REG - Games Workshop Group - Half-year Report
PRESS ANNOUNCEMENT
GAMES WORKSHOP GROUP PLC
15 January 2019
HALF-YEARLY REPORT
Games Workshop Group PLC ('Games Workshop' or the 'Group') announces its half-yearly results for the six months to 2 December 2018.
Highlights:
Six months to
Restated*
Six months to
2 December 2018
26 November 2017
Revenue
£125.2m
£109.6m
Revenue at constant currency**
£124.2m
£109.6m
Operating profit pre- royalties receivable
£35.3m
£34.5m
Royalties receivable
£5.5m
£3.6m
Operating profit and pre-tax profit
£40.8m
£38.1m
Cash generated from operations
£36.0m
£41.2m
Basic earnings per share
100.8p
96.0p
Dividend per share declared in the period
65p
61p
Kevin Rountree, CEO of Games Workshop, said:
"Our business and the Warhammer Hobby continue to be in great shape.
We have remained true to our long-term strategy, and once again delivered on our promise to produce and sell the best fantasy miniatures in the world, while engaging and inspiring our fans. We continue to strive to make the Warhammer hobby ever better. Exciting times.
December trading continued in line with the sales performance in the first half.
We are also announcing that the Board has today declared a dividend of 25 pence per share, in line with the Company's policy of distributing truly surplus cash."
…Ends…
For further information, please contact:
Games Workshop Group PLC
0115 900 4003
Kevin Rountree, CEO
Rachel Tongue, Group Finance Director
Investor relations website
General website
www.games-workshop.com
*With effect from 4 June 2018, the Group has retrospectively adopted IFRS 15 'Revenue from contracts with customers'. The change in accounting policy is described in note 2 to this condensed interim financial information.
**Constant currency revenue is calculated by comparing results in the underlying currencies for 2017 and 2018, both converted at the average exchange rates for the six months ended 26 November 2017.
FIRST HALF HIGHLIGHTS
Six months to
Restated*
Six months to
2 December 2018
26 November 2017
Revenue
£125.2m
£109.6m
Revenue at constant currency**
£124.2m
£109.6m
Operating profit pre-royalties receivable
£35.3m
£34.5m
Royalties receivable
£5.5m
£3.6m
Operating profit and pre-tax profit
£40.8m
£38.1m
Cash generated from operations
£36.0m
£41.2m
Basic earnings per share
100.8p
96.0p
Dividend per share declared in the period
65p
61p
Revenue by segment
Six months to
Restated*
Six months to
Six months to
Restated*
Six months to
2 December 2018
26 November 2017
2 December 2018
26 November 2017
Constant currency
Constant currency
Actual rates
Actual rates
Trade
£60.7m
£48.0m
£61.4m
£48.0m
Retail
£42.3m
£39.6m
£42.6m
£39.6m
Online
£21.2m
£22.0m
£21.2m
£22.0m
Total revenue
£124.2m
£109.6m
£125.2m
£109.6m
Operating profit by segment
Six months to
Restated*
Six months to
Six months to
Restated*
Six months to
2 December 2018
26 November 2017
2 December 2018
26 November 2017
Constant currency
Constant currency
Actual rates
Actual rates
Trade
£22.6m
£17.1m
£22.5m
£17.1m
Retail
£4.9m
£2.9m
£4.8m
£2.9m
Online
£13.1m
£13.6m
£13.1m
£13.6m
Product and supply
£9.0m
£13.1m
£9.6m
£13.1m
Royalties
£4.9m
£3.2m
£5.0m
£3.2m
Other costs
£(13.9)m
£(11.8)m
£(14.2)m
£(11.8)m
Total operating profit
£40.6m
£38.1m
£40.8m
£38.1m
INTERIM MANAGEMENT REPORT
Our business and the Warhammer Hobby continue to be in great shape.
We have remained true to our long-term strategy, and once again delivered on our promise to produce and sell the best fantasy miniatures in the world, while engaging and inspiring our fans. We continue to strive to make the Warhammer hobby ever better. Exciting times.
We are pleased to once again, report record sales and profit levels in the period. Sales and profit growth continue across our retail and trade channels, and our online channel continues to be in line with last year. As we move to complete a series of major investment projects, our gross margin and stock levels are not currently where we'd like them to be. We're looking forward to our new Nottingham factory and ERP projects completing, allowing us to fully optimise our Nottingham site. From there, we'll begin to upgrade our warehousing capacity in both Memphis and Nottingham. These further investments will help us maintain our current volumes, increase efficiencies, and give us good scope for sales growth in the future.
December trading continued in line with the sales performance in the first half.
