DIRECTORS' REPORT
The directors present their annual report together with the financial statements and independent auditors’ report for the year ended 29 May 2005. A review of the business is given in the operating review and financial review.
Principal activities
The principal activities of the
Group are the design and manufacture of miniature figures
and games and the retail and wholesale distribution of
these products.
Dividend
The directors recommend a final dividend of
14.025 pence per share to be paid on 28 October 2005
to ordinary shareholders on the register at close of
business on 7 October 2005.
Substantial shareholdings
The following interests in
3% or more of the issued share capital of the Company
as at 14 July 2005 have been disclosed to the Company:
| No. of ordinary shares | Percentage | |
|---|---|---|
 |
||
| Schroder Investment Management Limited | 5,264,409 | 16.9 |
| Fidelity International Limited | 3,712,484 | 11.9 |
| Henderson Investors Limited | 2,303,107 | 7.4 |
| Barclays Global Investors Limited | 1,574,180 | 5.1 |
| Scottish Widows Investment Partnership Limited | 1,278,626 | 4.1 |
| Legal & General Investment Management Limited | 1,233,416 | 4.0 |
| Standard Life Investments
Limited |
974,477 | 3.1 |
The Company has not been notified of any other substantial shareholdings other than those of the directors, which are disclosed in the remuneration report.
Directors
The present directors of the Company are listed
here. All of the directors were members of the
board throughout the year. N J Donaldson and C J Myatt
are retiring by rotation and, being eligible, offer themselves
for re-election.
Directors’ interests
The interests of the directors
in the shares of the Company are disclosed in the remuneration
report, together with details of share
options granted to the directors. 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.
Information on executive directors
T H F Kirby (age 55),
Chairman and Chief Executive. 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 non-executive chairman, returning to the role of chief
executive in September 2000. Prior to joining Games Workshop,
he worked for six years for a distributor of fantasy
games in the UK and was previously an Inspector of Taxes.
He is also Visiting Professor of Business and Management
to the Derbyshire Business School at the University of
Derby.
M Sherwin (age 46), Finance Director. Prior to joining Games Workshop in June 1999, Michael Sherwin was group financial controller of Courtaulds Textiles plc where he had worked for six years. He was previously with Price Waterhouse for 12 years where he qualified as a chartered accountant in 1984. On 7 July 2004, he was appointed an independent director of PlusNet plc. He is also Visiting Fellow in Durham Business School and a member of the Advisory Board of Durham Business School.
Information on independent directors
C J Myatt (age 61).
Chris Myatt is the senior independent director, joining
the board on 18 April 1996. He is chairman of Palgrave
Brown Holdings Limited and an independent director of
SRS Holdings Limited and Ying Tai (UK) Limited. He is
the Honourary Treasurer of Keele University and a member
of its council. He was formerly a divisional managing
director within Tarmac PLC.
A J H Stewart (age 45). Alan Stewart joined the board as an independent director on 12 September 1996. Alan is group finance director of WHSmith PLC. He was previously an executive director of Thomas Cook AG and chief executive of Thomas Cook UK Limited. Prior to that he was an investment banker for 10 years with HSBC Investment Bank and is a qualified chartered accountant.
N J Donaldson (age 51). Nick Donaldson was appointed to the board on 18 April 2002. A barrister by profession, Nick is a partner and co-founder of The Capital Markets Group 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 an independent director of The Clapham House Group PLC and chairman of F4G Software plc.
Community support and donations
The Group does not make
significant cash donations to charities. However, the
Group encourages all employees to engage with their community
in whatever way each individual believes to be most appropriate.
In many instances this is in the field of education,
and the Group provides time and resources for staff members
who work with local libraries, who take on leadership
roles (such as school governors) or occasional teaching
roles. Both executive directors have been actively involved
during the year in supporting both undergraduate and
postgraduate education.
