate governance report | 16 |
| Remuneration report | 20 |
| Directors' responsibilities statement |
28 |
| Company directors and advisers | 29 |
| Independent auditors' report | 30 |
| Consolidated income statement | 34 |
| Statements of comprehensive income |
34 |
| Balance sheets | 35 |
| Consolidated and Company statements of changes in total equity |
36 |
| Consolidated and Company cash flow statements | 37 |
| Notes to the financial statements | 38 |
| Five year summary | 59 |
| Financial calendar | 59 |
| Notice of annual general meeting | 60 |
*Constant currency revenue is calculated by comparing results in the underlying currencies for 2015 and 2014, both converted at the 2014 average exchange rates as set out on page 9.
This year Kevin Rountree took over the day-to-day running of your company. I stayed on as non-executive chairman so you still get this preamble and my presence in the remuneration report. I will also be helping Kevin as and when he wants it as a consultant from time to time. It's early days, but things seem to be going extremely well.
The Great Master Plan continues: cutting costs, becoming more efficient, providing excellent returns on capital and paying dividends. We do not set out to pay dividends, we set out to run an efficient company that uses money wisely. We know we are doing that well when we have more money than we need; this becomes your dividend.
One bit of the GMP remains stubbornly unrealised – sales growth. We knew that the huge infrastructure changes we have been making these last few years (and are still making, we have just signed off on a new ERP system) would be disruptive, so we are not surprised that many trade accounts across Europe no longer trade with us. Nor are we surprised at the amount of work we have to do to get great managers in all our stores following the move to one-man operation. Our efforts, unfortunately, have coincided with truly dreadful trading conditions and, for the first time in our history, a year when the pound was strong against the euro and the dollar simultaneously. Our natural hedge hasn't been one this year. You can see the effects of our lack of sales growth in our gross margin, cost-savings in the maintenance of our net margin, and currency everywhere.
Nevertheless, as I am sure he will tell you, Kevin has plans for sales growth across the board. More stores, growth in our existing stores, more trade accounts and a better performance from our mail order service.
I do not often talk about our products, partly because I think they speak eloquently for themselves, and partly because it is important for everyone to remember (that's owners, customers and staff) we are a business. We need to be here next year if you want more of the exquisite models we make. To be here next year we have to do what all our customers want, not just a noisy few, and find a way of making money doing it. This year, though, is an exceptional year. Not only have we just opened a wonderful new visitor centre on time and under budget (take a bow, Tony) we have also relaunched Warhammer.
The visitor centre is a cathedral of miniatures with the world's largest and most spectacular diorama. Only £7.50 and a day you will remember all your life.
The new Warhammer is new. The Stormcast Eternals now bestride the universe and nothing will be the same again1 . Not even the front of our building. Buy Warhammer: Age of Sigmar when you come to the visitor centre or the AGM, and see what we have done.
As I write the world is tumbling in chaos around us. Pundits discover they cannot predict elections, the Americans ride to the rescue of world football (thank you, Uncle Sam), Sunderland escape relegation, again, the UK will split up into its consistent parts, it will leave Europe; and yet we struggle on. Babies get born, the rain falls the sun shines and the plants grow, our chickens keep laying, and Games Workshop still employs over 1,500 people, supporting 1,500 families all over the globe, making the best miniatures money can buy, providing one of the best investments in our owners' portfolios, and having a great deal of fun doing it.
Tom Kirby Non-executive chairman 27 July 2015
2 Games Workshop Group PLC 1 For those who fret about this sort of thing, rest assured no miniature has been made redundant, no army is unwelcome in the new system, no paint job, no conversion is now worthless. As always we make these changes with great care. Your miniatures are the real 'eternals'.
Games Workshop's ambitions remain clear: to make the best fantasy miniatures in the world and sell them globally at a profit, and it intends doing so forever. All of our decision making is focused on the long term success of Games Workshop, not short term gains.
This statement includes all the key elements of what we do and why we do it that way.
Before I go into what each key element is I'd like to share a thought. I believe we are a unique business and I understand that some people find us and our product a little odd and possibly a little quirky too. We are both of these and we are proud of it. I also know I am CEO of one of the most exciting companies creating fun on the planet. We forget most days because we are all focused on delivering our jobs. Our Hobby is great fun. We really do intend to be around forever, creating fun.
The first element - we make high quality miniatures. We understand that what we make is not for everyone, so to recruit and re-recruit customers we are absolutely focused on making our models the best in the world. In order to continue to do that forever and to deliver a decent return to our owners, we sell them for the price that we believe the investment in quality is worth.
Our customers tend to be teenage boys and male adults with some spare money to spend and time to enjoy hobbies. I'd like to think our Hobby - modelling, painting, collecting, gaming - is for anyone. Our customers are found everywhere. Our job is to, on a day to day basis, find them, commercially, wherever they are.
The second element is that we make fantasy miniatures based in our imaginary worlds. This gives us complete control over the imagery and styles we use and complete ownership of the intellectual property. Aside from our core business, we are constantly looking to grow our royalty income from opportunities to use our IP in other markets.
The third element is the global nature of our business. We seek out our customers all over the world. We believe that our customers carry our Hobby gene and to find them we apply our tried and tested approach of recruiting customers in our own stores, by offering a fantastic customer experience. Our retail business is supported by our own mail order store (it has the full range of our product) and our independent stockist accounts and trade outlets across the world. The independent accounts do a great job supporting our customers in parts of the world where we either have not opened one of our stores or where it is not commercially viable for us to have one of our stores. We will always have more independent accounts than our own stores. Our strategy is to grow our business through geographic spread growing all of the three complementary channels.
The fourth element is being focused on cash. We want to deliver a great cash return every year so that we can continue to innovate, surprise and delight our loyal existing customers and new customers with great product. To be around forever we also need to invest in both long term capital and short term maintenance projects every year, pay our staff what they have earned for the value they contribute and deliver surplus cash to our shareholders. Our complete dedication and focus should ensure we deliver on time and within our agreed cash limits.
We measure our success by seeking a high return on investments. In the short term, we will measure our success on our ability to grow sales whilst maintaining our core business operating profit margin. The way we go about implementing this strategy is to recruit the best staff we can by looking for the appropriate attitudes and behaviour each job we do requires and identifying the value that job brings. It is also important that everyone we employ has a real desire to learn and has a great attitude to change. Our Academy offers all of our staff both personal development and management skills training. It is also worth noting it's not what you know at Games Workshop, it's how much you contribute to our success, that we value.
We continue to believe there are great opportunities for further growth, particularly in North America and Northern Europe. So, we intend to keep on growing steadily; if we rush there is always a risk we will compromise one of the above.
We design, manufacture, distribute and sell our fantasy miniatures and related products. These are fantasy miniatures from our own Warhammer 40,000 and Warhammer universes. Our factory, main distribution centre and back office support functions are all based in Nottingham.
We are an international business centrally run from our HQ in Nottingham, with 72% of our sales coming from outside the UK.
Employing 167 people, the design studio in Nottingham creates all the miniatures, artwork, games and publications that we sell. In 2014/15 we invested £7.7 million in the studio (including software costs) with a further £2.0 million spent on tooling for new plastic miniatures. We are committed to a similar level of investment every year.
We are proud to manufacture our product in Nottingham. It's where we started and where we intend to stay. During the year we have been planning a project to upgrade our core IT systems that interface with our manufacturing equipment and systems.
All of our product is initially distributed from our warehouse facility in Nottingham. This facility supplies our two hubs in Memphis, Tennessee and Sydney, Australia and either directly to our trade accounts and retail stores or via a third party carrier. During the year we started a project to upgrade the IT infrastructure and software for the warehouse that supports our mail order store based in Nottingham.
We sell via three channels, our own stores 'Retail', third party independent retailers 'Trade' and our 'Mail order' web store.
Games Workshop stores - Retail - they provide the focus for the Hobby in their areas. They only stock Games Workshop product. They are where we recruit the majority of our new customers. To do so the stores don't offer the full range of our products, they are merchandised to offer all customers new release product and the appropriate extended range. To achieve this we centrally run automatic stock replenishment from Nottingham. At the year end we had 418 Games Workshop stores in 20 countries. Our stores contributed 42% of the year's sales. Over the last five years we have been focusing on ensuring all of our stores are profitable by exiting expensive locations and converting our stores to one man stores. We believe that this project is in effect complete: we have 324 one man stores, small sites, each one staffed by only one store manager. We also have 94 multi man stores, which are constantly reviewed to ensure they remain profitable. If not, they will be closed and replaced with one man stores.
Trade - we sell to third party retailers under closely controlled terms and conditions. They help us sell our products mostly where we don't have our own stores. The bulk of these sales are made via our telesales teams based in Memphis and Nottingham. We also have small teams in Sydney, Tokyo and Shanghai. Last year we had 3,700 independent retailers in 52 countries. We have successfully introduced over the last few years a stockist programme which is designed to sell the right amount of stock into every account in line with their store format and performance. This programme is reviewed annually. The intention is that we stock all of our stockist accounts with our best sellers. We strive to deliver excellent service, operating in 16 languages covering all time zones. 37% of our sales came from sales to independent retailers in the year reported.
Mail order - the mail order store allows enthusiasts full access to all Games Workshop products. It is run centrally from Nottingham. It accounted for 21% of total sales in 2014/15. All of our stores have a terminal that allows our retail customers access to the full range.
We control the business centrally from Nottingham; it is where the people with experience and knowledge of running our niche business work. I have put in place a flat structure: the people with senior responsibility report directly to me. My team is split into three parts: Sales, Operations and Advisers.
My channel sales structure comprises retail, trade and mail order. This structure is made up of three key territory retail sales managers in the UK, North America and Continental Europe and a global trade manager. These four individuals have been in their jobs now for just over 18 months and their progress is encouraging. Since taking up the position of CEO I have appointed a new global mail order manager, a new global digital sales manager, and a retail sales manager for Australia and New Zealand. I also have a sales manager for Asia.
My operations and support structure includes a new finance director for Games Workshop who is responsible for accounts, compliance and legal duties. I have a product and supply manager who is responsible for our factory, logistics and design studios (Citadel, Forge World and Black Library). He also manages our three main distribution hubs in Nottingham, Memphis and Sydney. A personnel manager and our Academy personal development and skills training ensure we take our people recruitment and development seriously. All of our senior managers attend management skills training, as a team, three times per year.
My advisers comprise a small team who advise me with regard to any aspect of the use of our IP, licensing and product strategy. To help me stay focused on executing my key day to day duties I have arranged a consultancy agreement with Tom Kirby to support me with our Academy programme and our expansion in Asia.
The board and management team use a number of key performance indicators to provide a consistent method of analysing performance, in addition to allowing the board to benchmark performance against our forecast. The key performance indicators utilised by the board can be split into key financial performance indicators and key non-financial performance indicators.
The key financial performance indicators are:
Moving Annual Total ('MAT') sales growth by channel Measures the sales growth achieved in each of our channels on a rolling 12 month basis.
MAT Group gross margin
Measures the gross profit achieved on sales after taking account of the direct costs and depreciation of manufacturing and shipping our product to customers/stores on a rolling 12 month basis.
MAT core business profit Measures gross profit less operating expenses on a 12 month rolling basis, before royalty income.
MAT number of own stores by territory Measures the number of our own stores on a rolling 12 month basis. This is an indicator of our global reach.
MAT number of ordering stockist accounts by territory
Measures the number of trade outlets that have ordered from us in the last three months. It is an indicator of our global reach and the health of our trade account base.
The key non-financial indicators are:
This is an indicator of the effectiveness of our design studio and our continuous improvement in design to manufacture. We measure this by looking at sell through. If the product is great we sell a lot, if not we sell very few.
This is an indicator of the effectiveness and efficiency of the service experience customers get in our stores and the time it takes us to resolve a customer query made to our customer service teams. The former is measured by the number of complaints I receive - very few and the latter is tracked by five micro KPIs. Our approach is that 'the customer is always right' and we do our utmost to resolve successfully any issues.
We believe shareholder value is created, primarily, by not destroying it. We have no intention to acquire other companies, nor to dispose of any of those we own.
We return our surplus cash to our owners and try to do so in ever increasing amounts.
Graph of our shareholder value
Shareholder value for this graph is calculated as the price of the shares at year end plus the dividend per share paid in the year.
Over the year we have seen modest sales growth, at constant currency, in our core trade and mail order channels. We saw a small sales decline in our own stores due to continued difficult trading in Continental Europe following our restructuring last year. We saw expected declines in some non-core activities (described below) that are grouped with core activities in our reporting. The effect of these non-core activities and the continuing effects of unfavourable exchange rates mean that our reported sales show declines in retail (-4.6%) and trade (-6.3%). Mail order growth was 3.9%.
It is encouraging to see that the channels and territories not impacted by our restructuring last year delivered sales growth, namely, mail order, trade in North America, Australia and New Zealand and retail in the UK, Australia and New Zealand.
The restructuring across Continental Europe was delivered on time, within budget and has delivered the cost savings that were planned. We anticipated - correctly - that it would take some time to get this region back to its normal levels as we knew we would have to recruit a new trade team of recruiters and account developers in Nottingham servicing all of Continental Europe in the local languages. In the second half that new team delivered sales growth of 1%. The impact in retail has taken a little longer than planned to recover. The key issue is store manager recruitment, which remains a key priority.
The exit of loss making stores in North America has been a challenge; we closed nine stores in the year and as a direct result have not delivered a net increase in stores in North America in the year. This project is now complete and, subject to finding the right managers, we will be embarking on a store opening programme in North America in 2015/16.
We expected a decline in non-core trade activities (-£2.2 million) and this comprised export, non-strategic accounts and magazine sales via newsstand. The decline of non-core retail of £0.7 million is due to the redevelopment of the visitor centre in Nottingham. We aim to offset this sales decline in 2015/16 with the opening of our new visitor centre and our new events programme. We are all very proud of the new venue, which opened on time and on budget in May 2015. It is a great example of our staff working together to deliver a project successfully.
Gross margin declined in the period due to a decline in sales volumes and increased development costs due to the release of more new products. The quality of new product we release continues to surprise and delight our customers and we plan to do so every week. We have increased the prices of our new releases to reflect the additional investment and value we have built into these new releases. The annual impact of this increase on our UK RRP price list is an average increase of 3%.
Costs have been reduced in the year, mainly as a result of the savings delivered from restructuring in Continental Europe, the exit of high cost stores in North America and the way in which we maintain cover staff for our UK stores.
I have set a goal of getting the business into sales growth in 2015/16 and have asked staff to accept a salary freeze until December 2015 to allow us to maintain our cost to sales ratio. If we deliver sales growth in the first half of 2015/16 I have agreed to back date any salary reviews to 1 June 2015. We are all working hard to deliver this goal.
We have taken the decision in the year to rebrand our stores 'Warhammer'. It is what our customers call us. This will be rolled out progressively, as and when we open new or refurbish our existing stores. At the year end we had 13 Warhammer branded stores.
In July 2015, we relaunched Warhammer Fantasy to broad acclaim 'Warhammer: Age of Sigmar'. We are so proud of this new range of miniatures that we have commissioned an additional statue at our HQ to complement our Space Marine, which has delighted our customers and staff for the last 17 years. You have to see it to believe it, you will not be disappointed.
In the period we signed 17 new deals and have 44 contracts currently in place to produce more than 50 interactive products. Reported income is split: 52% traditional PC games, 27% mobile and 21% card, board and role-playing game licences. 37 new products were released in the period. We also announced a major tie up with SEGA to develop a real time strategy game 'Total War: Warhammer'.
We have three major projects being implemented currently:
Our key measure of our performance is return on capital. During the year our return on capital fell from 42% to 40%. This was driven by both a decline in operating profit and an increase in capital employed.