We are also announcing that the Board has today declared a dividend of 25 pence per share, in line with the Company's policy of distributing truly surplus cash. This will be paid on 1 March 2019 for shareholders on the register at 25 January 2019, with an ex-dividend date of 24 January 2019. The last date for elections for the dividend re-investment plan is 8 February 2019.
Our performance as ever, was driven by a considerable team effort across all aspects of our global, vertically integrated business. Everyone at Games Workshop has worked exceptionally hard to achieve our ambitious growth plans as well as 'keep the lights on'.
In the second half, we will continue to focus on our core values and the activities that drive our business forward. We will continue to do the right things, those that will ensure Games Workshop's long term success.
Sales
Reported sales grew by 14% to £125.2 million for the period. On a constant currency basis, sales were up by 13% from £109.6 million to £124.2 million; split by channel this comprised: retail £42.3 million (2017: £39.6 million), trade £60.7 million (2017: £48.0 million) and online £21.2 million (2017: £22.0 million).
Customer focused
Our online marketing remains one of our great strengths. The main Warhammer Community website continues to increase its readership, with visitor numbers up an impressive 30% compared to the same period last year - now almost a million visits to the site each week.
Elsewhere on social media, we continue to see strong growth. We're delighted to have over 250,000 people signed up to our Warhammer.tv site. We will continue to invest in our own platforms as well as work with popular sites.
Retail
This channel showed growth in all territories with exception of Australia and New Zealand. We opened, including relocations, 23 stores. After closing 5 stores, our net total number of stores at the end of the period is 507. The key priority in the period reported has been to continue to offer our store managers the appropriate product and sales support to help them recruit new customers, retain our existing customers and re-recruit lapsed customers. Recruiting new store managers remains a key area of focus.
Trade
Trade achieved growth of 26% with growth in all key territories. In the period, our net number of trade outlets increased by c. 300 accounts which helped drive forward sales in this channel. A large number of our independent retailers now also sell our products online which in turn has given our customers more places to buy our products online.
Online
Sales in our Citadel online shop were flat compared to last year and our Forge World and Black Library stores declined slightly at £4.6 million (2017: £5.2 million). We continue to improve the online store shopping experience and functionality of the store. Our new games-workshop.com homepage, our email newsletters and the personalisation of page content and navigation through our range online remain an area of focus. As discussed above, customers can buy our products online both through our web store and through those of independent retailers. Sales of digital titles remain comparable to last year. Our titles are now available on Audible which has increased our exposure to new customers and will help us recruit as we move into next year and beyond.
Operating profit
Operating profit before royalty income increased by £0.8 million to £35.3 million. On a constant currency basis, operating profit before royalty income increased by £0.5 million to £35.0 million.
On a constant currency basis, royalty income increased by £2.0 million to £5.6 million. As discussed in note 2, we now recognise royalty income in full on inception of the contract and this has been reflected in these numbers.
Total operating profit increased by £2.7 million to £40.8 million. The net impact in the six months to 2 December 2018 of exchange rate fluctuations was a gain of £0.2 million. It is not the Group's policy to hedge against foreign exchange rate exposure.
Operating expenses increased by £4.1 million due to investment in sales facing activities relating to investment in our trade sales teams, as well as new retail store costs and continued investment in marketing and other central costs.
Capital employed
Average capital employed*** increased by £21.3 million to £67.2 million. The book value of tangible and intangible assets increased by £8.6 million, mainly due to the investment in a second production facility and the ongoing investment in the implementation of a new ERP system. Trade and other receivables increased by £5.1 million as a result of growth in trade revenue, inventory increased by £7.5 million due to the timing of product launches and to meet sales demand and liabilities decreased by £0.1 million.
Return on capital employed
During the period our return on capital declined from 119% at November 2017 to 96% at November 2018. This was driven by the increase in investment in capacity and in working capital, offset by an increase in operating profit before royalties receivable.
Cash generation
During the period, the Group's core operating activities generated £23.9 million of cash after tax payments (2017: £33.2 million) driven by increased investment in working capital. The Group also received cash of £4.0 million in respect of royalties in the period (2017: £2.8 million). After purchases of tangible and intangible assets and product development costs of £10.9 million (2017: £8.4 million), dividends of £21.0 million (2017: £17.7 million), proceeds from issue of share capital of £0.7 million (2017: £0.9 million) and foreign exchange gains of £0.1 million (2017: losses of £0.1 million) there were net funds at the end of the period £25.3 million (2017: £28.6 million).