The Group encourages staff to raise money for children’s charities by providing time and resources. During this financial year, staff in several of our businesses raised money for good causes through sponsored events. The Group helped them to realise their fundraising targets by matching the sponsorship monies raised. This matching cost for the Group was £4,000 during the year. In addition to staff fundraising, gifts in kind have been donated to a number of charities. The Group made no contributions for political purposes.
Employees
The Group's policy is to consult and discuss
with employees, at meetings, matters likely to affect
employees' interests. Information on matters of concern
to employees is given through information bulletins and
reports which seek to achieve a common awareness on the
part of all employees of the financial and economic factors
affecting the Group's performance.
The Group operates employee sharesave schemes 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.
Creditor payment policy
The Company's current policy
concerning the payment of the majority of its trade creditors
is to follow the DTI's Better Payment Practice Code.
For other suppliers, the Company's policy is to:
- settle the terms of payment with those suppliers
when agreeing the terms of each transaction
- ensure that
those suppliers are made aware of the terms of payment
by inclusion of the relevant terms in contracts
- pay in accordance with its contractual and other legal obligations.
The payment policy applies to all payments to creditors for revenue and capital supplies of goods and services without exception. Wherever possible UK subsidiaries follow the same policy and overseas subsidiaries are encouraged to adopt similar policies, by applying local best practices.
The number of days credit taken by the Group from its suppliers at the year end is 35 days (2004: 41 days).
Health and safety
The Group’s policy is to achieve
and maintain high standards of health and safety. The
Group believes this to be a key part of good business
management.
The chairman and chief executive has overall responsibility for health and safety matters across the Group, however, the day-to-day execution of this responsibility is embedded into the roles of the general managers and line managers in each business area. Health and safety developments, initiatives and best practices are co-ordinated by the corporate social responsibility (CSR) group, which is chaired by the finance director and includes the general managers of each of the operating divisions.
The number of reportable accidents is tracked by business area, and the following table indicates the progress that has been made in our manufacturing activities, which has been assessed as the area of highest risk in our operations:
Reportable accidents/1,000 employees - UK Manufacturing
|
There has been an increase in the rate per 1,000 employees of reportable accidents during the year, although not an increase in the actual number. This is due mainly to the reduction in the number of employees working in support areas, which has meant that a higher proportion of employees now work in the higher risk areas, namely mainstream manufacturing jobs. |
Internally, the reporting mechanisms have also improved, particularly in areas previously outsourced, e.g. the staff restaurant.
We continue to work for improvement in this area, focused primarily on our investment in a new warehouse and production facility, where ergonomic considerations take priority. Work continues on the development of both individuals and teams to further reinforce our safety culture as the new facilities become operational.
Risk assessments are reviewed annually, or when a change to a process or to an item of machinery is made. In our manufacturing and supply activities, compliance audits of the Group’s policy and practices have been carried out annually, or more frequently if a new process has been introduced. The audit process is now being included in the job descriptions of line managers to embed health and safety further into the day-to-day activities of the business.
To enhance further health and safety at all sites, extensive training programmes are undertaken ranging from induction improvements through cell leader training to senior management responsibilities training.
In the UK sales business a full time health and safety officer is now employed to audit performance and to promote improved practices throughout the business.
Environmental performance
The Group aims to manage its
operations in ways which are environmentally sustainable
and economically feasible, and to minimise the negative
impact of its activities on the environment.
The chairman and chief executive has overall responsibility for environmental matters across the Group, however the day-to-day execution of this responsibility is embedded in the supply chain. Environmental developments, initiatives and best practices are co-ordinated by the CSR group.
We are engaged upon a three year strategic environmental management system which focuses upon:
Year 1 - 2003 waste management
Year 2 - 2004 pollution
assessment and control
Year 3 - 2005 energy management
The progress that has been made is reported below:
Waste management
During the year further improvements
were made to the Group’s waste reduction and recycling
programme.