Reported sales fell by 3.5% to £119.1 million for the year. On a constant currency basis, sales were down by 0.3% from £123.5 million to £123.1 million; split by channel this comprised: retail £50.8 million (2014: £52.0 million), trade £46.2 million (2014: £46.9 million) and mail order £26.1 million (2014: £24.6 million).
Core business operating profit (operating profit before royalty income) fell by £0.4 million to £15.0 million (2014: £15.4 million). On a constant currency basis, core business operating profit increased by £2.2 million to £17.5 million. This was driven by a reduction in operating expenses excluding exceptional items.
Operating expenses (excluding exceptional items) fell by £4.2 million; £1.8 million due to a reduction in retail store costs and savings of £2.4 million from the restructure of Continental Europe have been realised. Costs remain a key area of focus.
Average capital employed* increased by £2.0 million to £38.6 million. The book value of tangible and intangible assets increased by £1.3 million whilst trade and other receivables decreased by £0.2 million, inventories fell by £0.4 million and current liabilities fell by £1.3 million.
During the year, the Group's core operating activities generated £20.3 million of cash after tax payments (2014: £17.9 million). The Group also received cash of £3.0 million in respect of royalties in the year (2014: £2.4 million). After purchases of tangible and intangible assets and product development costs of £12.4 million (2014: £11.7 million) and dividends of £16.6 million (2014: £5.1 million) there were net funds at the year end of £12.6 million (2014: £17.6 million).
The chart below shows a bridge of operating profit to cash generated.
*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 pre-exceptional operating profit before royalty income, and the average capital employed is adjusted by deducting assets and adding back liabilities in respect of cash, borrowings, exceptional provisions, taxation, deferred royalty income and dividends.
This is what we have been spending your money on:
| 2015 | 2014 | |
|---|---|---|
| £million | £million | |
| Shop fits for new and existing stores | 0.8 | 1.1 |
| Production equipment and tooling | 3.0 | 2.8 |
| Computer equipment and software | 1.6 | 2.7 |
| Lenton site including the new visitor centre | 2.4 | 0.5 |
| Total capital additions | 7.8 | 7.1 |
In 2014/15 we invested £0.8 million in shop fits: 34 new stores and three refurbishments. We also invested £3.0 million in tooling, milling and injection moulding machines. Capital investment is expected to be higher than depreciation and amortisation over the next few years as we upgrade our core back office systems in Nottingham.
We followed our principle of returning truly surplus cash to shareholders. Dividends of 52 pence per share were paid during the year (£16.6 million; 2014: £5.1 million).
Royalty income increased in the period by £0.1 million to £1.5 million.
The tax rate for the year was 26.1% (2014: 32.0%). We continue to expect a rate above that for business activities based solely in the UK, due to higher overseas tax rates.
42% (2014: 42%) of sales were made through our own stores, 37% (2014: 38%) of sales were to independent retailers and 21% (2014: 20%) mail order.
| Number of stores | Number of stores | Number of one man | Number of one man | |||
|---|---|---|---|---|---|---|
| at May 2014 | Opened | Closed | at May 2015 | stores at May 2015 | stores at May 2014 | |
| UK | 142 | 10 | (10) | 142 | 108 | 103 |
| North America | 87 | 6 | (9) | 84 | 72 | 63 |
| Europe | 141 | 10 | (6) | 145 | 105 | 99 |
| Australia | 40 | 7 | (4) | 43 | 36 | 29 |
| Asia | 4 | 1 | (1) | 4 | 3 | 3 |
| 414 | 34 | (30) | 418 | 324 | 297 |
We relocated 15 stores and these are included in the opened/closed movement above. Our ability to open new stores is still (and always will be) limited by our ability to find the right people to run them. Although we are getting better at it, it is still our number one priority.
Retail sales fell by 4.6% in the year (-2.2% at constant currency), partially due to the continental european reorganisation as well as a decline in non-core retail sales relating to the refurbishment of the visitor centre in Nottingham.
Sales fell by 6.3% in the year (-1.6% at constant currency), partially due to the continental european reorganisation and decline in non-core trade sales.
Our new online shop was launched in April 2014 and our online sales in the period were 3.9% higher than the prior year (+5.9% at constant currency).
The objective of our treasury operation is the cost effective management of financial risk. The relationship with the Group's bank is managed centrally. It operates within a range of board approved policies. No transactions of a speculative nature are permitted.
The Group pays for its operations entirely from our cash flow. We had a small facility at the bank which expired in December 2014.
Net interest receivable for the year (excluding net foreign exchange gains and unwinding of discounts on provisions) was £109,000 (2014: £106,000).
Our big currency exposures are the euro and US dollar:
| euro | US dollar | |||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| Year end rate used for the balance sheet | 1.39 | 1.23 | 1.53 | 1.68 |
| Average rate used for earnings | 1.31 | 1.20 | 1.58 | 1.62 |
The net impact in the year of these exchange rate fluctuations on our operating profit was a reduction of £2.5 million (2014: reduction of £1.3 million).
We report on these topics in the directors' report on pages 13 to 14.
As part of our overall strategy, four key strategic initiatives will be prioritised in 2015/16. These are designed to deliver sales growth whilst maintaining our gross margin and keeping our costs flat.
Firstly, staff recruitment. We need a constant stream of new people to join Games Workshop across all departments and over the last three years our Academy team has been training us all on how to find people whose personal qualities fit the jobs we need to fill. This has radically changed how we recruit and also how we performance manage; to date our new approach has proven to be successful. The challenge now is how do we deal with our recruitment process on an industrial scale: globally we recruit hundreds of people every year and our rigorous approach means that to do this successfully we need to consider thousands of application letters. To help us in this process I will be adding an expert in recruitment to my management team. This appointment should help ensure Games Workshop has the right processes in place to recruit the people we need when we need them to deliver our growth.
Secondly, I will review our product range. We believe this is long overdue: it is time for a resetting of the ranges. Not tweaking here and there but a top down reassessment. I expect to update you further at the half year. We will aim to continue to deliver outstanding product and customer service, maintain our Group gross margin and continue to improve our Group stock turn. To be absolutely clear I will not be reducing the RRP of our products: they are premium priced for their premium quality. I will, however, be looking to offer a broader range of price points. This is exciting and is for the long term, so I'm not promising when you will see a change. We have already started the brainstorming in our monthly strategic product meetings. It is early days, but I can already foresee some busy times ahead.
Thirdly, we must grow the number of customers we have. We have been underperforming here in recent years, mainly on account of our focus on the value based initiatives of converting our loss making stores to profitable ones and restructuring our sales businesses to take out duplicate and unnecessary costs. My aim is to:
I'm also proposing a trial in a few high footfall locations, like the one we opened in April 2015 on Tottenham Court Road, London. It is a multi-man format store with an extended (more expensive) shop fit: mainly new till format, mobile tills, better use of merchandising space, new web terminal (to access our broader range) and next day stock delivery to the store for in-store orders. The store has been branded 'Warhammer' instead of 'Games Workshop'. I believe that this store format can support the additional investment as such stores are uniquely placed to service a higher number of customers, often lots of tourists. My aim is to pilot, on a smaller scale, one each in Boston, Sydney, Munich, Paris and Copenhagen in the year ahead. I don't intend to move our overall retail strategy away from one man stores; these will be exceptional stores. The only differences to our one man store format will be the additional rent and property related costs and the additional capital investment. We can flex the staffing levels.
Open more stockist trade accounts using our proven stockist strategy. This will be based on our well established terms and conditions, selling independent accounts our best selling products and, where appropriate, the extended range. Our global trade manager has some ambitious plans to grow the net number of trade outlets we have, with a particular focus on North America.
Explore new core trade opportunities in toy, craft, book and comic stores. This has always been a great opportunity to extend our reach and help us find new customers. I am working closely with my advisers exploring these types of locations.
Finally, we will be replacing the European ERP system in Nottingham that we have been using for over 15 years: it has come to the end of its useful life. This project will give us the opportunity to drive synergies throughout our back office functions by removing complexity, reengineering our processes and delivering our services at a lower cost. Following a lengthy and robust process we have now chosen the product and the vendor. As a result our capital investment is likely to be higher over the next few years. The total cost of this project, including internal resources, is estimated to be £6.4 million.
The board has overall responsibility for ensuring risk is appropriately managed across the Group. The top five risks to the Group are reviewed at each board meeting. The risks are rated as to their business impact and their likelihood of occurring. In addition, the Group has a disaster recovery plan to ensure ongoing operations are maintained in all circumstances. The principle risks identified in 2014/2015 are discussed below. These risks are not intended to be an extensive analysis of all risks that may arise but more importantly the ones that would cause business interruption in the year ahead. The financial risks impacting the Group are detailed on page 52.
ERP change - as discussed above we are changing our core ERP system in the UK. This is a complicated project with the risk of widespread business disruption if it is not implemented well.
Store manager recruitment – this comprises both recruitment of managers for new stores as well as replacing poor performing managers. Retail is our primary method of recruiting new customers and so we need great managers in all our stores.
Supply chain – as discussed above we are currently changing our mail order warehouse system. This is part of an ongoing programme of continuous improvement for these warehouse systems. As with any system change there are risks associated with the transition. Range management – as discussed above we are reviewing our range to ensure that we are exploring all opportunities. The risk is that we don't fully exploit all the opportunities that are available to us.
Distractions – this is anything else that gets in the way of us delivering our goals.
In my opinion the greatest risk is the same one that we repeat each year, namely, management. So long as we have great people we will be fine. Problems will arise if the board allows egos and private agendas to rule. I will do my utmost to ensure that this does not happen on my watch.
We have all been working hard this year, made some good progress and honoured our commitment to distribute genuinely surplus cash to our shareholders. That commitment isn't going to change.
Since being appointed CEO, I believe I have hit the ground running and not dropped too many balls. I am delighted that my team has responded well to the new CEO. We are working well together, are looking very lively - and with the launch of Warhammer: Age of Sigmar having some fun too.
We are confident we can achieve the priorities I have set for 2015/16. I will keep you appropriately informed.
The board continues to believe that the prospects for the business are good.
Kevin Rountree CEO 27 July 2015
10 Games Workshop Group PLC
The directors present their annual report together with the financial statements and independent auditors' report for the year ended 31 May 2015.
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 retail stores, independent retailers and direct via the internet and mail order. The Group has manufacturing activities in the UK and sells mainly in Continental 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 following interests in 3% or more of the issued share capital of the Company as at 24 July 2015 have been disclosed to the Company:
| No. of shares | % | |
|---|---|---|
| Ruffer LLP | 3,225,596 | 10.1 |
| Investec Asset Management Limited | 3,087,765 | 9.6 |
| Massachusetts Financial Services Company | 2,044,385 | 6.4 |
| Phoenix Asset Management Partners Limited | 1,865,218 | 5.8 |
| Legal & General Group plc | 1,683,901 | 5.3 |
| Schroders plc | 1,677,861 | 5.2 |
| Aberforth Partners LLP | 1,636,300 | 5.1 |
| Artemis Investment Management LLP | 1,620,001 | 5.1 |
| FIL Limited | 1,516,682 | 4.7 |
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 27.
Dividends of 52 pence per share (2014: 16 pence) were paid during the year (£16.6 million; 2014: £5.1 million).
The present directors of the Company are listed on page 29. All of the directors were members of the board throughout the year and up to the date of signing the financial statements with the exception of R F Tongue, who was appointed a director with effect from 1 January 2015.
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, no directors require rotation. R F Tongue, however, will be seeking her election since appointment to the board in January 2015. In addition, as a result of their long service, non-executive directors T H F Kirby, C J Myatt and N J Donaldson are required to retire and are seeking re-election. In relation to the non-executive 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 non-executive 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. T H F Kirby is not considered independent of the Group given his previous executive roles within the Company.
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 page 27. 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 27 July 2015.
K D Rountree (age 45), CEO. 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). Kevin was appointed CFO in October 2008. 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 became chief executive on 1 January 2015. 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.
R F Tongue (age 44), group finance director and company secretary. Rachel joined Games Workshop in September 1996 as group tax manager. She then had various accounting roles within Games Workshop and was appointed company secretary in October 2008. She has also managed the legal and compliance functions within Games Workshop from November 2012. She was appointed group finance director in January 2015. Rachel qualified as a chartered accountant in 1995 and as a chartered tax adviser in 1996 having trained with Arthur Andersen.
T H F Kirby (age 65), non-executive chairman. 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. Following the appointment of Kevin Rountree as CEO with effect from 1 January 2015, Tom became non-executive chairman of the Group. 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.
C J Myatt (age 71). Chris Myatt is the senior independent director, joining the board on 18 April 1996. He was formerly managing director of a division of Tarmac PLC, chairman and non-executive director of a number of manufacturing companies and treasurer of Keele University.
N J Donaldson (age 61). 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.
E O'Donnell (age 44). Elaine O'Donnell was appointed to the board on 28 November 2013. A chartered accountant by profession, until recently Elaine was a corporate finance partner with EY. She is also a non-executive director/trustee of The Manufacturing Institute.
As at 27 July 2015, 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/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the auditors are aware of that information.
As at 24 July 2015, 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 24 July 2015 there were 32,063,812 (2014: 31,860,894) 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 31 May 2015, the Company had an unexpired authority to repurchase shares up to a maximum of 4,747,273 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.
The Company's statement on corporate governance is included in the corporate governance report on pages 16 to 19.
The Company's articles of association take account of certain provisions of the Companies Act 2006 relating to directors' conflict of interest. These provisions permit the board to consider and, if thought fit, to authorise situations where a director has an interest that conflicts, or may possibly conflict, with the interest of the Company. The board has adopted procedures for the approval of such conflicts. The board's powers to authorise conflict are operating effectively and the procedures are being followed.
Games Workshop is fully committed to the safety of its customers and the safety, health and wellbeing of its employees. Our people are our most valuable asset. We care about our colleagues and want to look after them.
Following the appointment of a new global health and safety manager in October 2014, it was identified that Games Workshop's health, safety and environmental ('HSE') strategy should be co-ordinated in a more centralised way, and applied in a more consistent manner throughout our operations around the world. We are currently working on a global HSE system to achieve consistency throughout Games Workshop. This will involve the development of a set of global standards which will form the basis of a global HSE strategy designed to ensure the safety and wellbeing of our customers and employees across the globe.
During the year there were four injuries (2014: 2) reported under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR) 2013 in the UK and three injuries (2014: 2) reported to the US Occupational Safety and Health Administration.
Under the Greenhouse Gas Emissions (Directors' Reports) Regulations 2013, enforced under the Companies Act 2006, we have addressed our Greenhouse Gas ('GHG') reporting requirements.
We have used the methodology described in the Environmental Reporting Guidelines from DEFRA to identify our GHG inventory of Scope 1 (direct) and Scope 2 (indirect) global CO2 emissions. We have considered the six main GHGs and report in CO2 equivalent. Our data includes all manufacturing, office and retail sites controlled globally by Games Workshop. All calculations have used the 2013 DEFRA conversion factors.
| 2015 | 2014 | |
|---|---|---|
| Scope 1 – tonnes CO2e | 685 | 767 |
| Scope 2 – tonnes CO2e | 4,579 | 4,421 |
| Total tonnes CO2e | 5,264 | 5,188 |
| Tonnes CO2e per sq metre | 0.083 | 0.082 |
| Tonnes CO2e per £000 of revenue | 0.044 | 0.042 |
13 Games Workshop Group PLC
This is the second year of reporting and as per the regulations we have included the emissions reported in our previous annual report for the purposes of comparison.
The methodology for calculating emissions from our european operations has been altered for the 2014/15 reporting year in-line with changes to the business structure.
In 2014/15 we sent 64% of our waste by weight from our Nottingham site for re-use or recycling (2014: 70%). 36% of our waste was sent for heat recovery at the Nottingham City Council incinerator (2014: 30%).