Dividends
In the period we paid dividends of 30 pence per share and 35 pence per share (2017: 20 pence and 35 pence) amounting to £21.0 million (2017: £17.7 million). In addition, a dividend of 30 pence per share was declared on 7 December 2018 amounting to £9.7 million and a dividend of 25 pence per share was declared today amounting to £8.1 million.
Risks and uncertainties
The board has overall responsibility for ensuring risk is appropriately managed across the Group. The top seven 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 principal risks identified in 2018/19 are discussed below. These risks are not intended to be an extensive analysis of all risks that may arise but more importantly are the ones that could cause business interruption in the year ahead.
● Recruitment - to always have a world class team to support our fantastic business. The risk is we compromise and recruit only for skills and not on the personal qualities we need new members of the global team to demonstrate to ensure we deliver our long-term goals.
● Supply chain - to deliver a seamless supply of products to our customers. The risk is that there are unnecessary delays or expense.
● 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 or that we have too much stock.
● 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. It is being implemented and managed by a strong internal project team and specialist ERP software consultants.
● Innovation - to surprise and delight our customers with ever better new miniatures or related products. The risk is that we become complacent.
● IP exploitation - to optimise our Warhammer brands fully in addition to being innovative in our core business. The risks are that we do harm to the core business or we don't take this opportunity seriously.
● Distractions - this is anything else that gets in the way of us delivering our goals.
Games Workshop relies upon the continued availability and integrity of its IT systems. Our business critical systems are monitored and disaster recovery plans are in place and reviewed to ensure they remain up to date. The security of our systems is reviewed with software updates applied and equipment updated as required.
We do not consider that we have material solvency or liquidity risks.
Brexit impact statement
Following the UK Government invoking Article 50 of the Treaty of Lisbon, notifying the European Council of its intention to withdraw from the EU, Games Workshop has reviewed the impact that this may have on the Group. The key risks relate to the movement of goods from the UK to the EU across all sales channels as well as the recruitment and retention of EU nationals working in the UK. These risks are being assessed and, subject to the UK Parliament formalising the transition process, plans are being reviewed to help mitigate the possible impact of these changes.
In our opinion the greatest risk is the same one that we repeat each year, namely, management. So long as we have the right people in the right jobs we will be fine. Problems will arise if the board allows egos and private agendas to rule. We will do our utmost to ensure that this does not happen.
Going concern
After making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the condensed consolidated interim financial information. For this reason they have adopted the going concern basis in preparing this condensed consolidated interim financial information.
Statement of directors' responsibilities
The directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely: an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of (i) the principal risks and uncertainties for the remaining six months of the financial year; (ii) material related-party transactions in the first six months and (iii) any material changes in the related-party transactions described in the last annual report.
There have been no other changes to the board since the annual report for the 53 weeks to 3 June 2018. A list of all current directors is maintained on the investor relations website at investor.games-workshop.com.
By order of the board
K D Rountree
CEO
R F Tongue
Group Finance Director
15 January 2019
*With effect from 4 June 2018, the Group has retrospectively adopted IFRS 15 'Revenue from contracts with customers'. The change in accounting policy is described in note 2 to this condensed interim financial information.
**Constant currency revenue is calculated by comparing results in the underlying currencies for 2017 and 2018, both converted at the average exchange rates for the six months ended 26 November 2017.
***We use average capital employed to take account of the significant fluctuation in working capital which occurs as the business builds both inventories and trade receivables in the pre-Christmas trading period. Return is defined as operating profit before royalty income, and the average capital employed is adjusted by deducting assets and adding back liabilities in respect of cash, borrowings, taxation and dividends.
CONSOLIDATED INCOME STATEMENT
Notes
Six months to
2 December 2018
£000
Restated*
Six months to
26 November 2017
£000
Restated*
53 weeks to
3 June2018
£000
Revenue
3
125,225
109,572
221,304
Cost of sales
(41,392)
(30,590)
(64,219)
Gross profit
83,833
78,982
157,085
Operating expenses
3
(48,552)
(44,425)
(92,383)
Other operating income - royalties receivable
5,490
3,562
9,617
Operating profit
3
40,771
38,119
74,319
Finance income
38
51
90
Finance costs
-
(50)
(139)
Profit before taxation
5
40,809
38,120
74,270
Income tax expense
6
(7,999)
(7,247)
(14,815)
Profit attributable to owners of the parent
32,810
30,873
59,455
Basic earnings per ordinary share
7
100.8p
96.0p
184.3p
Diluted earnings per ordinary share
7
100.2p
95.2p
181.6p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
Six months to
2 December 2018
£000
Restated*
Six months to
26 November 2017
£000
Restated*
53 weeks to
3 June2018
£000
Profit attributable to owners of the parent
32,810
30,873
59,455
Other comprehensive income
Items that may be subsequently reclassified to profit or loss
Exchange differences on translation of foreign operations
771
(419)
(353)
Other comprehensive income/(expense) for the period
771
(419)
(353)
Total comprehensive income attributable to owners of the parent
33,581
30,454
59,102
The following notes form an integral part of this condensed consolidated interim financial information.
