Games Workshop in fresh profit alert

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The Independent Online

Games Workshop shares plunged yesterday as the evil eye of Sauron fixed its glare on the fantasy game and model maker, forcing a profits warning.

Games has still to recover from the fall in sales that hit the company after the finalé of Peter Jackson's epic film trilogy Lord of the Rings - in which Sauron was the chief villain - three years ago.

The company has the licence to produce products linked to the films and saw a huge surge in sales during their cinema run as fans bought tie-ins.

However, Games said yesterday that full-year earnings would fail to meet City expectations because of a slower than expected "return to growth" during Christmas trading.

The company, which brought forward its interim results, also said revenues for the six months to 26 November fell 4 per cent to £54.8m and pre-tax profits were flat at £100,000, although the sales fall was partly caused by the dollar's weakness. The shares responded by plunging 39p to 368p.

Finance director Michael Sherwin admitted that the LOTR licence had proved a mixed blessing for the company, which said its chain of hobby stores was now 344 strong after 15 openings and eight closures. While LOTR products generated huge sales - with the profits enabling the company to build a new state-of-the-art factory - the company lost focus on its traditional customer base who play GW's Warhammer games.

Mr Sherwin also said: "We got into bad habits, usually it takes a lot of effort to introduce a new customer to our products, such as providing demonstrations. With the Lord of the Rings products it simply became a question of operating a till. We also lost a bit of focus on our traditional customers. We have done a considerable amount of work retraining staff and eliminating those bad habits." He said the company had "no regrets" about the LOTR licence but said it had "learned lessons". He also said that Games remained keen on securing a similar licence for The Hobbit when it reaches the screen.

However, he added: "We would keep more control of what we were doing." The company wants to radically increase its 50-strong chain in the US, and would also like to expand in Italy and Japan. Bridgewell analyst Iain Daly said the results made "mixed reading". He said he was encouraged by parts of the company's statement, but added that the recovery was "slower than we had been looking for".

The dividend is being held at 4.95p a share.