2005 Waste – proportions recycled by
category |
A life cycle analysis has been instigated for all manufactured goods to ensure that the impact of our products on the environment and upon energy consumption can be assessed. The first stage of this was completed last year by working with suppliers to set environmental standards. This year we have worked to determine the point of origin of all raw materials. We have used the re-layout of the factory as an opportunity to establish a process map of the life cycle of materials, allowing us to monitor their route and usage. The Group is working to integrate an environmental management system into all aspects of the business. Packaging is a key marketing, logistical, economic and environmental concern. Therefore environmental considerations are introduced at the beginning of the packaging design to include legislative compliance, material use and future initiatives, whilst striving for environmental and business improvements. We continue to explore ways of reducing the amount of waste which our products generate for the end consumers by minimising the plastic content of sprues, re-using trays and ensuring full boxes are despatched from our warehousing facilities, with investigations continuing into new packaging and product development.
Pollution assessment and control
Our environmental management
system includes a biodiversity action plan developed
to cover pollution present in the air, water and on land.
A key element is a pollution control barrier erected
around our main UK manufacturing and distribution site
to eliminate the possibility of wind blown litter leaving
the site. Games Workshop is also involved in biodiversity
conservation and protection through our association with
Nottinghamshire Wildlife Trust. We are proud to have
become one of their Wildlife Guardians and encourage
staff to take part in conservation activities such as
litter picks along the riverbank at our Lenton site.
A full water services network map has been produced and a wash-down containment station has been constructed. Staff are trained in the use of pollution clean-up response kits to respond to any possible acidic or oil based spillage on the site. We also hold a regularly updated inventory of all chemicals and total quantities stored on site. This is made freely available to the fire service in the event of a major incident. The environmental training library has been expanded, highlighting the need for awareness to all employees. There have been no notifiable pollution incidents in the year under review.
Energy management
As our strategic focus has broadened
to include energy management, Games Workshop has engaged
with the Government funded organisation Action Energy
(now The Carbon Trust). Action Energy has carried out
a site visit and audit and recommendations from their
report are in the planning stage of implementation. We
have collated the base data for the energy consumption
for the Group’s
UK manufacturing facilities and the central Nottingham
site.
We currently provide our staff with access to shower facilities, a gym, changing rooms and secure motorbike and cycle storage areas, in order to encourage the use of alternative forms of transport. As a significant local employer, we are working to implement the recommendations of a full Green transport plan, drawn up in conjunction with the specialist cycle planning consultancy, Cleary Hughes Associates, and the Government’s Transport Energy Best Practice initiative.
In our manufacturing and supply activities, compliance audits of the Group’s policies and practices have been carried out annually, or more frequently if a new process has been introduced.
The Group has continued to work in co-operation with environmental lobby groups and non-governmental organisations, including EIRIS, to assist in data compilation and transparent public environmental reporting with a view to incorporating ethical values into our manufacturing principles.
Constructive use of the annual general meeting
The chairmen
of the audit, and 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.
Special business at the annual general meeting
Resolutions 7 and 8
The directors are currently authorised
to allot relevant securities under section 80 of the
Companies Act 1985 and to allot equity securities under
section 95 of the Companies Act 1985. Those authorities
expire at the conclusion of the annual general meeting.
Resolutions are therefore being put to the annual general
meeting to renew those authorities, resolution 7, to
give the directors authority to allot relevant securities
up to an aggregate nominal amount of £517,784
(representing one third of the Company's current issued
share capital). The directors have no present intention
of exercising this authority. Resolution 8 authorises
the directors to allot equity securities for cash otherwise
than on a preemptive basis in certain limited circumstances
and otherwise up to an aggregate nominal amount of £77,667
(representing 5% of the Company's current issued share
capital).
Resolution 9
The directors are also currently authorised
to make market purchases of the Company's shares pursuant
to section 166 of the Companies Act 1985. This authority
expires at the conclusion of the next annual general
meeting of the Company. Resolution 9 renews this authority
for up to a maximum of 4,628,990 ordinary shares (representing
14.9% of the Company's current issued share capital).
The directors’ intentions
regarding exercising this authority are set out in the financial
review.