* With effect from 4 June 2018, the Group has retrospectively adopted IFRS 15 'Revenue from contracts with customers'. The change in accounting policy is described in note 2 to this condensed interim financial information.
CONSOLIDATED BALANCE SHEET
Notes
2 December 2018
£000
Restated*
26 November 2017
£000
Restated*
3 June 2018
£000
Non-current assets
Goodwill
1,433
1,433
1,433
Other intangible assets
9
14,850
14,271
14,195
Property, plant and equipment
10
33,029
24,367
30,072
Trade and other receivables
1,866
1,505
1,409
Deferred tax assets
6,713
3,726
5,704
57,891
45,302
52,813
Current assets
Inventories
22,393
16,277
20,159
Trade and other receivables
21,821
17,382
16,169
Current tax assets
319
513
457
Cash and cash equivalents
25,335
28,639
28,545
69,868
62,811
65,330
Total assets
127,759
108,113
118,143
Current liabilities
Trade and other payables
(15,950)
(20,554)
(20,298)
Current tax liabilities
(8,522)
(6,579)
(7,828)
Provisions for other liabilities and charges
11
(510)
(757)
(691)
(24,982)
(27,890)
(28,817)
Net current assets
44,886
34,921
36,513
Non-current liabilities
Other non-current liabilities
(682)
(537)
(667)
Provisions for other liabilities and charges
11
(519)
(536)
(537)
(1,201)
(1,073)
(1,204)
Net assets
101,576
79,150
88,122
Capital and reserves
Called up share capital
1,624
1,617
1,617
Share premium account
12,251
11,531
11,571
Other reserves
4,748
3,911
3,977
Retained earnings
82,953
62,091
70,957
Total equity
101,576
79,150
88,122
The following notes form an integral part of this condensed consolidated interim financial information.
* With effect from 4 June 2018, the Group has retrospectively adopted IFRS 15 'Revenue from contracts with customers'. The change in accounting policy is described in note 2 to this condensed interim financial information.
CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
Called up
share capital
£000
Share premium account
£000
Other reserves
£000
Retained earnings
£000
Total
equity
£000
At 3 June 2018 and 4 June 2018 (as restated*)
1,617
11,571
3,977
70,957
88,122
Profit for the six months to 2 December 2018
-
-
-
32,810
32,810
Exchange differences on translation of foreign operations
-
-
771
-
771
Total comprehensive income for the period
-
-
771
32,810
33,581
Transactions with owners:
Share-based payments
-
-
-
140
140
Shares issued under employee sharesave scheme
7
680
-
-
687
Deferred tax charge relating to share options
-
-
-
(281)
(281)
Current tax credit relating to exercised share options
-
-
-
355
355
Dividends paid to Company shareholders
-
-
-
(21,028)
(21,028)
Total transactions with owners
7
680
-
(20,814)
(20,127)
At 2 December 2018
1,624
12,251
4,748
82,953
101,576
Called up
share capital
£000
Share premium account
£000
Other reserves
£000
Retained earnings
£000
Total
equity
£000
At 28 May 2017 and 29 May 2017 (as restated*)
1,607
10,599
4,330
50,164
66,700
Profit for the six months to 26 November 2017
-
-
-
30,873
30,873
Exchange differences on translation of foreign operations
-
-
(419)
-
(419)
Total comprehensive income for the period
-
-
(419)
30,873
30,454
Transactions with owners:
Share-based payments
-
-
-
60
60
Shares issued under employee sharesave scheme
10
932
-
-
942
Deferred tax credit relating to share options
-
-
-
279
279
Current tax credit relating to exercised share options
-
-
-
293
293
Dividends paid to Company shareholders
-
-
-
(19,578)
(19,578)
Total transactions with owners
10
932
-
(18,946)
(18,004)
At 26 November 2017 (as restated*)
1,617
11,531
3,911
62,091
79,150
Called up
share capital
£000
Share premium account
£000
Other reserves
£000
Retained earnings
£000
Total
equity
£000
At 28 May 2017 and 29 May 2017 (as restated*)
1,607
10,599
4,330
50,164
66,700
Profit for the 53 weeks to 3 June 2018
-
-
-
59,455
59,455
Exchange differences on translation of foreign operations
-
-
(353)
-
(353)
Total comprehensive income for the period
-
-
(353)
59,455
59,102
Transactions with owners:
Share-based payments
-
-
-
204
204
Shares issued under employee sharesave scheme
10
972
-
-
982
Deferred tax credit relating to share options
-
-
-
1,050
1,050
Current tax credit relating to exercised share options
-
-
-
686
686
Dividends paid to Company shareholders
-
-
-
(40,602)
(40,602)
Total transactions with owners
10
972
-
(38,662)
(37,680)
At 3 June 2018 (as restated*)
1,617
11,571
3,977
70,957
88,122
The following notes form an integral part of this condensed consolidated interim financial information.