Games Workshop will continue its policy of not recharging employees the Workplace Parking Levy (which increased by 2% in April 2015 to £375 per year for each used workplace parking space). We continue to promote our cycle to work scheme and have a high ratio of cyclists (over 10% of employees) at our Nottingham site.
The Group's policy is to consult on 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 board has noted the changes to the UK Corporate Governance Code (the 'Code') announced by the FRC in October 2011 to strengthen the principle of boardroom diversity, which was first introduced into the Code in June 2010. The Company supports the provision that boards should consider the benefits of diversity, including gender, when making appointments and is committed to ensuring diversity, not just at board level but also throughout the workforce. The board believes that business benefits from the widest range of perspectives and backgrounds. The Company's aim as regards composition of the board is that it should have a balance of attitudes and knowledge to enable each director and the board as a whole to discharge their duties effectively. The Company does not consider that diversity can be best achieved by establishing specific quotas and targets and appointments will continue to be made based on merit.
As at 31 May 2015, the workforce is comprised as follows:
| Male | Female | Total | |
|---|---|---|---|
| The board | 4 | 2 | 6 |
| Senior management | 5 | 1 | 6 |
| Total workforce | 1,369 | 285 | 1,654 |
The Group has policies that encompass a set of global sourcing principles covering fair terms of employment, human rights, health and safety, equal opportunities and good environmental practice. We seek to work with suppliers who adopt an ethical approach to human rights, working conditions and the environment in line with our own values. Our buyers are required to review supplier compliance with these policies, identify any areas of non-conformance and take action where appropriate. The Group monitors the quality and availability of all sourced components to ensure high standards are maintained.
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.
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 9 to the financial statements.
The future developments for the Group are discussed in the strategic report on pages 9 and 10.
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.
Group finance director and company secretary 27 July 2015
The Listing Rules of the Financial Conduct Authority require listed companies to disclose, in relation to section 1 of the UK Corporate Governance Code 2012 (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 www.frc.org.uk.
This statement, together with the remuneration report on pages 20 to 27, 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 about operational decisions through the monthly meetings. Terms of reference for the board committees (as set out below) are available on the Company's website.
A review of the performance of the Group's main business activities are included in the strategic review. The board presents this review, together with the directors' report on pages 11 to 15, to give a fair, balanced and understandable assessment of the Group's position and prospects.
The board comprises the chairman, the CEO, the group finance director and three non-executive directors following the appointment of R F Tongue during the year. It is chaired by the chairman, T H F Kirby. This arrangement does not comply with provision A.3.1 of the Code as T H F Kirby did not meet fully the independence criteria set out in the Code as he was formerly the Company's acting CEO and also in providing ongoing consultancy services. In addition, for the first seven months of the year, T H F Kirby was chairman and acting CEO. 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.
The senior independent director is C J Myatt. His principal responsibilities include:
The three non-executive directors (excluding the chairman) 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 non-executive 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 two of the non-executive directors, C J Myatt and N J Donaldson, 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 these non-executive 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 2014/15 the board 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 non-executive directors are provided with accurate, timely and clear information on the Group. In addition, the non-executive 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. The board has completed an internal review process to determine and define the role that the board performs; an internal assessment has been undertaken to review the board's performance against those objectives and this will continue in 2015/16. 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 three non-executive directors and the chairman 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 had six meetings during the year which were attended by all members of the committee. It has an agenda linked to the events in the Group's financial calendar. The external auditors met with the committee without management being present and the chairman and members of the committee have direct contact with the audit partner as required. During the year the committee:
The committee received, reviewed and challenged reports from management and the external auditors setting out the significant issues in relation to the 2015 annual report and made their own assessment. These issues were discussed and challenged with management during the year. They were also discussed with the auditors at the time the committee reviewed and agreed the auditors' Group audit plan and at the conclusion of the audit of the financial statements. The issues that were discussed were:
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. Non-audit fees paid to the auditors are therefore minimal. The Group uses other advisers for taxation advice and other services. The audit fees are disclosed in note 9.
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 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. During the year the external audit was put out to tender and the committee agreed that PricewaterhouseCoopers should remain as auditor. There are no contractual obligations which restrict the choice of external auditors.
The City committee comprises the non-executive 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 non-executive 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 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. 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.
On 1 January 2015, R F Tongue was appointed to the board as a group finance director, effective from that date. Following the Company's recruitment procedures, the board determined that R F Tongue would be a suitable and valuable addition to the board.
Any director appointed during the year is required, under the provisions of the Company's articles of association, to retire and seek election by the shareholders at the next annual general meeting.
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 group finance director, 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 CEO and group finance director are available to meet with shareholders in Nottingham 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 non-executive directors are set out in the board report on remuneration on pages 20 to 27.
With the exception of provisions A.2.1 and A.3.1, the Company has complied with all of the provisions set out in section 1 of the Code.
By order of the board
Group finance director and company secretary 27 July 2015
The remuneration report for the year ended 31 May 2015 has been prepared on behalf of the board by the remuneration committee in accordance with the requirements of the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended, and meets the relevant requirements of the Listing Rules of the Financial Conduct Authority and the UK Corporate Governance Code.
The remuneration report is split into two parts:
As described by T H F Kirby, the chairman, earlier in this annual report, K D Rountree was appointed CEO of Games Workshop with effect from 1 January 2015. At the same time T H F Kirby gave up his role as acting CEO, continuing as non-executive chairman of the Company. Also with effect from 1 January 2015 R F Tongue, formerly company secretary, was appointed group finance director and company secretary of the Company. In connection with these changes the committee undertook a review of the remuneration of the chairman and the executive directors at that time, taking into account their new responsibilities and general economic and market conditions. As a result of this review the base annual salary of T H F Kirby was reduced from £450,000 to £200,000; the base annual salary of K D Rountree was increased from £240,000 to £375,000; and R F Tongue's base annual salary was set at £180,000. The committee proposes to review these base salaries payable to the executive directors at or about the end of the 2015/16 financial year.
Following his appointment as CEO and with the approval of the committee, in March 2015 K D Rountree agreed terms with T H F Kirby whereby the latter would provide consultancy services to the Company focusing on specific aspects of the business; this arrangement will be reviewed in early 2016.
The committee is very much aware of the importance to the Company and its shareholders of the successful transfer of power and responsibility to the new executive board team, mindful in particular that Games Workshop is a most individual business. The committee believes that the appointments and arrangements put in place in early 2015 are appropriate in that connection.
More broadly, the committee seeks to keep under review the consistency of remuneration policy across the Group and is satisfied that an appropriate reward structure exists below board level to recognise and retain the Group's top talent.
N J Donaldson Chairman Remuneration and nomination committee 27 July 2015
This part of the report sets out the directors' remuneration policy, which has applied since the AGM held on 17 September 2014 where it was approved by shareholders. The policy will apply until the AGM in 2017 (unless revised by a vote of shareholders before that time) save that at this year's AGM there will be a resolution proposed to approve the amendments to the remuneration policy, namely, the exercise of discretion by the committee in the application of the remuneration policy where the changes do not have a material advantage to the directors and modification of the profit share scheme. Our remuneration policy now also contemplates paying to non-executive directors consultancy fees in circumstances in which they provide to the Company (at the request of the Company) additional services, based upon their specific areas of expertise, which the board considers to be of value to the Company and beyond that which can reasonably be expected to be provided by a non-executive director.
Games Workshop is a most individual business. We have a simple strategy: we make the best fantasy miniatures in the world and sell them globally at a profit and we intend to do this forever. We embrace long-term thinking, and hence we do not operate bonus schemes of the usual kind or incentive schemes as we believe they can sow the seeds of short-termism. We seek to pay the right remuneration for the job – our real 'bonus' is the opportunity to work at Games Workshop and grow the business.
In terms of senior management, Games Workshop continues to be in a phase of transition. As described earlier in this report, in January 2015 T H F Kirby, our chairman for 16 years and acting CEO since January 2013, stood down from this latter role and became non-executive chairman of the Company. At the same time K D Rountree took up the position of CEO and R F Tongue that of group finance director. The committee believes that each of these individuals is being compensated appropriately for his/her responsibilities.
The aim of the Group's remuneration policy is to reward fairly and to attract, motivate and retain high quality management. The total size of the remuneration package for executive directors is judged by comparison with the remuneration packages of similar companies, having regard to:
The Company's non-executive directors are remunerated with fees in line with market rates. They do not receive any pension or other benefits, other than the reimbursement of reasonable expenses, and they do not participate in any bonus or share schemes.
The table below summarises each of the components of the remuneration package for directors of the Company which comprise the policy. The committee may make minor changes to the policy, which do not have a material advantage to the directors, to aid its operation or implementation, taking account of the interests of shareholders but without needed to seek shareholder approval.
| Purpose and link to | ||||
|---|---|---|---|---|
| Component | strategy | Operation | Maximum potential value | Performance metrics |
| Salary | Core element of fixed remuneration, reflecting the size and scope of the role. |
Reviewed annually and usually fixed for 12 months from 1 June. There is no entitlement to an annual |
There is no prescribed maximum annual increase in salary. |
Not applicable, although the individual's contribution and overall performance is one of the |
| increase. | Salaries are reviewed | considerations in | ||
| Purpose is to recruit and | taking into consideration | determining the level of | ||
| retain directors of the calibre required for the business. |
Takes into consideration the director's role and attitudes. |
salary increases across the Group. |
any salary increase. | |
| Takes into account prevailing market conditions and is aligned with staff pay reviews. |
Increases out of line with the workforce are carefully considered but may be awarded taking all relevant factors into account, for |
|||
| Externally benchmarked by independent remuneration consultants from time to time against companies of a similar size and complexity. |
example, increases in scope and responsibility or salary falling significantly below market positioning. |
Purpose and link to
| Component | strategy | Operation | Maximum potential value | Performance metrics |
|---|---|---|---|---|
| Benefits | Ensures the overall package is competitive. Purpose is to recruit and retain directors of the calibre required for the business. |
T H F Kirby received a fuel allowance, private medical insurance and life assurance cover until 1 January 2015. The executive directors both receive life assurance cover. |
Set at a level which the committee considers appropriate against the market and provides a sufficient level of benefit based on individual circumstances. |
Not applicable. |
| Participation in the sharesave scheme creates staff alignment with the Group and promotes a sense of ownership. |
The sharesave scheme is a HMRC approved monthly savings scheme facilitating the purchase of shares at a discount. |
Sharesave contributions are as permitted in accordance with the relevant tax legislation. |
||
| Where appropriate other benefits may be offered including allowances for relocation and other expatriate benefits. |
||||
| Pension | To provide cost effective retirement benefits. |
Participation in a group personal pension scheme (or other such plan as may be deemed appropriate). |
Up to 10% of salary. | Not applicable. |
| Profit share to 31 May 2015 |
Rewards performance against annual targets linked to the achievement of sustainable profit growth. |
Targets are set annually and any pay out is determined by the committee after the period end, based on performance against those targets. All staff participate equally in the scheme. |
Maximum potential value is £1,000 per person per year. |
The financial target is based on growth in core business operating profit from the prior year. Payments range from nil to £1,000 dependent on the level of increase in operating profit from the prior year. |
| Awards are payable in cash. | ||||
| Profit share from 1 June 2015 |
Rewards performance against annual targets linked to the achievement of sales growth. |
Targets are set annually and any pay out is determined by the committee after the period end, based on |
Maximum potential value is £250 per person per year. |
The financial target is based on growth in sales revenue. |
| performance against those targets. |
Payments range from nil to £250 dependent on the level of increase in sales |
|||
| All staff participate equally in the scheme. |
revenue from the prior year. |
|||
| Awards are payable in cash. |
| Purpose and link to | ||||
|---|---|---|---|---|
| Component | strategy | Operation | Maximum potential value | Performance metrics |
| Non-executive directors' fees |
Sole element of non executive director remuneration set at a level that reflects market conditions. |
Fees are reviewed annually taking into account time commitment, responsibilities and fees paid by comparable companies. Additional fees are paid to the senior independent director to reflect additional responsibilities. Non-executive directors are entitled to claim reasonable out of pocket expenses in connection with the |
Fees are based on the level of fees paid to non executive directors serving on boards of listed companies of a similar size and complexity. |
Not applicable. |
| performance of their duties. Consultancy fees may be paid to non-executive directors for advice in relation to their particular areas of expertise. |
The performance measures selected are aligned with the Company's strategy and business objectives. For the profit share in 2014/15, this was based on growth in core business operating profit and in 2015/16, growth in sales revenue.
The charts below show the relative split of remuneration between fixed pay (base salary, benefits and pension) and variable pay (profit share) for each executive director on the basis of minimum remuneration, remuneration receivable for performance in line with the Company's expectations and maximum remuneration.
| Minimum | In line with expectations | Maximum | ||
|---|---|---|---|---|
| Fixed pay | Fixed elements of salary, benefits and pension. Salary is at 31 May 2015 and the value of benefits has been assumed to be equivalent to that included in the single figure remuneration table on page 25. |
As per minimum. | As per minimum. | |
| Profit share | Nil | Up to £100 per annum. | £250 per annum. |
The Company aims to provide a remuneration package that is market competitive, complies with any statutory requirements and is applied fairly and equitably across the wider employee population. Where remuneration is not determined by statutory regulation, the Company operates the same core principles as it does for the executive directors, namely;
When setting the remuneration package for a new executive director, the committee would seek to apply the same principles and implement the policy framework as set out above. Base salary will be set at a level appropriate to the role and the experience of the director being appointed. Benefits, pension and profit share will be in line with the stated policy. Any buy-out award, should one be required, will be limited to the amount of salary that will be forgone.
Non-executive director fees will be set at a competitive market level, reflecting the skills, knowledge, experience, responsibilities and time commitment.
| Executive | Date of contract | Unexpired term of contract | Notice period |
|---|---|---|---|
| K D Rountree | 25 February 2009 | Rolling contract | 12 months |
| R F Tongue | 25 March 2015 | Rolling contract | 12 months |
| Non-executive | Date of appointment | Date of last re-election at an AGM | Notice period |
| T H F Kirby | 1 January 2015 | 18 September 2013 | 6 months |
| C J Myatt | 18 April 1996 | 17 September 2014 | 6 months |
| N J Donaldson | 18 April 2002 | 17 September 2014 | 6 months |
| E O'Donnell | 28 November 2013 | 17 September 2014 | 6 months |
In accordance with best practice and as set out in the Code, notice periods in new service contracts for executive directors are set at one year. Non-executive director appointments are made through letters of appointment for a one year term, subject to election and reelection by the Company's shareholders in accordance with the Company's articles and the Code.
If an executive director's employment is to be terminated, the committee's policy in respect of the service agreement (in the absence of a breach of the service agreement by the director) is to agree a termination payment based on the value of base salary and contractual pension and other benefits that would have accrued to the director during the contractual notice period. Depending on the particular circumstances, a director may work the notice period, be placed on garden leave for some or all of the notice period or receive a payment in lieu of notice in accordance with the service agreement. The committee will consider mitigation to reduce the termination payment to a leaving director when appropriate to do so, having regard to the specific circumstances.
Non-executive directors' appointments may be terminated without compensation but with six months' notice.
The executive directors may accept one external appointment with the prior approval of the board from which any fees may be retained. At present, neither of the executive directors holds any outside directorships.
The Group aims to provide a remuneration package to all employees that is market competitive, complies with any statutory requirements and is applied fairly and equitably across the employee population, taking into account local employment market conditions.
All employees receive a base salary, may join a pension scheme, when eligible, or have equivalent state provided pension benefits. Employees are also eligible to participate in the sharesave scheme when an invitation is made to do so.