Under the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003, which came into force on 1 December 2003, the Company is allowed to hold its own shares in treasury following a buy-back as an alternative to cancelling them. Shares held in treasury may be subsequently sold for cash, but all rights attaching to them, including voting rights and the right to receive dividends, are suspended while they are held in treasury.
Resolution 10
In addition, resolution 10 seeks shareholders’ authority
for the Company to renew the HM Revenue & Customs
approved savings related share option scheme for all
UK employees and similar arrangements for overseas employees.
This resolution is proposed because this scheme requires formal renewal every ten years, and the previous scheme was established in 1995.
The principal features of the Games Workshop Group PLC 2005 Savings-Related Share Option Scheme (‘the Scheme’) are outlined below.
General
For employees and UK executive directors the
Scheme is intended to be a Save-As-You-Earn (‘SAYE’)
share option scheme designed to be approved by HM Revenue & Customs.
The Scheme is intended also to provide unapproved options
on similar terms to non-UK employees and executive directors.
The Scheme shall be administered by the board or a duly authorised committee of the board.
Eligibility
All employees and executive directors of
the Company and participating companies within the Group
with at least five years service must be entitled to
participate. The board may also permit employees and
executive directors with a shorter period of service
to participate in the Scheme; it is intended that participation
in the Scheme will be extended to eligible employees
and executive directors who have completed at least one
year’s
service with the Group.
The savings contract
To participate in the Scheme, an
eligible UK employee must enter into a SAYE contract
(the ‘Savings Contract’)
with an appropriate savings carrier approved by the Company,
thereby agreeing to make monthly contributions of between £5
and £250 for a specified period of three, five
or seven years and a bonus will be payable after the
end of the period. Overseas employees will enter into
similar savings arrangements that the Group will establish
on their behalf. The board has discretion to determine
which of the Savings Contracts will be available in respect
of any invitation to apply for options.
Applications to participate in the Scheme may be scaled down by the board in accordance with procedures laid down in the rules of the Scheme, if applications exceed the number of shares available for the grant of options.
Option price
Options granted to acquire shares under
the Scheme will have an option price determined by the
board, which will be not less than the higher of:
- 80% of the average middle market quotation for
the three dealing days for such shares on the London
Stock Exchange immediately preceding the date on which
invitations to apply for options are issued to employees;
and
- where shares are to be subscribed, their nominal value.
Grant of options
Options may be granted over that number
of shares which, based on the level of contributions
made by the individual employee, could be purchased at
the option price out of the repayment proceeds of a UK
Savings Contract rounded down to the nearest whole share.
Options may be granted within the six weeks following the date on which the Scheme is adopted by the Company. Thereafter, options may normally only be granted in the six weeks following the announcement by the Company of its results for any period, or following a change in the legislation relating to sharesave schemes or where there are circumstances considered by the board to be exceptional.
No options may be granted later than ten years after the approval of the Scheme by shareholders.
Options may be granted over newly issued shares, treasury shares and shares purchased in the market in conjunction with an employee benefit trust established by the Company.
No payment will be required for the grant of an option. Options will not be taken into account in determining the employer's contributions to a defined contribution pension scheme. Options are not transferable (other than on death - in which case they may be exercised by a participant’s personal representatives).
Limits on the issue of shares
In any ten year period,
not more than ten per cent of the issued ordinary share
capital of the Company from time to time may be issued
or issuable pursuant to rights acquired under the Scheme
and any other employees’ share
scheme adopted by the Company.
For the purposes of this limit, options or other rights to acquire shares which lapse or have been released do not count. However, shares subscribed by the trustees of an employee benefit trust to satisfy rights granted under any employees’ share scheme adopted by the Company and shares transferred from treasury do count towards this limit.
Exercise of options
Options will only normally be exercisable
for a period of six months commencing on the third, fifth
or seventh anniversary (as the case may be) of the starting
date of the related Savings Contract and, if not exercised
by the end of that period, the option will lapse.