* With effect from 4 June 2018, the Group has retrospectively adopted IFRS 15 'Revenue from contracts with customers'. The change in accounting policy is described in note 2 to this condensed interim financial information.
CONSOLIDATED CASH FLOW STATEMENT
Notes
Six months to
2 December 2018
£000
Six months to
26 November 2017
£000
53 weeks to
3 June 2018
£000
Cash flows from operating activities
Cash generated from operations
8
35,968
41,206
82,332
UK corporation tax paid
(7,885)
(4,602)
(10,852)
Overseas tax paid
(159)
(566)
(1,375)
Net cash generated from operating activities
27,924
36,038
70,105
Cash flows from investing activities
Purchases of property, plant and equipment
(6,560)
(4,948)
(14,697)
Proceeds on disposal of property, plant and equipment
-
1
-
Purchases of other intangible assets
(812)
(927)
(1,496)
Expenditure on product development
(3,536)
(2,554)
(5,387)
Interest received
38
51
99
Net cash used in investing activities
(10,870)
(8,377)
(21,481)
Cash flows from financing activities
Proceeds from issue of ordinary share capital
687
942
982
Interest paid
-
(49)
(138)
Dividends paid to Company shareholders
(21,028)
(17,676)
(38,701)
Net cash used in financing activities
(20,341)
(16,783)
(37,857)
Net (decrease)/increase in cash and cash equivalents
(3,287)
10,878
10,767
Opening cash and cash equivalents
28,545
17,910
17,910
Effects of foreign exchange rates on cash and cash equivalents
77
(149)
(132)
Closing cash and cash equivalents
25,335
28,639
28,545
The following notes form an integral part of this condensed consolidated interim financial information.
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
The Company is a limited liability company, incorporated and domiciled in the United Kingdom. The address of its registered office is Willow Road, Lenton, Nottingham, NG7 2WS.
The Company has its listing on the London Stock Exchange.
This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the 53 weeks ended 3 June 2018 were approved by the board of directors on 30 July 2018 and have been delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under either section 498 (2) or section 498 (3) of the Companies Act 2006.
This condensed consolidated interim financial information has not been audited or reviewed pursuant to the Auditing Practices Board guidance on 'Review of Interim Financial Information' and does not include all of the information required for full annual financial statements.
This condensed consolidated interim financial information for the six months ended 2 December 2018 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the 53 weeks ended 3 June 2018 which have been prepared in accordance with IFRSs as adopted by the European Union.
After making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they have adopted the going concern basis in preparing this condensed consolidated interim financial information.
This condensed consolidated interim financial information was approved for issue on 15 January 2019.
This condensed consolidated interim financial information is available to shareholders and members of the public on the Company's website at investor.games-workshop.com.
The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenues and expenses. Actual results may differ from these estimates.
In preparing this condensed consolidated interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the 53 weeks ended 3 June 2018.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
The accounting policies applied are consistent with those of the annual financial statements for the 53 weeks ended 3 June 2018, as described in those financial statements, except for the adoption of new standards effective from 4 June 2018. The Group applies for the first time IFRS 15 'Revenue from contracts with customers' and IFRS 9 'Financial instruments' which require restatement of previous financial statements. The nature and the impact of the changes are disclosed in note 2.
New standards, amendments to standards and interpretations which have been published but are not yet effective which are relevant to the Group are:
- IFRS 16 'Leases' (effective for the year ending 31 May 2020). This new standard requires all leases to be recognised on the balance sheet. Currently under IAS 17 'Leases' only leases categorised as finance leases are recognised on the balance sheet, with leases categorised as operating leases not recognised. In broad terms the impact will be to recognise a lease liability and corresponding asset for the operating lease commitments. The Group is assessing the impact of the new standard and has commenced work on a project to manage this change.
The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant effect on the financial statements.
2. Change in accounting policy
IFRS 15 'Revenue from contracts with customers' supersedes IAS 11 'Construction contracts', IAS 18 'Revenue' and related interpretations and it applies to all revenue from contracts with customers, unless those contracts are in the scope of other standards. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The Group has adopted IFRS 15 using the fully retrospective transition method. The key considerations along with the impact of adopting IFRS 15 are described below.