The committee takes into account the general basic salary increase being offered to employees elsewhere in the Group when annually reviewing the salary increase and remuneration of the executive directors. Employees are not consulted in respect of board remuneration.
The committee takes into account shareholder feedback received on remuneration matters, including comments in relation to the AGM plus any additional comments in correspondence direct with the Company. The committee would seek to engage directly with major shareholders should any material changes be made to the policy.
The tables below set out in a single figure the total remuneration, including each element, for each person who served as a director of the Company during the financial years ended 1 June 2014 and 31 May 2015.
| Salary/fees | Taxable benefits | Profit share | Sharesave | benefits | Total | |
|---|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | £000 | |
| K D Rountree | 283 | - | - | 9 | 32 | 324 |
| R F Tongue * | 72 | - | - | 4 | 9 | 85 |
| T H F Kirby | 346 | 2 | - | - | 26 | 374 |
| C J Myatt | 60 | - | - | - | - | 60 |
| N J Donaldson | 52 | - | - | - | - | 52 |
| E O'Donnell | 52 | - | - | - | - | 52 |
| Total | 865 | 2 | - | 13 | 67 | 947 |
*appointed 1 January 2015
Year ended 1 June 2014
| Taxable benefits | Pension related | |||||
|---|---|---|---|---|---|---|
| Salary/fees | Profit share | Sharesave | benefits | Total | ||
| £000 | £000 | £000 | £000 | £000 | £000 | |
| T H F Kirby | 450 | 4 | - | 12 | 45 | 511 |
| K D Rountree | 229 | - | - | 2 | 28 | 259 |
| C J Myatt | 60 | - | - | - | - | 60 |
| N J Donaldson | 52 | - | - | - | - | 52 |
| E O'Donnell* | 21 | - | - | - | - | 21 |
| Total | 812 | 4 | - | 14 | 73 | 903 |
* appointed 28 November 2013
The figures in the single figure tables above are derived as follows:
Salary/fees – the amount of salary/fees received in the year, after any salary sacrifice arrangements for pension contributions.
Taxable benefits – the taxable value of benefits received during the year. These include fuel and private medical insurance.
Profit share – the amount of profit share earned in the year.
Sharesave – the value of the sharesave options granted is based on the fair value of the options at grant. On exercise, the value is based on the gain made between the option price and the market value of the shares on the date of exercise.
Pension related benefits – the cash value of pension contributions received by the executive directors. This includes the Company's contribution into the group personal pension scheme (in the case of K D Rountree and R F Tongue) and into T H F Kirby's self invested personal pension plan until 31 December 2014.
In addition, Mrs K Kirby (Lathbury) received £66,185 (2014: £117,461) during the year from the Group for her work as interim head of IT. Mrs Kirby ceased to work for the Group on 30 November 2014. T H F Kirby provided consultancy at a cost of £25,000 in the year.
During 2014/15 and 2013/14 there were no payments made for loss of office. There were also no payments made to past directors in either the current or prior year.
| M N Wells | T H F Kirby | K D Rountree | ||||
|---|---|---|---|---|---|---|
| 2012 | 2013* | 2013 | 2014 | 2015** | 2015 | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Total remuneration | 319 | 774 | 132 | 511 | 291 | 168 |
| % of maximum profit share paid | 48 | - | 54 | - | - | - |
*M N Wells resigned on 31 January 2013 and so all of his remuneration for 2012/13, including the payment for compensation for loss of office, is included in this table.
**T H F Kirby stepped down as CEO on 31 December 2014 and K D Rountree was appointed CEO with effect from 1 January 2015.
The table below shows how the percentage change in the CEO's salary in 2014 and 2015 compares with the percentage change in the average salary of all employees within the Group. The committee has selected the Group's entire staff population (excluding the CEO) as these represent the most appropriate comparator.
| CEO | Wider workforce | |
|---|---|---|
| Salary | -16.7% | +2.0% |
The following table sets out the percentage change in dividends, pre-exceptional profit attributable to owners and employee remuneration for the year ended 31 May 2015, compared to the year ended 1 June 2014.
| 2015 | 2014 | ||
|---|---|---|---|
| £000 | £000 | % change | |
| Total staff costs | 46,846 | 48,614 | -3.6% |
| Pre-exceptional profit attributable to owners | 12,215 | 11,487 | +6.7% |
| Dividends declared | 16,601 | - | N/A |
At the last AGM, votes on the remuneration report were cast as follows:
| Votes for | % of vote | Votes against | % of vote | Votes withheld | % of vote | |
|---|---|---|---|---|---|---|
| To approve the remuneration report | 20,133,730 | 91.6% | 914,375 | 4.2% | 923,285 | 4.2% |
A summary of the remuneration arrangements in 2014/15 and how the policy will be applied during 2015/16 is set out below:
In May 2013 the committee undertook a benchmarking exercise performed by external remuneration advisers. This reviewed the salaries of the executive and non-executive directors in order to assess how they compared with prevailing market levels of remuneration. This review resulted in an increase in salaries in 2013/14.
The remuneration policy for the non-executive directors is determined by the board and is reviewed every year. Fees were externally benchmarked, as discussed above, taking account of the duties and responsibilities placed on the non-executive directors. The nonexecutive directors do not participate in the Group's sharesave scheme or profit share scheme nor do they receive any benefits or pension contributions.
The maximum profit share that is payable is £1,000 per person per year. The performance targets are based upon pre-exceptional operating profit growth in the core business.
The maximum profit share that is payable is £250 per person per year. The performance targets are based upon sales revenue growth from the prior year.
New sharesave scheme rules are being proposed for approval by shareholders at the 2015 AGM. A further award of options will be made under the new sharesave scheme during the year which is on the same basis as previous years.
The committee is appointed by the board and comprises N J Donaldson (chairman), C J Myatt, E O'Donnell and T H F Kirby. The committee is responsible for setting the remuneration packages of the executive directors as well as approving their service contracts. The terms of reference are available on the investor relations website.
As referred to above, in May 2013 the committee was assisted in its work by Innecto, a remuneration consultancy which was appointed by the Company in consultation with the committee. The committee assessed whether Innecto was independent in the provision of its advice and concluded that it was independent. The amount paid to Innecto during the 2013/14 year for their advice was £5,000.
The directors' interests (including their families) in the shares of the Company were as follows:
| As at | As at | |||||
|---|---|---|---|---|---|---|
| 31 May 2015 | 1 June 2014 | |||||
| ordinary shares | ordinary shares | |||||
| of 5p each | of 5p each | |||||
| Non | Non | |||||
| Beneficial | beneficial | Beneficial | beneficial | |||
| K D Rountree | 15,945 | - | 12,274 | - | ||
| R F Tongue * | 4,700 | 3,300 | - | - | ||
| T H F Kirby | 2,108,650 | 25,444 | 2,108,650 | 25,385 | ||
| C J Myatt | 66,500 | - | 66,500 | - | ||
| N J Donaldson | 20,000 | - | 20,000 | - | ||
| E O'Donnell | 1,500 | - | - | - |
*appointed on 1 January 2015
Share options granted to the directors under the sharesave scheme were as follows:
| At 1 June 2014/ | Number as at | Exercise dates | Exercise | |||||
|---|---|---|---|---|---|---|---|---|
| at appointment | Exercised | Granted | 31 May 2015 | Commencement | Expiry | price | ||
| K D Rountree | 2,513 | (2,513) | - | - | Nov-14 | Apr-15 | 358p | |
| - | - | 3,924 | 3,924 | Nov-17 | Apr-18 | 458.7p | ||
| R F Tongue | 3,924 | - | - | 3,924 | Nov-17 | Apr-18 | 458.7p |
The options above were granted under the Games Workshop Group PLC 2005 Savings-Related Share Option Scheme which grants options at a 20% discount on the market price at grant. Participants save a fixed amount monthly for three years in order to fund the exercise of the option. At exercise an individual may choose to exercise their option or have their savings repaid to them. This scheme is open to all eligible employees and directors who satisfy a service qualification of at least three months. There are no performance targets associated with these options.
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. There is no movement in directors' interests in shares of the Company between 31 May 2015 and the date of this report.
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.
N J Donaldson Chairman Remuneration and nomination committee 27 July 2015
27 Games Workshop Group PLC
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 (IFRS) 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 Group and 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.
The directors consider that the annual report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.
Each of the directors, whose names and functions are listed on page 29, confirms that, to the best of his/her knowledge:
R F Tongue Group finance director and company secretary 27 July 2015
T H F Kirby, non-executive chairman
Willow Road, Lenton, Nottingham, NG7 2WS
2670969
Peel Hunt LLP, Moor House, 120 London Wall, London, EC2Y 5ET
PricewaterhouseCoopers LLP, Donington Court, Pegasus Business Park, Castle Donington, DE74 2UZ
Equiniti Limited, Aspect House, Spencer Road, Lancing, BN99 6DA
Browne Jacobson, Victoria Square House, Victoria Square, Birmingham, B2 4BU
In our opinion:
Games Workshop Group PLC's financial statements comprise:
Certain required disclosures have been presented elsewhere in the annual report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and 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.
| Materiality | Overall Group materiality: £825,000 which represents 5% of operating profit before exceptional items |
|---|---|
| Audit scope | Full scope audits, all conducted by the Group engagement team, were performed on six separate reporting units. The reporting units audited included the five largest trading units in the Group. The audited units accounted for 85% of consolidated revenues and 96% of consolidated operating profit before exceptional items. |
| Areas of focus | Capitalisation of product development costs. Inventory valuation. Tax implications of the prior year continental european reorganisation. |
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ('ISAs (UK & Ireland)'). We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as 'areas of focus' in the table on the following page. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.
| Area of focus | How our audit addressed the area of focus |
|---|---|
| Capitalisation of product development costs Refer to page 17 (audit committee report), page 41 (Key assumptions and estimates) and page 47 (notes). The Group incurred £4.6m of capitalised product development costs during the year to 31 May 2015, relating to products the Group develops to sell through its various channels. The net book value of such capitalised costs as at 31 May 2015 was £3.5m. We focused on this area due to the inherent level of judgement around whether costs capitalised meet the recognition criteria of IAS 38 'Intangible assets' ('IAS 38'), a determination that involves management estimation in particular as regards whether they are specific to projects which are expected to generate future cash inflows. Further, there is a risk that capitalised costs will not be supported by the future cash inflows generated from product sales. |
We assessed whether the costs capitalised relating to product development met the criteria set within IAS 38 'Intangible assets'. We agreed a selection of capitalised product development costs to source documentation, including invoices and timesheets, and determined that they had been allocated to the correct project. We obtained and inspected the latest forecasts in respect of projects to assess recoverability of the capitalised costs. In order to assess the accuracy of the future sales forecasts, we compared actual FY15 sales to forecasts made in previous years and evaluated the historical accuracy of the director's estimates. We also compared performance against forecasts of sales made following the year-end. Based on this assessment, we found the directors' forecasts to be consistent with the actual historical outturn of sales and the levels of sales made post-year end. We applied sensitivity analysis to the forecasts to understand the shortfall in revenues that would be required to cause a material impairment in the carrying value of capitalised costs. We considered the shortfall required to cause a material impairment unlikely given the historic accuracy of the directors' forecasting. |
| Inventory valuation Refer to page 17 (audit committee report), page 41 (Key assumptions and estimates) and page 50 (notes). The Group held inventory of £7.6m as at 31 May 2015. The directors determine the provision for inventory by making assumptions about future sales by product and applying those to the current inventory holding. The Group operates in a retail market where new product releases are regular. There is a risk that inventories held will not be sold through and there is inherent judgement in the levels of sales the directors forecast when assessing realisable value. Over the last three years the Group has on average written off £1.1m of inventory per annum. In order to assess the level of provision required against inventory, the directors assess forecast sales levels by product and in certain situations this calculation is subject to manual override to reflect the specific circumstances of certain inventory lines. We focused on this area because of the subjectivity around forecasting future sales performance of newly launched products, and because of the judgement that exists around the manual adjustments to the calculation. |
We tested that the Group provisioning policy is in accordance with IFRSs as adopted by the EU and had been consistently applied. We understood and assessed manual overrides to the provision calculation to determine whether these adjustments were appropriate. No inappropriate adjustments were identified. We obtained an understanding of management's process for preparing future inventory sales forecasts, including how these were challenged and stress-tested by the directors. We tested the integrity of the underlying calculations by recalculating them and assessed the assumptions over future sales forecasts by testing the accuracy of management's historic sales forecasts compared to actual outturn. We noted no material differences between historic provision levels and actual outturn and were therefore satisfied that the directors forecasting process was reasonable. We obtained further evidence over the appropriateness of the provision by tracing a sample of product lines to post-year end sales and assessing whether, if there were few or no post year end sales or post year end sales were for an amount less than the cost of the inventory, these lines were held at the lower of cost and net realisable value. No material errors were noted. |
| Tax implications of the prior year continental european reorganisation Refer to page 17 (audit committee report), page 41 (Key assumptions and estimates) and page 46 (notes). As part of the Group's european restructuring in the prior year, non-compete payments of £1.2m were made for third party trade sales made by reporting units in Europe and a further £3.5m of costs were incurred in relation to redundancy and relocation of certain members of european staff. Following discussions with its tax advisers, the Group adopted certain tax treatments in relation to the non-compete payments and the costs (in terms of deductibility), which are reflected in the financial statements. There is inherent judgment, as with any uncertain tax position, that these treatments could still be challenged by the tax authorities, which could result in further tax, interest and penalties being payable by the Group. |
We read correspondence between the Group and the relevant tax authorities in order to understand any ongoing investigations and conclusions reached during the year. We also read the advice provided by the Group's tax advisers and subsequent correspondence between them and the Group. We used the knowledge obtained from these sources and our specialised tax knowledge in the relevant jurisdictions to challenge the assumptions and judgements made by the directors with regard to their treatment of these uncertain tax positions. We found the accounting treatment adopted by the directors to be consistent with the advice received from their advisers and our expectations. |
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Group is a vertically integrated business, as shown in note 3 in the notes to the financial statements. The Group financial statements are a consolidation of a number of reporting units, comprising the Group's sales, manufacturing and distribution businesses and centralised functions, and a number of non-trading Group entities.
Accordingly, of the Group's reporting units, we identified six (being Head Office and five trading entities) that, in our view, required an audit of their complete financial information, either due to their size or their risk characteristics. Of the trading entities, three are based in the UK and two in the US. The audit of these trading entities and the Head Office component was performed by the Group engagement team. These entities accounted for 85% of consolidated revenues and 96% of consolidated operating profit before exceptional items. This, together with additional procedures performed, including analytical procedures and certain tests of details over specific balances and transactions, gave us the evidence we needed for our opinion on the Group financial statements as a whole.
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Overall Group materiality | £825,000 (2014: £850,000). |
|---|---|
| How we determined it | 5% of operating profit before exceptional items. This is consistent with the prior year. |
| Rationale for benchmark applied | We consider this to be the primary benchmark used by key stakeholders to evaluate the performance of the Group. We exclude exceptional items in order to eliminate volatility arising from one off items which we believe are not reflective of underlying operations and therefore provides us with a consistent basis for determining materiality. |
We agreed with the audit committee that we would report to them misstatements identified during our audit above £50,000 (2014: £50,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Under the Listing Rules we are required to review the directors' statement, set out on page 15, in relation to going concern. We have nothing to report having performed our review.
As noted in the directors' statement, the directors have concluded that it is appropriate to prepare the financial statements using the going concern basis of accounting. The going concern basis presumes that the Group and Company have adequate resources to remain in operation, and that the directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group's and Company's ability to continue as a going concern.
