Annual Report: 2018-2019
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GAMES WORKSHOP GROUP PLC Annual report 2019 FINANCIAL HIGHLIGHTS Restated 2019 2018 £000 £000 Revenue 256,574 221,304 Revenue at constant currency* 255,295 221,304 Operating profit - pre-royalties receivable 69,834 64,702 Royalties receivable 11,365 9,617 Operating profit 81,199 74,319 Profit before taxation 81,296 74,270 Cash generated from operations 88,776 82,332 Earnings per share 202.9p 184.3p Dividends per share declared in the year 155p 126p CONTENTS Chairman’s statement 2 Strategic report 3 Directors’ report 15 Corporate governance report 21 Audit and risk committee report 25 Remuneration report 28 Directors’ responsibilities statement 37 Company directors and advisers 38 Independent auditors’ report 39 Consolidated income statement 45 Statements of comprehensive income 45 Balance sheets 46 Consolidated and Company statements of changes in total equity 47 Consolidated and Company cash flow statements 48 Notes to the financial statements 49 Five year summary 72 Financial calendar 72 Notice of annual general meeting 73 *Constant currency revenue is calculated by comparing results in the underlying currencies for 2019 and 2018, both converted at the 2018 average exchange rates as set out on page 12. 1 Games Workshop Group PLC CHAIRMAN’S STATEMENT I’m delighted to report that Games Workshop’s financial year ended 2 June 2019 was another great year for the Company. Revenue and profit before tax were both at record levels, revenue exceeding £250 million for the first time. Games Workshop’s 2019 performance beat the 2018 result with sales and profit growth across all channels. This is the first time in the Company’s history that performance in the financial year following a Warhammer 40,000 launch year has beaten the Warhammer 40,000 year! Dividend payments in respect of the 2019 financial year amounted to 155 pence per share, compared with 126 pence per share in respect of 2018. I’m sure that Games Workshop shareholders appreciate the fact that our dividends are paid entirely out of surplus cash generated, not debt. We continue to have no borrowings. This performance was achieved notwithstanding a busy year on other fronts: phase 1 of Leenside - our new production facility in Nottingham – was completed (on time and on budget) and commenced operations in December 2018. Phase 2 of the Leenside project is underway and is expected to be operational in Autumn 2019. Other investment projects, which Kev describes in his report later in this annual report, continue to make progress. I would also draw to shareholders’ attention the growing contribution to our performance from royalty income. There is increasing interest on the part of media businesses in Games Workshop’s intellectual property - our rich fantasy worlds of Warhammer. We continue to try to remain alert to the business risks we must address. This includes the risks which confront every business routinely – for example, finding and retaining good people, innovation, sales growth, cost control – and those which a business that has grown fast over a short period of time might consider in particular, such as the effectiveness of our operating systems, our design, development and manufacturing capacity; in short, how best to address our ‘growing pains’. No easy task: your executive team has a lot on its plate. The process of refreshing the composition of the board of the Company continues. As noted in our 2018 annual report, Chris Myatt, our senior independent director, will step down from the board at our AGM in September 2019. Chris has been a great source of clear, independent-minded advice to Games Workshop since his appointment to the board as a non-executive director in April 1996. On behalf of everyone involved in any way in Games Workshop, thank you, Chris. We will miss your contribution. Finding new non-executive director candidates who ‘fit’ with Games Workshop does take time – and we believe ‘fit’ to be of great importance. Your board has spent a good deal of time on this exercise since our last annual report. We have however now appointed as non-executive directors John Brewis in June 2018 and Kate Marsh in July 2019. Following the 2019 AGM, your board now has in place three non-executive directors (besides me). We will commence our search for a fourth non-executive in 2019/20 and I expect my successor as non-executive chairman to be appointed from this group within the next few years. We will keep you fully updated on our progress on this front. Our 2018 AGM had a structure similar to most other listed companies, focusing on normal AGM business. This year’s AGM will be similar in format, but following the AGM this year Kev and Rachel will make a presentation about the business. And, as before, there will be the opportunity for shareholders to meet and engage with all board members and some of our senior operational team. On the subject of trying to improve awareness generally about what we’re doing at Games Workshop and in particular in the light of the MIFID II regulations, we recently appointed Edison Group, an independent research firm, to publish research into our business. You can access this on our investor relations website. I encourage you to read it! I hope you will find it informative and helpful. Finally, and as was the case last year, I have three enjoyable responsibilities to discharge before concluding this statement: - Firstly, to thank our executive directors and the Games Workshop team as a whole for achieving such success this year. I know you will try and keep it up. The team’s performance has been fantastic. - Secondly, to thank our loyal customers: we will do our best to continue to produce what you’re looking for and to include you in the conversation. - Thirdly, to thank you, our shareholders, for your support and your loyalty. Do please try and come to our AGM on 18 September 2019: we look forward to seeing you there. With thanks, and best wishes. Nick Donaldson Non-executive chairman 29 July 2019 2 Games Workshop Group PLC STRATEGIC REPORT Strategy and objectives Games Workshop is committed to making the Warhammer Hobby and our business ever better. Our ambitions remain clear: to make the best fantasy miniatures in the world, to engage and inspire our customers, and to sell our products globally at a profit. We intend to do this forever. Our decisions are focused on long-term success, not short-term gains. Let me go through our strategy part by part: 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 we have made in quality is worth. The second element is that we make fantasy miniatures based in our endless, imaginary worlds. This gives us control over the imagery and styles we use and ownership of the intellectual property (IP). 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 that we are customer focused. We talk to our customers. We aim to communicate in an open, fun way. Whoever and wherever our customers are, and in whichever way they want to engage with Warhammer, we will do our utmost to support them. The fourth 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 online store (it has the full range of our product) and our independent stockist and trade accounts across the world. These independent accounts do a great job supporting our customers in parts of the world where we either have not yet opened one of our stores or where it is not commercially viable for us to have one. Our long term goal is to have all three channels (retail, trade and online) growing in harmony. 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 fifth element is being focused on cash. By delivering a good cash return every year 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 dedication and focus should ensure we deliver on time and within our agreed cash limits. We measure our long-term success by seeking a high return on investment. In the short term, we measure our success on our ability to grow sales whilst maintaining our core business operating profit margin at current levels. 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 the skills needed to do their job and has a great attitude to change.