(a) Advances from customers
Under IFRS 15, minimum royalty guarantee income will be recognised in full at inception of the contract. Previously, this income was deferred and recognised on the balance sheet within accruals and deferred income and released in line with licensee sales.
(b) Delivery charges
Under the new standard, amounts receivable from customers in respect of delivery charges are recognised as revenue. Previously, this income was offset against delivery charges within cost of sales. The impact of reclassifying delivery charges is an increase in revenue and cost of sales. There is no impact on net assets.
The impact of the change on the results was as follows:
26 November 2017
As reported
£000
Impact of change in accounting standards
£000
26 November 2017
Restated
£000
Revenue
108,852
720
109,572
Cost of sales
(29,870)
(720)
(30,590)
Gross profit
78,982
-
78,892
Other operating income - royalties receivable
4,216
(654)
3,562
Operating profit
38,773
(654)
38,119
Income tax expense
(7,371)
124
(7,247)
Profit attributable to owners of the parent
31,403
(530)
30,873
Retained earnings brought forward
46,296
3,868
50,164
Trade and other receivables
15,329
2,053
17,382
Trade and other payables
(22,622)
2,068
(20,554)
Deferred tax assets
4,509
(783)
3,726
Net assets
75,812
3,338
79,150
Basic earnings per share
97.6p
(1.6)p
96.0p
Diluted earnings per share
96.8p
(1.6)p
95.2p
3 June 2018
As reported
£000
Impact of change in accounting standards
£000
3 June 2018
Restated
£000
Revenue
219,868
1,436
221,304
Cost of sales
(62,783)
(1,436)
(64,219)
Gross profit
157,085
-
157,085
Other operating income - royalties receivable
9,893
(276)
9,617
Operating profit
74,595
(276)
74,319
Income tax expense
(14,867)
52
(14,815)
Profit attributable to owners of the parent
59,679
(224)
59,455
Retained earnings brought forward
46,296
3,868
50,164
Trade and other receivables
13,400
2,769
16,169
Trade and other payables
(22,028)
1,730
(20,298)
Deferred tax assets
6,559
(855)
5,704
Net assets
84,478
3,644
88,122
Basic earnings per share
185.0p
(0.7)p
184.3p
Diluted earnings per share
182.3p
(0.7)p
181.6p
(c) Other adjustments
In addition to the adjustments described above, upon adoption of IFRS 15, other items of the primary financial statements such as deferred taxes, segmental information, earnings per share and the cash flow statement were adjusted as necessary.
IFRS 9 'Financial Instruments' replaces IAS 39 'Financial instruments: recognition and measurement'. Under this new standard, provisions for the impairment of trade receivables will be recognised at an amount based on expected credit losses and will be calculated from the initial recognition of the asset. Currently provisions for the impairment of trade receivables are not recognised until there is an indication of impairment. The impact of adopting the new standard is not material to the financial statements.
3. Segment information
As Games Workshop is a vertically integrated business, management assesses the performance of sales channels and manufacturing and distribution channels separately. At 2 December 2018, the Group is organised as follows:
- Sales channels. These channels sell product to external customers, through the Group's network of retail stores, independent retailers and online via the global web stores. The sales channels have been aggregated into segments where they sell products of a similar nature, have similar production processes, similar customers, similar distribution methods, and if they are affected by similar economic factors. The segments are as follows:
- Trade. This sales channel sells globally to independent retailers, agents and distributors. It also includes the Group's magazine newsstand business and the distributor sales from the Group's publishing business (Black Library).
- Retail. This includes sales through the Group's retail stores, the Group's visitor centre in Nottingham and global exhibitions.
- Online. This includes sales through the Group's global web stores and digital sales through external affiliates.
- Product and supply. This includes the design and manufacture of products and incorporates the production facility in the UK and the Group logistics and merchandising costs. This also includes adjustments for the profit in stock arising from inter-segment sales and charges for inventory provisions.
- Central costs. These include the Company overheads, head office site costs, marketing costs and the costs of running the Games Workshop Academy.
- Service centre costs. Provides support services (IT, accounting, payroll, personnel, procurement, legal, health and safety, customer services and credit control) to activities across the Group and undertakes strategic projects.
- Royalties. This is royalty income earned from third party licensees after deducting associated licensing costs.
The chief operating decision-maker assesses the performance of each segment based on operating profit, excluding share option charges recognised under IFRS 2, 'Share-based payment', charges in respect of the Group's profit share scheme and the discretionary payment to employees for the current year. This has been reconciled to the Group's total profit before taxation below.