Companies Act 2006 opinions
| Under ISAs (UK & Ireland) we are required to report to you if, in our opinion: | ||||
|---|---|---|---|---|
| Information in the annual report is: materially inconsistent with the information in the audited financial statements; or apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Company acquired in the course of performing our audit; or otherwise misleading. |
We have no exceptions to report arising from this responsibility. |
|||
| the statement given by the directors on page 28, in accordance with provision C.1.1 of the UK Corporate Governance Code ('the Code'), that they consider the annual report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group's and Company's performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company acquired in the course of performing our audit. |
We have no exceptions to report arising from this responsibility. |
|||
| the section of the annual report on page 17, as required by provision C.3.8 of the Code, describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee. |
We have no exceptions to report arising from this responsibility. |
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have no exceptions to report arising from this responsibility.
In our opinion, the part of the remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance report has not been prepared by the Company. We have no exceptions to report arising from this responsibility.
Under the Listing Rules we are required to review the part of the corporate governance report relating to the Company's compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.
As explained more fully in the directors' responsibilities statement set out on page 28, 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 ISAs (UK & 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:
We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors East Midlands 27 July 2015
33 Games Workshop Group PLC
| Pre-exceptional | |||||
|---|---|---|---|---|---|
| items | Exceptional items* | Total | |||
| Year ended | Year ended | Year ended | Year ended | ||
| 31 May 2015 | 1 June 2014 | 1 June 2014 | 1 June 2014 | ||
| Notes | £000 | £000 | £000 | £000 | |
| Revenue | 3 | 119,132 | 123,501 | - | 123,501 |
| Cost of sales | (36,988) | (36,766) | - | (36,766) | |
| Gross profit | 82,144 | 86,735 | - | 86,735 | |
| Operating expenses | 4 | (67,207) | (71,380) | - | (71,380) |
| Other operating income - royalties receivable | 1,498 | 1,442 | - | 1,442 | |
| Exceptional items | 5 | 42 | - | (4,500) | (4,500) |
| Operating profit | 3 | 16,477 | 16,797 | (4,500) | 12,297 |
| Finance income | 7 | 109 | 106 | - | 106 |
| Finance costs | 8 | (1) | (7) | - | (7) |
| Profit before taxation | 9 | 16,585 | 16,896 | (4,500) | 12,396 |
| Income tax expense | 10 | (4,328) | (5,409) | 1,020 | (4,389) |
| Profit attributable to owners of the parent | 27 | 12,257 | 11,487 | (3,480) | 8,007 |
Earnings per share for profit attributable to the owners of the parent during the period (expressed in pence per share):
| Year ended | Year ended | ||
|---|---|---|---|
| Notes | 31 May 2015 | 1 June 2014 | |
| Basic earnings per ordinary share | 11 | 38.3p | 25.2p |
| Diluted earnings per ordinary share | 11 | 38.3p | 25.1p |
| Basic earnings per ordinary share - pre-exceptional items | 11 | 38.2p | 36.1p |
| Diluted earnings per ordinary share - pre-exceptional items | 11 | 38.1p | 36.0p |
| Group | Company | ||||
|---|---|---|---|---|---|
| Year ended | Year ended | Year ended | Year ended 1 June 2014 |
||
| 31 May 2015 | 1 June 2014 | 31 May 2015 | |||
| £000 | £000 | £000 | £000 | ||
| Profit/(loss) attributable to owners of the parent | 12,257 | 8,007 | 16,159 | (1,798) | |
| Other comprehensive expense | |||||
| Items that may be reclassified to profit or loss | |||||
| Exchange differences on translation of foreign operations | 26 | (473) | (1,233) | - | - |
| Other comprehensive expense for the period | (473) | (1,233) | - | - | |
| Total comprehensive income/(expense) attributable to owners of | |||||
| the parent | 11,784 | 6,774 | 16,159 | (1,798) |
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 38 to 58 are an integral part of these financial statements.
* See note 5 for a description of the exceptional item in the prior period.
| Group | Company | ||||
|---|---|---|---|---|---|
| 31 May 2015 | 1 June 2014 | 31 May 2015 | 1 June 2014 | ||
| Notes | £000 | £000 | £000 | £000 | |
| Non-current assets | |||||
| Goodwill | 13 | 1,433 | 1,433 | - | - |
| Other intangible assets | 14 | 8,262 | 8,683 | - | - |
| Property, plant and equipment | 15 | 22,719 | 21,027 | - | - |
| Investments in subsidiaries | 16 | - | - | 30,584 | 30,584 |
| Trade and other receivables | 19 | 1,195 | 1,408 | 3,900 | 3,900 |
| Deferred tax assets | 17 | 3,621 | 4,715 | 7 | 6 |
| 37,230 | 37,266 | 34,491 | 34,490 | ||
| Current assets | |||||
| Inventories | 18 | 7,625 | 8,035 | - | - |
| Trade and other receivables | 19 | 9,425 | 9,145 | 1,180 | 313 |
| Current tax assets | 600 | 636 | - | - | |
| Cash and cash equivalents | 20 | 12,561 | 17,550 | 71 | 266 |
| 30,211 | 35,366 | 1,251 | 579 | ||
| Total assets | 67,441 | 72,632 | 35,742 | 35,069 | |
| Current liabilities | |||||
| Trade and other payables | 22 | (13,131) | (12,765) | (738) | (583) |
| Current tax liabilities | (1,434) | (587) | - | - | |
| Provisions | 24 | (529) | (3,009) | - | (10) |
| (15,094) | (16,361) | (738) | (593) | ||
| Net current assets/(liabilities) | 15,117 | 19,005 | 513 | (14) | |
| Non-current liabilities | |||||
| Other non-current liabilities | 23 | (364) | (360) | - | - |
| Provisions | 24 | (458) | (517) | - | - |
| (822) | (877) | - | - | ||
| Net assets | 51,525 | 55,394 | 35,004 | 34,476 | |
| Capital and reserves | |||||
| Called up share capital | 25 | 1,603 | 1,593 | 1,603 | 1,593 |
| Share premium account | 25 | 10,218 | 9,490 | 10,218 | 9,490 |
| Other reserves | 26 | 1,182 | 1,655 | 101 | 101 |
| Retained earnings | 27 | 38,522 | 42,656 | 23,082 | 23,292 |
| Total equity | 51,525 | 55,394 | 35,004 | 34,476 |
The notes on pages 38 to 58 are an integral part of these financial statements.
The financial statements on pages 34 to 58 were approved by the board of directors on 27 July 2015 and were signed on its behalf by:
K D Rountree, Director
R F Tongue, 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 2 June 2013 and 3 June 2013 | 1,586 | 9,059 | 2,888 | 34,321 | 47,854 |
| Profit for the year to 1 June 2014 | - | - | - | 8,007 | 8,007 |
| Exchange differences on translation of foreign operations | - | - | (1,233) | - | (1,233) |
| Total comprehensive (expense)/income for the period | - | - | (1,233) | 8,007 | 6,774 |
| Transactions with owners: | |||||
| Share-based payments | - | - | - | 288 | 288 |
| Shares issued under employee sharesave scheme (note 25) | 7 | 431 | - | - | 438 |
| Deferred tax charge relating to share options | - | - | - | (34) | (34) |
| Current tax credit relating to exercised share options | - | - | - | 74 | 74 |
| Total transactions with owners | 7 | 431 | - | 328 | 766 |
| At 1 June 2014 and 2 June 2014 | 1,593 | 9,490 | 1,655 | 42,656 | 55,394 |
| Profit for the year to 31 May 2015 | - | - | - | 12,257 | 12,257 |
| Exchange differences on translation of foreign operations | - | - | (473) | - | (473) |
| Total comprehensive (expense)/income for the period | - | - | (473) | 12,257 | 11,784 |
| Transactions with owners: | |||||
| Share-based payments | - | - | - | 232 | 232 |
| Shares issued under employee sharesave scheme (note 25) | 10 | 728 | - | - | 738 |
| Deferred tax charge relating to share options | - | - | - | (71) | (71) |
| Current tax credit relating to exercised share options | - | - | - | 49 | 49 |
| Dividends paid to Company shareholders | - | - | - | (16,601) | (16,601) |
| Total transactions with owners | 10 | 728 | - | (16,391) | (15,653) |
| At 31 May 2015 | 1,603 | 10,218 | 1,182 | 38,522 | 51,525 |
| Share | Capital | ||||
|---|---|---|---|---|---|
| Called up | premium | redemption | Retained | Total | |
| share capital | account | reserve | earnings | equity | |
| £000 | £000 | £000 | £000 | £000 | |
| At 2 June 2013 and 3 June 2013 | 1,586 | 9,059 | 101 | 24,802 | 35,548 |
| Loss for the year to 1 June 2014 | - | - | - | (1,798) | (1,798) |
| Total comprehensive expense for the period | - | - | - | (1,798) | (1,798) |
| Transactions with owners: | |||||
| Share-based payments | - | - | - | 288 | 288 |
| Shares issued under employee sharesave scheme | 7 | 431 | - | - | 438 |
| Total transactions with owners | 7 | 431 | - | 288 | 726 |
| At 1 June 2014 and 2 June 2014 | 1,593 | 9,490 | 101 | 23,292 | 34,476 |
| Profit for the year to 31 May 2015 | - | - | - | 16,159 | 16,159 |
| Total comprehensive income for the period | - | - | - | 16,159 | 16,159 |
| Transactions with owners: | |||||
| Share-based payments | - | - | - | 232 | 232 |
| Shares issued under employee sharesave scheme | 10 | 728 | - | - | 738 |
| Dividends paid to Company shareholders | - | - | - | (16,601) | (16,601) |
| Total transactions with owners | 10 | 728 | - | (16,369) | (15,631) |
| At 31 May 2015 | 1,603 | 10,218 | 101 | 23,082 | 35,004 |
The notes on pages 38 to 58 are an integral part of these financial statements.
| Group | Company | ||||
|---|---|---|---|---|---|
| Year ended | Year ended | Year ended | Year ended | ||
| 31 May 2015 | 1 June 2014 | 31 May 2015 | 1 June 2014 | ||
| Notes | £000 | £000 | £000 | £000 | |
| Cash flows from operating activities | |||||
| Cash generated from operations | 28 | 25,579 | 24,997 | 15,585 | (887) |
| UK corporation tax paid | (1,912) | (4,492) | - | - | |
| Overseas tax paid | (393) | (229) | - | - | |
| Net cash from operating activities | 23,274 | 20,276 | 15,585 | (887) | |
| Cash flows from investing activities | |||||
| Purchases of property, plant and equipment | (6,783) | (5,673) | - | - | |
| Proceeds on disposal of property, plant and equipment | 28 | 26 | 54 | - | - |
| Purchases of other intangible assets | (1,012) | (1,522) | - | - | |
| Expenditure on product development | 14 | (4,579) | (4,652) | - | - |
| Interest received | 115 | 104 | 84 | 79 | |
| Net cash from investing activities | (12,233) | (11,689) | 84 | 79 | |
| Cash flows from financing activities | |||||
| Proceeds from issue of ordinary share capital | 25 | 738 | 438 | 738 | 438 |
| Interest paid | (1) | - | - | - | |
| Dividends paid to Company shareholders | 12 | (16,601) | (5,077) | (16,601) | (5,077) |
| Net cash from financing activities | (15,864) | (4,639) | (15,863) | (4,639) | |
| Net (decrease)/increase in cash and cash equivalents | (4,823) | 3,948 | (194) | (5,447) | |
| Opening cash and cash equivalents | 17,550 | 13,931 | 266 | 5,727 | |
| Effects of foreign exchange rates on cash and cash equivalents | (166) | (329) | (1) | (14) | |
| Closing cash and cash equivalents | 20 | 12,561 | 17,550 | 71 | 266 |
The notes on pages 38 to 58 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 Retail stores, independent retailers and direct via the internet and mail order. The Group has manufacturing activities in the UK and sells mainly in the UK, Continental Europe, North America, Australia, New Zealand and Asia.
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 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 years ended 31 May 2015 and 1 June 2014. 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 31 May 2015 and 1 June 2014, 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, or when an indicator of impairment arises, 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 when they meet the criteria of IAS 38 'Intangible Assets' and are wholly attributable to specific projects. Product development costs recognised as intangible assets are amortised on a straight line basis over periods ranging between 1 and 48 months to match the expenditure incurred to the expected revenue generated from the subsequent product release. However, there are some design costs which do not meet the recognition criteria and are therefore not capitalised, and shown in note 9.
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 on a straight line basis over the expected useful lives of the assets. 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 they meet the criteria of IAS 38 'Intangible Assets'.
Other development expenditure that does not meet these criteria is 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 |
| Web store 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 on a straight line basis over the expected useful economic lives of the assets concerned to write down to the asset's residual value 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 depreciated over the shorter of the useful economic life of the asset or the period of the lease. These assets are included within fixtures and fittings. Freehold land is not depreciated.
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.
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 retail stores 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.
Inventories are valued at the lower of cost and net realisable value. Cost is determined using a standard costing method taking into account variances. 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.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
The Group operates defined contribution schemes and a group personal pension plan. Pension contributions are charged to the income statement as they accrue. There are no further obligations to the Group once payment has been made.
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 retail stores 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 (2014: 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 are tested for impairment in accordance with IAS 36 'Impairment Of Assets'. For the purposes of assessing impairment, assets are grouped together at the lowest levels for which there are separately identifiable cash flows. Discount rates reflecting the asset specific risks and the time value of money are used for the value in use calculation.
Provisions are recognised in accordance with IAS 37 'Provisions, Contingent Assets and Contingent Liabilities'.
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:
Costs which are both material and non-recurring, whose significance is sufficient to warrant separate disclosure in the financial statements, are referred to as exceptional items. These items are costs that were incurred in the prior period in relation to the continental european reorganisation.
New accounting standards or interpretations effective in the current period which are relevant to the Group are:
These have not had a material impact on the financial statements of the Group or the Company and are unlikely to have a material impact in the future.
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 or company.
Segment information reported for the year to 1 June 2014 has been restated since the last annual report to reflect the move to a channel based management structure.
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 assesses the performance of sales channels and manufacturing and distribution channels separately. At 31 May 2015, the Group is organised as follows:
The chief operating decision-maker assesses the performance of each segment based on operating profit, excluding share option charges recognised under IFRS 2, 'Share-based payments'. This has been reconciled to the Group's total profit before taxation below.
The segment information reported to the executive directors for the year ended 31 May 2015 is as follows:
| External revenue | ||
|---|---|---|
| Restated | ||
| Year ended | Year ended 1 June 2014 |
|
| 31 May 2015 | ||
| £000 | £000 | |
| Trade | 43,940 | 46,903 |
| Retail | 49,597 | 51,974 |
| Mail order | 25,595 | 24,624 |
| Total revenue | 119,132 | 123,501 |
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.