Earlier exercise may, however, be permitted in specified circumstances, including:
- termination of employment as a result of death,
injury, disability, redundancy, retirement or the sale
of the subsidiary or business for which the participant
works; or
- in the event of a takeover, reconstruction or winding up of the Company, where options may be exercised within six months of the change of control. Alternatively, options may be exchanged for new equivalent options where appropriate.
Rights attaching to shares
All shares allotted or transferred
under the Scheme will rank pari passu with all other
ordinary shares of the Company for the time being in
issue (save as regards any rights attaching to such shares
by reference to a record date prior to the date of allotment
or transfer) and the Company will apply for any new shares
issued under the Scheme to be admitted to the Official
List of the London Stock Exchange.
Variation of capital
In the event of any rights or capitalisation
issue, subdivision, consolidation, reduction or other
variation of share capital, the board may make (subject
to receiving prior approval of HM Revenue & Customs)
such adjustments as they consider appropriate to the
number of shares subject to options and/or the price
payable on the exercise of options.
Alterations to the Scheme
The Company reserves the right
up to the forthcoming annual general meeting to make
such amendments and additions to the Scheme as it considers
appropriate or which may be necessary to obtain approval
from HM Revenue & Customs,
provided they do not conflict in any material respect
with this summary of the rules.
Thereafter, the board may alter the provisions of the Scheme in any respect (subject to the approval of HM Revenue & Customs, where necessary) provided that the prior approval of shareholders in general meeting is obtained for alterations or additions to the advantage of participants to provisions relating to eligibility, limits on participation and the number of new shares available under the Scheme, terms of exercise and adjustment of options.
The requirement to obtain the prior approval of shareholders will not, however, apply in relation to any alteration or addition which is minor in nature and made to benefit the administration of the Scheme, to comply with the provisions of any existing or proposed legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for the Company, any of its subsidiaries or for participants.
Overseas employees
The board may grant options to overseas
employees on different terms so as to take account of
relevant overseas tax, securities or exchange control
laws provided that the options are not overall more favourable
than the terms of options granted to other employees.
Resolution 11
Article 165 of the articles of association
of the Company currently allows the Company to indemnify
the directors, the secretary and other officers against
liability incurred in defending civil or criminal proceedings
in which judgement is given in their favour or they are
acquitted. Section 19 of the Companies (Audit, Investigations
and Community Enterprise) Act 2004 amended the Companies
Act 1985 (the 'Act') from 6 April 2005 and permits companies
to indemnify officers (other than auditors) in respect
of liabilities (including legal costs) incurred by them
in proceedings brought against them by third parties.
However, amongst other things, the indemnity cannot cover
liability incurred by a director to the Company or any
associated company; fines imposed in criminal proceedings
and penalties imposed by regulatory authorities; costs
incurred in criminal proceedings where the director is
convicted or civil proceedings brought by the Company
or an associated company where judgement is given against
him; or costs incurred in proceedings for relief where
the court refuses to grant relief.
It is proposed pursuant to resolution 11 to adopt a new article 165 to exclude the auditors of the Company from its protection and to continue and expand the protection currently afforded to officers of the Company so that they are covered in their capacity as officers of the Company’s associated companies and also are covered where proceedings are disposed of without a formal finding being made against the officer concerned. Furthermore, the new article grants the board new powers to indemnify officers of the Company as such and as officers of the Company’s associated companies against liabilities and to cover the costs of defending proceedings and seeking relief, in each case only to the extent permitted by the Act (as amended). To ensure that the board is able to exercise the powers, the new article provides that each of the directors may vote and be counted in the quorum at any meeting considering a proposal which falls within the provisions of article 165 unless the director concerned is to receive a privilege or benefit not generally available to, or awarded to, any other director.
Auditors
Deloitte & Touche LLP resigned as auditors
on 10 January 2005 and the directors appointed PricewaterhouseCoopers
LLP to fill the casual vacancy. Resolution 5 to re-appoint
PricewaterhouseCoopers LLP as auditors of the Company
will be proposed at the annual general meeting.
Going concern
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 financial statements.
By order of the board
M Sherwin
Secretary
25 July 2005
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