The segment information reported to the executive directors for the periods included in this financial information is as follows:
Six months to
2 December 2018
£000
Six months to
26 November 2017
£000
53 weeks ended
3 June 2018
£000
Trade
61,445
47,996
94,381
Retail
42,547
39,615
81,971
Online
21,233
21,961
44,952
Total external revenue
125,225
109,572
221,304
For information, we analyse external revenue further below:
Six months to
2 December 2018
£000
Six months to
26 November 2017
£000
53 weeks ended
3 June 2018
£000
Trade
UK and Continental Europe
25,816
19,652
39,068
North America
27,171
21,345
41,818
Australia and New Zealand
2,838
2,407
4,340
Asia
2,657
2,025
3,857
Rest of world
1,761
1,275
2,935
Black Library
1,202
1,292
2,363
Total Trade
61,445
47,996
94,381
Retail
UK
13,652
13,077
27,250
Continental Europe
10,404
10,321
21,303
North America
12,935
10,587
22,243
Australia and New Zealand
4,182
4,586
8,977
Asia
1,374
1,044
2,198
Total Retail
42,547
39,615
81,971
Online
21,233
21,961
44,952
Total external revenue
125,225
109,572
221,304
Operating expenses by segment are regularly reviewed by the executive directors and are provided below:
Six months to
2 December 2018
£000
Six months to
26 November 2017
£000
53 weeks ended
3 June 2018
£000
Trade
(6,525)
(5,734)
(11,413)
Retail
(23,946)
(23,020)
(45,992)
Online
(2,731)
(2,719)
(5,672)
Product and supply
(1,666)
(1,412)
(3,350)
Central costs
(5,140)
(3,743)
(7,598)
Service centre costs
(6,946)
(6,360)
(12,664)
Royalties
(346)
(352)
(686)
Total segment operating expenses
(47,300)
(43,340)
(87,375)
Share-based payment charge
(140)
(60)
(204)
Profit share scheme charge
(1,112)
(1,025)
(1,969)
Discretionary payment to employees
-
-
(2,835)
Total group operating expenses
(48,552)
(44,425)
(92,383)
Total segment operating profit is as follows and is reconciled to profit before taxation below:
Six months to
2 December 2018
£000
Restated*
Six months to
26 November 2017
£000
53 weeks ended
3 June 2018
£000
Trade
22,474
17,148
32,888
Retail
4,821
2,936
7,185
Online
13,060
13,626
27,880
Product and supply
9,594
13,101
23,887
Central costs
(5,946)
(4,397)
(8,698)
Service centre costs
(6,946)
(6,360)
(12,664)
Royalties
4,966
3,150
8,849
Total segment operating profit
42,023
39,204
79,327
Share-based payment charge
(140)
(60)
(204)
Profit share scheme charge
(1,112)
(1,025)
(1,969)
Discretionary payment to employees
-
-
(2,835)
Total group operating profit
40,771
38,119
74,319
Finance income
38
51
90
Finance costs
-
(50)
(139)
Total group operating profit
40,809
38,120
74,270
*Operating profit amounting to £4,800,000 for the six months ended 26 November 2017 has been reclassified from product and supply to trade (£3,677,000) and retail (£1,123,000) in respect of transfer price adjustments not previously recognised.
4. Dividends
Dividends of £9,705,000 (30 pence per share) and £11,323,000 (35 pence per share) were declared and paid in the six months to 2 December 2018.
Dividends of £6,428,000 (20 pence per share) and £11,249,000 (35 pence per share) were declared and paid in the six months to 26 November 2017. A further £1,901,000 (6 pence per share) was distributed in the six months to 26 November 2017 by way of a rectification dividend. The rectification dividend was satisfied by the release of Company shareholders from the liability to repay the amount received in the year ended 28 May 2017 in the form of an unlawful dividend. Further dividends of £9,703,000 (30 pence per share) and £11,321,000 (35 pence per share) were declared and paid during the second half of the year.
5. Profit before taxation
The following costs have been incurred in the reported periods in respect of ongoing redundancies, inventory provisions, impairments and loss-making retail stores:
Six months to
2 December 2018
£000
Six months to
26 November 2017
£000
53 weeks ended
3 June 2018
£000
Redundancy costs and compensation for loss of office
264
177
238
Reversal of impairment of property, plant and equipment
(18)
(17)
(20)
Net charge to property provisions including closed or
loss-making retail stores
108
28
73
Net inventory provision creation
3,422
1,610
3,960
6. Tax
The taxation charge for the six months to 2 December 2018 is based on an estimate of the full year effective rate of 19.6% (2017: 19.0%). Although overseas tax rates are higher than the UK rate of 19.6%, these are offset by the release of prior provisions against tax uncertainties.
7. Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to owners of the parent by the weighted average number of ordinary shares in issue throughout the relevant period.
Six months to
2 December 2018
£000
Six months to
26 November 2017
£000
53 weeks ended
3 June 2018
£000
Profit attributable to owners of the parent (£000)
32,810
30,873
59,455
Weighted average number of ordinary shares in issue (thousands)
32,553
32,166
32,258
Basic earnings per share (pence per share)
100.8
96.0
184.3
Diluted earnings per share
The calculation of diluted earnings per share has been based on the profit attributable to owners of the parent and the weighted average number of shares in issue throughout the relevant period, adjusted for the dilution effect of share options outstanding at the period end.
Six months to
2 December 2018
£000
Six months to
26 November 2017
£000
53 weeks ended
3 June 2018
£000
Profit attributable to owners of the parent (£000)
32,810
30,873
59,455
Weighted average number of ordinary shares in issue (thousands)
32,553
32,166
32,258
Adjustment for share options (thousands)
199
280
474
Weighted average number of ordinary shares for diluted earnings per share (thousands)
32,752
32,446
32,732
Diluted earnings per share (pence per share)
100.2
95.2
181.6
8. Reconciliation of profit to net cash from operating activities
Six months to
2 December 2018
£000
Six months to
26 November 2017
£000
53 weeks ended
3 June 2018
£000
Operating profit
40,771
38,119
74,319
Depreciation of property, plant and equipment
3,754
2,635
6,614
Net reversal of impairment property, plant and equipment
(18)
(17)
(20)
Loss on disposal of property, plant and equipment
9
20
40
Loss on disposal of intangible assets
-
-
12
Amortisation of capitalised development costs
2,965
1,630
4,130
Amortisation of other intangibles
754
651
1,419
Share-based payments
140
60
204
Changes in working capital:
-Increase in inventories
(2,195)
(4,128)
(7,948)
-Increase in trade and other receivables
(5,911)
(4,644)
(4,960)
-(Decrease)/increase in trade and other payables
(4,085)
6,764
8,467
-(Decrease)/increase in provisions
(216)
116
55
Net cash from operating activities
35,968
41,206
82,332
9. Other intangible assets
2 December 2018
£000
26 November 2017
£000
3 June 2018
£000
Net book value at beginning of period
14,195
12,917
12,917
Additions
4,348
3,635
6,840
Exchange differences
1
-
(1)
Disposals
-
-
(12)
Amortisation charge
(3,719)
(2,281)
(5,549)
Reclassification from property, plant and equipment
25
-
-
Net book value at end of period
14,850
14,271
14,195
10. Property, plant and equipment
2 December 2018
£000
26 November 2017
£000
3 June 2018
£000
Net book value at beginning of period
30,072
22,132
22,132
Additions
6,608
4,912
14,632
Exchange differences
119
(39)
(58)
Disposals
(9)
(20)
(40)
Depreciation charge
(3,754)
(2,635)
(6,614)
Reversal of impairment charge
18
17
20
Reclassification to other intangible assets
(25)
-
-
Net book value at end of period
33,029
24,367
30,072
11. Provisions for other liabilities and charges
Analysis of total provisions:
2 December 2018
£000
26 November 2017
£000
3 June 2018
£000
Current
510
757
691
Non-current
519
536
537
Total provisions for other liabilities and charges
1,029
1,293
1,228
Other
£000
Employee benefits
£000
Property
£000
Total
£000
At 29 May 2017
-
680
504
1,184
Charged to the income statement
50
150
28
228
Exchange differences
(1)
(5)
(6)
(12)
Utilised
-
(61)
(46)
(107)
At 26 November 2017
49
764
480
1,293
At 29 May 2017
-
680
504
1,184
Charged to the income statement
-
136
73
209
Exchange differences
-
(11)
(1)
(12)
Utilised
-
(37)
(116)
(153)
At 3 June 2018
-
768
460
1,228
Charged to the income statement
-
78
108
186
Exchange differences
-
9
8
17
Utilised
-
(68)
(334)
(402)
At 2 December 2018
-
787
242
1,029
12. Seasonality
The Group's monthly sales profile demonstrates an element of seasonality around the Christmas period which impacts sales in the month of December.
13. Commitments
Capital expenditure contracted for at the balance sheet date but not yet incurred is £2,969,000 (2017: £2,480,000).
14. Related-party transactions
There were no material related-party transactions during the period.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR BRGDBSUBBGCS
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