For information, we analyse external revenue further below:
| Year ended | Year ended | |
|---|---|---|
| 31 May 2015 | 1 June 2014 | |
| £000 | £000 | |
| Trade | ||
| UK and Continental Europe | 15,420 | 17,475 |
| North America | 17,740 | 16,498 |
| Australia and New Zealand | 2,000 | 1,971 |
| Non-core trade | 8,780 | 10,959 |
| Total Trade | 43,940 | 46,903 |
| Retail | ||
| UK | 17,496 | 16,631 |
| Continental Europe | 13,879 | 16,349 |
| North America | 9,806 | 9,981 |
| Australia and New Zealand | 5,619 | 5,555 |
| Non-core retail | 2,797 | 3,458 |
| Total Retail | 49,597 | 51,974 |
| Total Mail order | 25,595 | 24,624 |
| Total external revenue | 119,132 | 123,501 |
Operating expenses by segment are regularly reviewed by the executive directors and are provided below:
| Restated Year ended |
|
|---|---|
| Year ended | |
| 31 May 2015 | 1 June 2014 |
| £000 | £000 |
| Trade (7,946) |
(9,627) |
| Retail (33,974) |
(37,288) |
| Mail order (4,326) |
(4,125) |
| Product and supply (3,111) |
(3,841) |
| Central costs (6,206) |
(4,968) |
| Service centre costs (11,215) |
(11,157) |
| Royalties (429) |
(374) |
| Total group operating expenses (67,207) |
(71,380) |
Total segment operating profit is as follows and is reconciled to profit before taxation below:
| Restated Year ended 1 June 2014 |
||
|---|---|---|
| Year ended | ||
| 31 May 2015 | ||
| £000 | £000 | |
| Operating profit | ||
| Trade | 10,970 | 14,838 |
| Retail | (1,050) | (1,636) |
| Mail order | 14,241 | 14,142 |
| Product and supply | 8,643 | 206 |
| Central costs | (6,179) | (5,240) |
| Service centre costs | (11,217) | (11,081) |
| Royalties | 1,069 | 1,068 |
| Total group operating profit | 16,477 | 12,297 |
| Finance income | 109 | 106 |
| Finance costs | (1) | (7) |
| Profit before taxation | 16,585 | 12,396 |
An exceptional credit of £42,000 for the year ended 31 May 2015 and exceptional costs of £4,500,000 for the year ended 1 June 2014 have been included within the product and supply segment.
Operating profit as reported above includes impairment, depreciation and amortisation charges as follows:
| Depreciation and | |||
|---|---|---|---|
| amortisation | |||
| Year ended | Year ended | ||
| 31 May 2015 | 1 June 2014 | ||
| £000 | £000 | ||
| Trade | (2) | (8) | |
| Retail | (1,298) | (1,220) | |
| Mail order | (927) | (461) | |
| Product and supply | (7,909) | (7,139) | |
| Central costs | (116) | (378) | |
| Service centre costs | (829) | (671) | |
| Total group charge | (11,081) | (9,877) |
Other non-cash charges and significant costs included in operating profit are as follows:
| Net charge to inventory provisions |
Redundancy costs and compensation for loss of office |
|||
|---|---|---|---|---|
| Restated | Restated Year ended 1 June 2014 |
|||
| Year ended | Year ended | Year ended | ||
| 31 May 2015 | 1 June 2014 | 31 May 2015 | ||
| £000 | £000 | £000 | £000 | |
| Trade | - | - | (20) | (424) |
| Retail | (37) | (63) | (712) | (545) |
| Mail order | - | - | (18) | - |
| Product and supply | (1,210) | (648) | - | (3,037) |
| Central costs | - | - | (819) | (189) |
| Total group charge | (1,247) | (711) | (1,569) | (4,195) |
Asset and liability information is not reported to the chief operating decision-maker on a segment basis and therefore has not been disclosed.
External revenue analysed by customer geographical location is as follows:
| Year ended | Year ended | |
|---|---|---|
| 31 May 2015 | 1 June 2014 | |
| £000 | £000 | |
| UK | 32,999 | 34,406 |
| Continental Europe | 33,515 | 39,673 |
| North America | 39,864 | 36,776 |
| Asia Pacific | 11,732 | 11,229 |
| Rest of the world | 1,022 | 1,417 |
| External revenue | 119,132 | 123,501 |
The Group is not reliant on any one individual customer.
Non-current assets (excluding deferred tax assets) are located in the following countries:
| 2015 | 2014 | |
|---|---|---|
| £000 | £000 | |
| UK | 27,885 | 28,930 |
| All other countries | 5,724 | 3,621 |
| Total non-current assets (excluding deferred tax assets) | 33,609 | 32,551 |
Tangible and intangible asset additions included within the UK were £8,738,000 (2014: £10,155,000) and all other countries were £3,710,000 (2014: £1,552,000).
| Year ended | Year ended 1 June 2014 |
|
|---|---|---|
| 31 May 2015 | ||
| £000 | £000 | |
| Selling costs | 39,596 | 43,193 |
| Administrative expenses | 27,611 | 28,187 |
| 67,207 | 71,380 |
The exceptional credit of £42,000 reported in the current year relates to the release of amounts previously provided for the continental european restructure. The exceptional items reported in the prior period relate to the continental european reorganisation announced in January 2014. As part of this reorganisation £2,987,000 was incurred in redundancy and severance costs, £608,000 in closing local country head offices and £905,000 in professional fees and other costs.
| Group | Company | |||
|---|---|---|---|---|
| Year ended | Year ended | Year ended | Year ended | |
| 31 May 2015 | 1 June 2014 | 31 May 2015 | 1 June 2014 | |
| £000 | £000 | £000 | £000 | |
| Total directors' and employees' costs: | ||||
| Wages and salaries | 40,246 | 41,809 | 1,543 | 1,487 |
| Social security costs | 4,497 | 4,867 | 150 | 190 |
| Other pension costs | 1,871 | 1,650 | 106 | 115 |
| Share-based payment | 232 | 288 | 1 | - |
| 46,846 | 48,614 | 1,800 | 1,792 |
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 9.
The remuneration of the directors and other key management personnel of the Group are set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. This subset of people is different to that referred to as 'senior management' on page 14.
| Year ended | Year ended | |
|---|---|---|
| 31 May 2015 | 1 June 2014 | |
| £000 | £000 | |
| Short-term employee benefits | 1,051 | 972 |
| Post-employment benefits | 93 | 98 |
| Share-based payment | 1 | 2 |
| Other long term employee benefits | 2 | 4 |
| 1,147 | 1,076 |
Further information relating to directors' emoluments, shareholdings and share options is disclosed in the remuneration report on pages 25 to 27. Key management are the directors of the Company and the head of product and supply.
| Employee numbers | Group | ||
|---|---|---|---|
| Year ended | Year ended | ||
| 31 May 2015 | 1 June 2014 | ||
| Number | Number | ||
| Monthly average number of employees (including executive directors) by activity: | 167 | 203 | |
| Design and development | 146 | 150 | |
| Production | |||
| Selling: | 824 | 844 | |
| - Full time | 169 | 191 | |
| - Part time | 348 | 365 | |
| Administration | |||
| 1,654 | 1,753 |
The monthly average number of employees for the Company was 11 (2014: 11).
| Year ended | Year ended |
|---|---|
| 31 May 2015 | 1 June 2014 |
| £000 | £000 |
| Interest income: | |
| - On cash and cash equivalents 103 |
105 |
| - Other interest income receivable 6 |
1 |
| 109 | 106 |
| Year ended | Year ended 31 May 2015 1 June 2014 £000 |
|
|---|---|---|
| £000 | ||
| Interest expense: | ||
| - Unwinding of discount on provisions | - | 3 |
| - Other interest payable | 1 | - |
| - Net foreign exchange losses on financing activities | - | 4 |
| 1 | 7 |
| Year ended | Year ended | |
|---|---|---|
| 31 May 2015 | 1 June 2014 | |
| £000 | £000 | |
| Profit before taxation is stated after charging/(crediting): | ||
| Depreciation: | ||
| - Owned property, plant and equipment | 4,991 | 4,907 |
| Impairment/(reversal) of impairment of property, plant and equipment | 9 | (204) |
| Amortisation: | ||
| - Owned computer software | 1,362 | 849 |
| - Development costs | 4,728 | 4,121 |
| Non-capitalised development costs | 3,186 | 3,288 |
| Staff costs (excluding capitalised salary costs shown in note 14 and non-capitalised development costs above) | 40,794 | 42,127 |
| Impairment of trade receivables | 135 | 175 |
| Operating leases: | ||
| - Retail stores | 7,645 | 8,474 |
| - Other property | 448 | 860 |
| - Plant and equipment | 234 | 140 |
| - Other | 130 | 149 |
| Cost of inventories included in cost of sales | 18,379 | 17,896 |
| Net inventory provision creation (note 18) | 1,247 | 711 |
| Loss on disposal of property, plant and equipment | 33 | 370 |
| Loss on disposal of intangible assets | 24 | 333 |
| Redundancy costs and compensation for loss of office | 1,569 | 4,195 |
| Net charge to property provisions including closed or loss making retail stores (note 24) | 236 | 109 |
The comparatives for staff costs (above), non-capitalised development costs and cost of inventories included in cost of sales have been represented in order to better reflect the underlying nature of the expenditure. This is re-classification only and there is no impact on any previously reported profit measure.
Services provided by the Group's auditors and network firms are analysed as follows: Year ended 31 May 2015 £000 Year ended 1 June 2014 £000 Audit services Audit of the Group and Company's financial statements Other services The audit of the Company's subsidiaries pursuant to legislation 53 122 61 141 All other services 12 10 Total services provided 187 212
| Pre-exceptional | Exceptional | |||
|---|---|---|---|---|
| items | items | Total | ||
| Year ended | Year ended | Year ended | Year ended | |
| 31 May 2015 | 1 June 2014 | 1 June 2014 | 1 June 2014 | |
| £000 | £000 | £000 | £000 | |
| Current UK taxation: | ||||
| UK corporation tax on profits for the period | 3,165 | 2,956 | - | 2,956 |
| Under/(over) provision in respect of prior periods | 253 | (54) | - | (54) |
| UK corporation tax on exceptional items for the period | 9 | - | (1,051) | (1,051) |
| 3,427 | 2,902 | (1,051) | 1,851 | |
| Current overseas taxation: | ||||
| Overseas corporation tax on profits for the period | 347 | 908 | - | 908 |
| Over provision in respect of prior periods | (539) | (360) | - | (360) |
| Total current taxation | 3,235 | 3,450 | (1,051) | 2,399 |
| Deferred taxation: | ||||
| Origination and reversal of timing differences | 893 | 1,645 | - | 1,645 |
| Under provision in respect of prior periods | 200 | 314 | - | 314 |
| Origination and reversal of timing differences on exceptional items | - | - | 31 | 31 |
| Tax expense/(income) recognised in the income statement | 4,328 | 5,409 | (1,020) | 4,389 |
| - | ||||
| Current tax credit relating to sharesave scheme | (49) | (74) | (74) | |
| Deferred tax charge relating to sharesave scheme | 71 | 34 | - | 34 |
| Charge/(credit) taken directly to equity | 22 | (40) | - | (40) |
The tax on the Group's profit before taxation differs from the standard rate of corporation tax in the UK as follows:
| Year ended | Year ended | |
|---|---|---|
| 31 May 2015 | 1 June 2014 | |
| £000 | £000 | |
| Profit before taxation | 16,585 | 12,396 |
| Profit before taxation multiplied by the standard rate of corporation tax in the UK of 20.83% (2014: 22.67%) | 3,455 | 2,810 |
| Effects of: | ||
| Items not deductible for tax purposes | 481 | 662 |
| Movement in deferred tax not recognised | (4) | (10) |
| Higher tax rates on overseas earnings | 482 | 1,027 |
| Adjustments to tax charge in respect of prior periods | (86) | (100) |
| Total tax charge for the period | 4,328 | 4,389 |
Included within the £4,328,000 disclosed above, £11,000 relates to changes in rates of UK corporation tax in the year from 21% to 20% from 1 April 2015. Further reductions were included in the Summer Budget 2015 announced on 8 July 2015, which has not been substantively enacted, to reduce the rate to 19% from 1 April 2017 and 18% from 1 April 2020. The overall effect of these further changes, if applied to the deferred tax balance at the balance sheet date, would be to reduce the deferred tax asset by an additional £9,000.
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.
| Year ended | Year ended | |
|---|---|---|
| 31 May 2015 | 1 June 2014 | |
| Profit attributable to owners of the parent (£000) | 12,257 | 8,007 |
| Weighted average number of ordinary shares in issue (thousands) | 31,975 | 31,805 |
| Basic earnings per share (pence per share) | 38.3 | 25.2 |
Basic earnings per share - pre-exceptional items is calculated by dividing the profit attributable to owners of the parent, before exceptional items, by the weighted average number of ordinary shares in issue during the period.
| Year ended | ||
|---|---|---|
| 31 May 2015 | 1 June 2014 | |
| Pre-exceptional profit attributable to owners of the parent (£000) | 12,215 | 11,487 |
| Weighted average number of ordinary shares in issue (thousands) | 31,975 | 31,805 |
| Basic earnings per share – pre-exceptional items (pence per share) | 38.2 | 36.1 |
Diluted earnings per share
The calculation of diluted earnings per share has been based on the profit attributable to owners of the parent and the weighted average number of shares in issue throughout the period, adjusted for the dilutive effect of share options outstanding at the period end.
| Year ended | Year ended |
|---|---|
| 31 May 2015 | 1 June 2014 |
| Profit attributable to owners of the parent (£000) 12,257 |
8,007 |
| Weighted average number of ordinary shares in issue (thousands) 31,975 |
31,805 |
| Adjustment for share options (thousands) 50 |
129 |
| Weighted average number of ordinary shares for diluted earnings per share (thousands) 32,025 |
31,934 |
| Diluted earnings per share (pence per share) 38.3 |
25.1 |
The calculation of diluted earnings per share - pre-exceptional items has been based on the profit attributable to owners of the parent, before exceptional items, 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.
| Year ended | Year ended | |
|---|---|---|
| 31 May 2015 | 1 June 2014 | |
| Pre-exceptional profit attributable to owners of the parent (£000) | 12,215 | 11,487 |
| Weighted average number of ordinary shares in issue (thousands) | 31,975 | 31,805 |
| Adjustment for share options (thousands) | 50 | 129 |
| Weighted average number of ordinary shares for diluted earnings per share (thousands) | 32,025 | 31,934 |
| Diluted earnings per share – pre-exceptional items (pence per share) | 38.1 | 36.0 |
A dividend of 16 pence per share, amounting to a total dividend of £5,077,000, was paid during the year ended 1 June 2014 and was declared in the prior period. A dividend of 20 pence per share, amounting to a total dividend of £6,373,000, a dividend of 16 pence per share, amounting to a total dividend of £5,099,000, and a further dividend of 16 pence per share, amounting to a total dividend of £5,129,000, were declared and paid during the current period.
| Group | £000 |
|---|---|
| Cost | |
| At 1 June 2014 and 2 June 2014 | 2,408 |
| Exchange differences | (6) |
| At 31 May 2015 | 2,402 |
| Accumulated amortisation | |
| At 1 June 2014 and 2 June 2014 | (975) |
| Exchange differences | 6 |
| At 31 May 2015 | (969) |
| Net book value at beginning of period and end of period | 1,433 |
The Company had no goodwill at either period end.
The goodwill arose on the acquisition of TJA Tooling Limited, the acquisition of Triple K Plastic Injection Moulding Limited and the purchase by EURL Games Workshop of the lease associated to Heroic Diffusion SARL, which under IFRS amounted to the purchase of a business.
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, assumes a long term growth rate no higher than 2% (2014: 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 6% (2014: 10%).
Management reviewed 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 the 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 2 June 2013 and 3 June 2013 | 12,951 | 22,014 | 34,965 |
| Additions | 1,316 | 4,652 | 5,968 |
| Exchange differences | (247) | - | (247) |
| Disposals | (4,395) | (1,754) | (6,149) |
| At 1 June 2014 and 2 June 2014 | 9,625 | 24,912 | 34,537 |
| Additions | 1,116 | 4,579 | 5,695 |
| Exchange differences | 24 | - | 24 |
| Disposals | (265) | (1,753) | (2,018) |
| At 31 May 2015 | 10,500 | 27,738 | 38,238 |
| Accumulated amortisation | |||
| At 2 June 2013 and 3 June 2013 | (8,062) | (18,870) | (26,932) |
| Amortisation charge | (849) | (4,121) | (4,970) |
| Exchange differences | 232 | - | 232 |
| Disposals | 4,062 | 1,754 | 5,816 |
| At 1 June 2014 and 2 June 2014 | (4,617) | (21,237) | (25,854) |
| Amortisation charge | (1,362) | (4,728) | (6,090) |
| Exchange differences | (26) | - | (26) |
| 241 | 1,753 | 1,994 | |
| Disposals |
At 1 June 2014 5,008 3,675 8,683 At 31 May 2015 4,736 3,526 8,262
Amortisation of £4,990,000 (2014: £4,394,000) has been charged in cost of sales and £1,100,000 (2014: £576,000) in operating expenses.
The net book amount of internally generated intangible assets is £3,939,000 (2014: £4,203,000) and acquired intangible assets is £4,323,000 (2014: £4,480,000). All development costs are internally generated and £2,866,000 (2014: £3,004,000) is capitalised salary costs.
Salary costs of £nil (2014: £195,000) were capitalised during the prior period as part of computer software.
Assets in the course of development, and not amortised, amount to £1,048,000 (2014: £189,000) with current and prior year amounts both being included within computer software. The current year assets are; the development of the Forge World webstore (£755,000), replacement of warehouse software (£290,000) and upgrade of till software (£3,000). The prior year related to trade CRM modules.
The Company had no other intangible assets at either period end.
| land and equipment and Moulding buildings and vehicles fittings tools Group £000 £000 £000 £000 Cost |
Total £000 81,217 5,739 (1,323) |
|---|---|
| At 2 June 2013 and 3 June 2013 14,770 18,696 21,496 26,255 |
|
| Additions 246 1,701 1,548 2,244 |
|
| Exchange differences - (345) (972) (6) |
|
| Disposals (210) (3,757) (3,265) (2,295) |
(9,527) |
| At 1 June 2014 and 2 June 2014 14,806 16,295 18,807 26,198 |
76,106 |
| Additions 1,924 1,791 1,373 1,665 |
6,753 |
| Exchange differences - 35 (345) 1 |
(309) |
| Disposals - (1,499) (1,807) (1,364) |
(4,670) |
| At 31 May 2015 16,730 16,622 18,028 26,500 |
77,880 |
| Accumulated depreciation | |
| At 2 June 2013 and 3 June 2013 (4,708) (15,058) (18,843) (22,004) |
(60,613) |
| Charge for the period (243) (1,557) (1,262) (1,845) |
(4,907) |
| Exchange differences - 294 839 1 |
1,134 |
| Impairment 175 - 29 - |
204 |
| Disposals - 3,632 3,180 2,291 |
9,103 |
| At 1 June 2014 and 2 June 2014 (4,776) (12,689) (16,057) (21,557) |
(55,079) |
| Charge for the period (292) (1,578) (1,230) (1,891) |
(4,991) |
| Exchange differences - (25) 333 (1) |
307 |
| Impairment - 3 (12) - |
(9) |
| Disposals - 1,477 1,771 1,363 |
4,611 |
| At 31 May 2015 (5,068) (12,812) (15,195) (22,086) |
(55,161) |
| Net book amount | |
| At 1 June 2014 10,030 3,606 2,750 4,641 |
21,027 |
| At 31 May 2015 11,662 3,810 2,833 4,414 |
22,719 |
Depreciation expense of £2,954,000 (2014: £2,917,000) has been charged in cost of sales, £1,308,000 (2014: £1,226,000) in selling costs and £729,000 (2014: £764,000) in administrative expenses.
Freehold land amounting to £3,836,000 (2014: £3,836,000) has not been depreciated.
Assets in the course of construction, and not depreciated, amount to £1,103,000 (2014: £943,000). £495,000 (2014: £500,000) of these are included in moulding tools, £417,000 (2014: £327,000) is included in plant and equipment and vehicles, £51,000 (2014: £90,000) is included in freehold land and buildings, and £140,000 (2014: £26,000) is included in fixtures and fittings above.
An impairment of £12,000 (2014: reversal of £29,000) relates to fixtures and fittings and a reversal of £3,000 (2014: nil) relates to plant and machinery within loss making retail stores which have been written down to estimated value in use. This has been charged or credited in selling costs in both periods. £175,000 in 2014 relates to the previous write down of the warehouse floor. This was credited in selling costs in the prior period.
The Company held no property, plant and equipment at either period end.
| 2015 | 2014 | |
|---|---|---|
| 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 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) Limited |
Canada | Can \$1 | 100% | Retailer of games and miniatures | |
| EURL Games Workshop | France | euro 1 | 100% | Retailer of games and miniatures | |
| Games Workshop SL | Spain | euro 1 | 100% | 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% | Retailer of games and miniatures | |
| Games Workshop Limited | New Zealand | NZ \$1 | 100% | Retailer of games and miniatures | |
| Games Workshop Italia SRL | Italy | euro 1 | 100% | Retailer of games and miniatures | |
| Games Workshop International Limited | England and Wales |
£1 ordinary | 100% | Holding company for overseas subsidiary companies |
|
| Games Workshop US Limited | England and Wales |
£1 ordinary | 100% | Holding company for US subsidiary companies |
|
| Games Workshop US (Holdings) Limited | England and Wales |
£1 ordinary | 100% | Intermediary holding company for US subsidiary companies |
|
| Games Workshop Good Hobby (Shanghai) Commercial Co. Ltd |
China | Owners capital | 100% | Distributor and retailer of games and miniatures |
|
| Games Workshop Trustee Limited | England and Wales |
£1 ordinary | 100% | Trustee | |
| Games Workshop Stockholm AB | Sweden | SKR 100 | 100% | Retailer of games and miniatures | |
| Games Workshop Interactive Limited | England and Wales |
£1 ordinary | 100% | Dormant | |
| Warhammer Online Limited | England and Wales |
£1 ordinary | 100% | Dormant | |
| Citadel Miniatures Limited | England and Wales |
£1 ordinary | 100% | Dormant | |
| Games Workshop Limited (Hong Kong) | Hong Kong | HK\$10 ordinary | 100% | Dormant |
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 | ||||
|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | ||
| £000 | £000 | £000 | £000 | ||
| Deferred tax assets: | |||||
| - deferred tax asset to be recovered after more than 12 months | 2,379 | 2,227 | 2 | 2 | |
| - deferred tax asset to be recovered within 12 months | 1,242 | 2,488 | 5 | 4 | |
| 3,621 | 4,715 | 7 | 6 | ||
| The gross movement on the deferred tax account is as follows: | Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | ||
| £000 | £000 | £000 | £000 | ||
| Beginning of period | 4,715 | 7,221 | 6 | 5 | |
| Exchange differences | 70 | (482) | - | - | |
| Income statement (charge)/credit | (1,093) | (1,990) | 1 | 1 | |
| Charged directly to retained earnings | (71) | (34) | - | - | |
| End of period | 3,621 | 4,715 | 7 | 6 |
Analysis of the movement in deferred tax assets and liabilities is as follows:
| Losses | |||||
|---|---|---|---|---|---|
| Accelerated | Development | available | |||
| depreciation | costs | for offset | Other | Total | |
| Group | £000 | £000 | £000 | £000 | £000 |
| At 2 June 2013 and 3 June 2013 | 2,025 | (723) | 3,407 | 2,512 | 7,221 |
| Charged to the income statement | (442) | (49) | (895) | (604) | (1,990) |
| Charged to equity | - | - | - | (34) | (34) |
| Exchange differences | (104) | - | (285) | (93) | (482) |
| At 1 June 2014 and 2 June 2014 | 1,479 | (772) | 2,227 | 1,781 | 4,715 |
| (Charged)/credited to the income statement | (101) | 67 | (549) | (510) | (1,093) |
| Charged to equity | - | - | - | (71) | (71) |
| Exchange differences | (84) | - | 109 | 45 | 70 |
| At 31 May 2015 | 1,294 | (705) | 1,787 | 1,245 | 3,621 |
Other deferred tax assets include deferred tax on adjustments for profit in stock arising from intra-group sales of £948,000 (2014: £921,000).
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 31 May 2015 or 1 June 2014 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.
| Accelerated | |||
|---|---|---|---|
| depreciation | Other | Total | |
| Company | £000 | £000 | £000 |
| At 2 June 2013 and 3 June 2013 | 2 | 3 | 5 |
| Credited to the income statement | - | 1 | 1 |
| At 1 June 2014 and 2 June 2014 | 2 | 4 | 6 |
| Credited to the income statement | - | 1 | 1 |
| At 31 May 2015 | 2 | 5 | 7 |
| 2015 | 2014 | |
|---|---|---|
| Group | £000 | £000 |
| Raw materials | 98 | 182 |
| Work in progress | 230 | 213 |
| Finished goods and goods for resale | 7,297 | 7,640 |
| 7,625 | 8,035 |
The Group holds no inventories at fair value less costs to sell.
During the period, the Group utilised an inventory provision of £1,189,000 (2014: £1,175,000) and £1,247,000 (2014: £711,000) has been charged to the income statement.
The Company holds no inventories at either period end.
| Group | ||||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| £000 | £000 | £000 | £000 | |
| Trade receivables | 4,740 | 4,806 | - | - |
| Less provision for impairment of receivables | (252) | (370) | - | - |
| Trade receivables – net | 4,488 | 4,436 | - | - |
| Prepayments and accrued income | 4,787 | 4,361 | 38 | 44 |
| Other receivables | 1,345 | 1,756 | - | 16 |
| Receivables from group companies | - | - | 1,142 | 253 |
| Loans to group companies | - | - | 3,900 | 3,900 |
| Total trade and other receivables | 10,620 | 10,553 | 5,080 | 4,213 |
| Non-current receivables: | ||||
| Prepayments and accrued income | 181 | 177 | - | - |
| Other receivables | 1,014 | 1,231 | - | - |
| Loans to group companies | - | - | 3,900 | 3,900 |
| Non-current portion | 1,195 | 1,408 | 3,900 | 3,900 |
| Current portion | 9,425 | 9,145 | 1,180 | 313 |
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:
| 2015 | 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| Not impaired | Impaired | Total | Not impaired | Impaired | Total | |||
| £000 | £000 | £000 | £000 | £000 | £000 | |||
| Up to 3 months past due | 172 | 18 | 190 | 264 | 72 | 336 | ||
| 3 to 12 months past due | - | 83 | 83 | 2 | 152 | 154 | ||
| Over 12 months past due | - | 51 | 51 | 35 | 30 | 65 | ||
| 172 | 152 | 324 | 301 | 254 | 555 |
In addition to the above, current debt of £100,000 (2014: £116,000) has been impaired.
Movements on the provision for impairment of trade receivables are as follows:
| Group | £000 |
|---|---|
| At 2 June 2013 and 3 June 2013 | 416 |
| Charge for the period | 189 |
| Unused amounts reversed | (14) |
| Receivables written off during the period as uncollectible | (221) |
| At 1 June 2014 and 2 June 2014 | 370 |
| Charge for the period | 144 |
| Unused amounts reversed | (9) |
| Receivables written off during the period as uncollectible | (253) |
| At 31 May 2015 | 252 |
The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:
| Total trade and other receivables | 10,620 | 10,553 |
|---|---|---|
| Other currencies | 1,404 | 1,400 |
| US dollar | 2,142 | 1,781 |
| Euro | 2,167 | 2,714 |
| Sterling | 4,907 | 4,658 |
| £000 | £000 | |
| 2015 | 2014 |
| Group | Company | |||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| £000 | £000 | £000 | £000 | |
| Cash at bank and in hand | 11,942 | 16,432 | 71 | 266 |
| Short-term bank deposits | 619 | 1,118 | - | - |
| Cash and cash equivalents | 12,561 | 17,550 | 71 | 266 |
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.
There were no utilised borrowing facilities at 31 May 2015 or 1 June 2014.
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 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 finance director 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:
| 2015 | 2014 | |
|---|---|---|
| Income | Income | |
| Gain/(loss) | Gain/(loss) | |
| Group | £000 | £000 |
| 10% appreciation of the US dollar (2014: 10%) | 27 | 500 |
| 10% appreciation of the euro (2014: 10%) | (35) | 116 |
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 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 retail stores or via mail order 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. The Group uses return on capital employed to assess capital asset performance.
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 cash flows 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.
| 2015 | 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| 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 | 9,406 | - | - | - | 9,521 | - | - | - |
| Provisions for redundancies and property | 337 | 71 | 61 | - | 303 | 173 | 4 | - |
| Exceptional provisions | 26 | - | - | - | 2,470 | - | - | - |
| 9,769 | 71 | 61 | - | 12,294 | 173 | 4 | - |
| Within | Within | |
|---|---|---|
| 1 year | 1 year | |
| 2015 | 2014 | |
| Company | £000 | £000 |
| Trade and other payables | 690 | 548 |
| 690 | 548 |
| Group | Company | |||
|---|---|---|---|---|
| Loans and receivables | Loans and receivables | |||
| 2015 | 2014 | 2015 | 2014 | |
| £000 | £000 | £000 | £000 | |
| Financial assets as per balance sheet | ||||
| Trade receivables | 4,488 | 4,436 | - | - |
| Accrued income | - | 139 | - | - |
| Other receivables | 1,345 | 1,756 | - | 16 |
| Receivables from group companies | - | - | 1,142 | 253 |
| Loans to group companies | - | - | 3,900 | 3,900 |
| Cash and cash equivalents | 12,561 | 17,550 | 71 | 266 |
| Total | 18,394 | 23,881 | 5,113 | 4,435 |
Within the Group net cash and cash equivalents are overdrafts of £4,276,000 (2014: £2,810,000) which are subject to a master netting arrangement.
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 | ||||
| 2015 | 2014 | 2015 | 2014 | |
| £000 | £000 | £000 | £000 | |
| Financial liabilities as per balance sheet | ||||
| Trade payables | 4,608 | 5,136 | 12 | 13 |
| Other payables | 2,692 | 2,286 | 264 | 13 |
| Accruals | 2,736 | 2,099 | 91 | 189 |
| Payables to group companies | - | - | 324 | 333 |
| Total | 10,036 | 9,521 | 691 | 548 |
Deferred income balances and other taxes and social security payables have been excluded from the above as they are not financial liabilities.
| Group | Company | |||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| £000 | £000 | £000 | £000 | |
| Current | ||||
| Trade payables | 4,608 | 5,136 | 12 | 13 |
| Other taxes and social security | 289 | 1,008 | 47 | 35 |
| Other payables | 2,692 | 2,286 | 264 | 13 |
| Accruals | 2,849 | 2,798 | 91 | 189 |
| Deferred income | 2,693 | 1,537 | - | - |
| Payables to group companies | - | - | 324 | 333 |
| 13,131 | 12,765 | 738 | 583 |
The fair value of trade and other payables does not materially differ from the book value.
| Group | Company | ||||
|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | ||
| £000 | £000 | £000 | £000 | ||
| Accruals | 364 | 360 | - | - |
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:
| 2015 | 2014 | |
|---|---|---|
| £000 | £000 | |
| Sterling | 8,147 | 8,205 |
| Euro | 1,617 | 1,963 |
| US dollar | 2,830 | 1,896 |
| Other currencies | 901 | 1,061 |
| Total trade and other payables and other non-current liabilities | 13,495 | 13,125 |
Analysis of total provisions:
| Group | Company | |||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| £000 | £000 | £000 | £000 | |
| Current | 529 | 3,009 | - | 10 |
| Non-current | 458 | 517 | - | - |
| Total provisions | 987 | 3,526 | - | 10 |
| - Unused amounts reversed Exchange differences |
(42) 44 |
(42) (26) |
(63) 8 |
(147) 26 |
|---|---|---|---|---|
| - Additional provisions |
- | 39 | 299 | 338 |
| At 1 June 2014 Charged/(credited) to the income statement: |
2,470 | 568 | 488 | 3,526 |
| Group | Exceptional items £000 |
Employee benefits £000 |
Property £000 |
Total £000 |
| Employee | ||
|---|---|---|
| benefits | Total | |
| Company | £000 | £000 |
| At 1 June 2014 | 10 | 10 |
| Utilised | (10) | (10) |
| At 31 May 2015 | - | - |
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 cost of this benefit is 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 2018. The estimated liability is discounted to its present value using a discount rate of 4.0% (2014: 4.0%).
Exceptional provisions relate to committed costs associated with the continental european reorganisation announced in January 2014.
| At 31 May 2015 | 32,064 | 1,603 | 10,218 | 11,821 |
|---|---|---|---|---|
| Shares issued under employee sharesave scheme | 204 | 10 | 728 | 738 |
| At 1 June 2014 | 31,860 | 1,593 | 9,490 | 11,083 |
| Shares issued under employee sharesave scheme | 127 | 7 | 431 | 438 |
| At 2 June 2013 | 31,733 | 1,586 | 9,059 | 10,645 |
| Group and Company | (thousands) | £000 | £000 | £000 |
| Number of shares | shares | account | Total | |
| Ordinary | premium | |||
| Share |
During the period 203,827 ordinary shares were issued (2014: 127,385). The total authorised number of shares is 42,000,000 shares (2014: 42,000,000 shares) with a par value of 5p per share (2014: 5p per share). All issued shares are fully paid.
| 2015 | 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| 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 | 2,604 | (1,050) | 1,655 | 101 | 3,837 | (1,050) | 2,888 |
| Exchange differences on | ||||||||
| translation of foreign operations | - | (473) | - | (473) | - | (1,233) | - | (1,233) |
| End of period | 101 | 2,131 | (1,050) | 1,182 | 101 | 2,604 | (1,050) | 1,655 |
The other reserve was created on flotation following a payment to the previous holders of the Company's ordinary shares.
As at 31 May 2015, the Company's capital redemption reserve was £101,000 (2014: £101,000). The Company had no other reserves in addition to the capital redemption reserve at either period end.
| Group | Company | |
|---|---|---|
| £000 | £000 | |
| At 2 June 2013 and 3 June 2013 | 34,321 | 24,802 |
| Profit/(loss) attributable to owners of the parent | 8,007 | (1,798) |
| Deferred tax on share options | (34) | - |
| Current tax on share options | 74 | - |
| Share-based payments | 288 | 288 |
| At 1 June 2014 and 2 June 2014 | 42,656 | 23,292 |
| Profit attributable to owners of the parent | 12,257 | 16,159 |
| Deferred tax on share options | (71) | - |
| Current tax on share options | 49 | - |
| Share-based payments | 232 | 232 |
| Dividends to Company shareholders | (16,601) | (16,601) |
| At 31 May 2015 | 38,522 | 23,082 |
| Group | Company | |||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| £000 | £000 | £000 | £000 | |
| Operating profit/(loss) | 16,477 | 12,297 | (1,946) | (2,408) |
| Depreciation of property, plant and equipment | 4,991 | 4,907 | - | - |
| Net impairment/(reversal) on property, plant and equipment | 9 | (204) | - | - |
| Loss on disposal of property, plant and equipment (see below) | 33 | 370 | - | - |
| Loss on disposal of intangible assets (see below) | 24 | 333 | - | - |
| Amortisation of capitalised development costs | 4,728 | 4,121 | - | - |
| Amortisation of other intangibles | 1,362 | 849 | - | - |
| Share-based payments | 232 | 288 | - | - |
| Dividend income from investments in subsidiary undertakings | - | - | 17,646 | 14 |
| Changes in working capital: | ||||
| - Decrease/(increase) in inventories | 882 | (468) | - | - |
| - (Increase)/decrease in trade and other receivables | (242) | 1,545 | (260) | 1,056 |
| - (Decrease)/increase in trade and other payables | (395) | (952) | 155 | 450 |
| - -(Decrease)/increase in provisions | (2,522) | 1,911 | (10) | 1 |
| Net cash from operating activities | 25,579 | 24,997 | 15,585 | (887) |
In the cash flow statement, proceeds from the sale of property, plant and equipment comprise:
| 2015 | 2014 | |
|---|---|---|
| £000 | £000 | |
| Net book amount | 59 | 424 |
| Loss on sale of property, plant and equipment | (33) | (370) |
| Proceeds from sale of property, plant and equipment | 26 | 54 |
The Company sold no property, plant and equipment during either period.
The Group disposed of intangible assets with a net book amount of £24,000 during the period (2014: £333,000). There were no proceeds on disposal in either period and hence a loss on disposal equivalent to the net book value was recorded.
The Company sold no other intangibles during either period.
| As at | Cash | Exchange | As at | |
|---|---|---|---|---|
| 1 June 2014 | flow | movement | 31 May 2015 | |
| Group | £000 | £000 | £000 | £000 |
| Cash at bank and in hand | 17,550 | (4,823) | (166) | 12,561 |
| Net funds | 17,550 | (4,823) | (166) | 12,561 |
| As at | Cash | Exchange | As at | |
| 1 June 2014 | flow | movement | 31 May 2015 | |
| Company | £000 | £000 | £000 | £000 |
| Cash at bank and in hand | 266 | (194) | (1) | 71 |
| Net funds | 266 | (194) | (1) | 71 |
Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:
| 2015 | 2014 | |
|---|---|---|
| Group | £000 | £000 |
| Property, plant and equipment | 447 | 478 |
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:
| 2015 Other |
2014 Other |
|||||
|---|---|---|---|---|---|---|
| Retail stores | property | Other | Retail stores | property | Other | |
| Group | £000 | £000 | £000 | £000 | £000 | £000 |
| Within 1 year | 6,614 | 524 | 143 | 6,519 | 548 | 183 |
| Between 2 and 5 years inclusive | 10,647 | 846 | 115 | 9,890 | 1,051 | 198 |
| In over 5 years | 414 | - | - | 503 | - | - |
| 17,675 | 1,370 | 258 | 16,912 | 1,599 | 381 |
The Company had no operating lease commitments at either period end.
| 2015 | 2014 | |
|---|---|---|
| Group | £000 | £000 |
| Finished goods | 1,216 | 9 |
| Components | 639 | 337 |
| Raw materials | 43 | 19 |
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 has contingent liabilities in respect of the potential reversionary interest in sub-let leasehold properties amounting to £93,000 (2014: £139,000).
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 £1,586,000 (2014: £1,586,000).
For the year ended 31 May 2015, the subsidiary companies listed below are exempt from the requirements of the Companies Act 2006 relating to the audit of individual statutory accounts by virtue of section 479A. As a result, the Company guarantees all outstanding liabilities to which the subsidiary companies are subject.
| Country of | ||
|---|---|---|
| incorporation | Company | |
| Name of undertaking | or registration | registration number |
| Games Workshop Limited | England and Wales | 1467092 |
| Games Workshop International Limited | England and Wales | 2924330 |
| Games Workshop US Limited | England and Wales | 7462905 |
| Games Workshop US (Holdings) Limited | England and Wales | 4428814 |
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:
| 2015 | 2014 | ||
|---|---|---|---|
| Subsidiary | Nature of transaction | £000 | £000 |
| Games Workshop International Limited | Dividends receivable | 517 | 16 |
| Games Workshop Limited | Recharges | 398 | 407 |
| Dividends receivable | 17,129 | - |
Receivables/(payables) outstanding between the Company and its subsidiaries are shown below:
| Amounts owed by | Amounts owed to | |||
|---|---|---|---|---|
| subsidiaries | subsidiaries | |||
| 2015 | 2014 | 2015 | 2014 | |
| Subsidiary | £000 | £000 | £000 | £000 |
| Games Workshop Group PLC Employee Share Trust | 51 | 50 | - | - |
| Games Workshop Limited | 978 | 172 | - | - |
| Games Workshop Retail Inc. | 71 | 13 | - | - |
| EURL Games Workshop | 1 | - | - | (2) |
| Games Workshop SL | 23 | 8 | - | - |
| Games Workshop Oz Pty Limited | - | - | (5) | (10) |
| Games Workshop Deutschland GmbH | - | 4 | - | - |
| Games Workshop International Limited | - | - | (319) | (319) |
| Games Workshop (Queen Street) Limited | 1 | - | - | (2) |
| Games Workshop Italia SRL | 16 | 4 | - | - |
| Games Workshop Stockholm AB | 1 | 1 | - | - |
| Games Workshop Limited (New Zealand) | - | 1 | - | - |
| 1,142 | 253 | (324) | (333) |
Non-current loans outstanding between the Company and its subsidiaries are shown below:
| Amounts owed by | ||
|---|---|---|
| subsidiaries | ||
| 2015 | 2014 | |
| 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 |
In addition, Mrs K Kirby (Lathbury) received £66,185 (2014: £117,461) during the year from the Group for her work as interim head of IT. Mrs Kirby ceased to work for the Group on 30 November 2014. T H F Kirby provided consultancy at a cost of £25,000 in the year.
| 2015 | 2014 | 2013 | 2012 | 2011 | |
|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | |
| Revenue | 119,132 | 123,501 | 134,597 | 131,009 | 123,052 |
| Operating profit – pre-exceptional items and royalties receivable | 14,937 | 15,355 | 20,229 | 15,603 | 12,789 |
| Exceptional items | 42 | (4,500) | - | - | - |
| Royalties receivable | 1,498 | 1,442 | 1,025 | 3,537 | 2,455 |
| Operating profit | 16,477 | 12,297 | 21,254 | 19,140 | 15,244 |
| Finance income | 109 | 106 | 176 | 434 | 132 |
| Finance costs | (1) | (7) | (35) | (100) | (89) |
| Profit before taxation | 16,585 | 12,396 | 21,395 | 19,474 | 15,287 |
| Income tax expense | (4,328) | (4,389) | (5,077) | (4,760) | (4,047) |
| Profit attributable to owners of the parent | 12,257 | 8,007 | 16,318 | 14,714 | 11,240 |
| Basic earnings per ordinary share | 38.3p | 25.2p | 51.5p | 46.8p | 36.0p |
| Pre-exceptional earnings per ordinary share | 38.2p | 36.1p | 51.5p | 46.8p | 36.0p |
Annual general meeting 16 September 2015 Announcement of half year results January 2016 Financial year end 29 May 2016 Announcement of final results July 2016
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 16 September 2015 for the following purposes:
As ordinary business to consider and, if thought fit, to pass the following resolutions 1 to 10 as ordinary resolutions:
To receive the Company's annual accounts for the year ended 31 May 2015 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 elect R F Tongue as a director.
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.
To authorise the directors to fix the auditors remuneration.
To approve the remuneration report (excluding the directors' remuneration policy set out on pages 21 to 24) for the year ended 31 May 2015.
To approve the directors' remuneration policy set out on pages 21 to 24, such remuneration policy to take effect from the date on which the resolution is passed.
To consider and, if thought fit, pass the following resolutions, of which resolutions 10 and 11 will be proposed as ordinary resolutions and resolutions 12 and 13 will be proposed as special resolutions.
That:
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 £529,052 provided that this authority shall, unless renewed, varied or revoked by the Company, expire on 15 December 2016 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 11 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 11 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 15 December 2016 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 R F Tongue Company secretary 27 July 2015 Registered office: Willow Road, Lenton Nottingham NG7 2WS Registered in England and Wales under number 2670969
61 Games Workshop Group PLC
The Company's existing Savings-Related Share Option Scheme was approved by shareholders in 2005 and expires, in relation to new grants in 2015. The Games Workshop 2015 Sharesave Plan (the 'Plan') is proposed to replace the Savings-Related Share Option Scheme, and the principal terms of the Plan are set out below. The Plan is an all employee share plan that will be administered by the board or any duly authorised committee of the board. In this Appendix, references to the board include, where applicable, any duly authorised committee.
Participating employees will be given the opportunity to save up to £500 per month (or such other amount permitted under the relevant legislation from time to time) in accordance with a savings contract for three or five years (a 'Sharesave Contract'). The proceeds of the Sharesave Contract can be used to exercise an option to acquire shares at an exercise price set at the date of invitation, which shall not be less than 80% (or such other percentage as may be permitted by the relevant legislation) of the market value of a share at the date of invitation.
The Plan is proposed to satisfy the requirements of Schedule 3 to the Income Tax (Earnings and Pensions) Act 2003 such that options granted under it will offer beneficial tax treatment to the participant and the member of the group employing the participant.
As noted below, an Appendix to the Plan constitutes the 'Games Workshop 2015 International Sharesave Plan' (the 'International Plan') under which options may be granted to employees outside the UK; the International Plan is not proposed to satisfy the requirements of Schedule 3 to the Income Tax (Earnings and Pensions) Act 2003.
All employees (including an executive director) of the Company, or any of its subsidiaries which participates in the Plan, who have been in employment for a minimum period determined by the board (not exceeding five years), and any other directors or employees nominated by the board may apply for an option on any occasion on which invitations are issued.
Invitations to apply for options may only be issued within the six week period following the approval of the Plan by shareholders, the announcement of the Company's results for any period, any day on which changes to legislation affecting employee share schemes are proposed or made or on any day on which the board determines that exceptional circumstances exist. However, if the Company is restricted from issuing invitations during any such period, invitations may be issued in the period of six weeks following the relevant restriction being lifted.
Options may be granted over newly issued shares, treasury shares or shares purchased in the market. Options are not transferable (other than on death). No payment will be required for the grant of an option. Options will not form part of pensionable earnings.
The Plan is subject to the following overall limit. In any 10 year period, the number of shares which may be issued under the Plan and under any other employee share plan adopted by the Company may not exceed 10 per cent of the issued ordinary share capital of the Company from time to time.
Treasury shares will be treated as newly issued for the purpose of this limit until such time as guidelines published by institutional investor representative bodies determine otherwise.
Ordinarily, an option may be exercised within six months of maturity of the Sharesave Contract.
Options may be exercised if a participant leaves employment by reason of death, injury, disability, redundancy, retirement, the sale of the entity that employs him out of the group.
If a participant ceases employment with the group in any other circumstances, any option he holds shall lapse on the date on which the participant ceases employment.
Options may be exercised early in the event of a change of control or winding-up of the Company. Alternatively, options may be exchanged (with the agreement of the acquiring company) for equivalent options over shares in the acquiring company. Options will be exchanged (or will lapse) in the event of an 'internal reorganisation'.
In the event of a variation of the Company's share capital, the number of shares subject to an option and/or the exercise price, may be adjusted, provided that any adjustment may only be made in accordance with the requirements of the applicable tax legislation.
An Appendix to the Plan constitutes the Games Workshop 2015 International Sharesave Plan under which options may be granted to employees outside the UK. The terms of the International Plan are similar to the terms of the Plan, but varied to reflect the grant of options to employees outside the UK, including in relation to the impact of those employees' savings being denominated in different currencies and using an IRS qualifying s423 Employee Stock Purchase Plan for employees in the US.
The board may amend the Plan at any time, provided that prior approval of the Company's shareholders in a general meeting will be required for amendments to the advantage of eligible employees or participants relating to eligibility, limits, the basis for determining a participant's entitlement to, and the terms of, the shares or cash comprised in option and the impact of any variation of capital.
However, any minor amendment to benefit the administration of the Plan, to take account of legislative changes, or to obtain or maintain favourable tax treatment, exchange control or regulatory treatment may be made by the Board without shareholder approval.
No amendment may be made to the material disadvantage of participants in the Plan unless consent is sought from the affected participants and given by a majority of them.
The Plan will usually terminate on the tenth anniversary of its approval by shareholders but the rights of existing participants will not be affected by any termination.
The rules of the Plan will be available for inspection at the office of Deloitte LLP (Company Secretarial Department), 2 New Street Square, London EC4A 3BZ on any weekday (Saturdays, Sundays and public holidays excluded) until the close of the AGM, and will also be available at the place of the AGM for at least 15 minutes before and during the meeting.
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