Final Results

Games Workshop Group PLC 31 July 2007 PRELIMINARY RESULTS Games Workshop Group PLC ('Games Workshop' or the 'Group') announces its preliminary results for the year ended 3 June 2007. Highlights • Revenue at £111.5m (2006: £115.2m) • Pre-exceptional operating profit at £1.9m (2006: £4.2m) • Exceptional items - cost reduction programme £(4.0)m (2006: nil) • Operating (loss)/profit at £(2.1)m (2006: £4.2m) • Pre-tax (loss)/profit at £(2.9)m (2006: £3.7m) • Year end net borrowings of £10.2m (2006: £2.2m) • (Loss)/earnings per share of (11.2)p (2006: 6.5p) • Dividend per share 4.95p (2006: 18.975p) Tom Kirby, chairman and chief executive of Games Workshop, said: 'This has been a tough year for Games Workshop. However, as a result of the actions taken by management, the Group is now preparing itself for the future as a leaner and more responsive organisation, better equipped to face the growth challenges which lie before it. 'We are confident that sales will return to growth in the future and we are continuing to invest in people and assets to secure that growth; but we are also removing unnecessary costs today and working at preventing their return. 'We continue to see Games Workshop as a growth business. We believe that it is only a matter of time and hard work before we re-establish our historic linear growth rate. 'There is a steely determination in the business to put things right.' For further information, please contact: Games Workshop Group PLC Today only: 01756 770 376 Tom Kirby, chairman and chief executive Thereafter: 0115 900 4001 Michael Sherwin, finance director 0115 900 4001 The analyst presentation may be viewed at the investor relations website http://investor.games-workshop.com General website www.games-workshop.com Rawlings Financial PR Limited Tel: 01756 770 376 Catriona Valentine The 2007 annual report may be viewed at the investor relations website at the address above. FINANCIAL HIGHLIGHTS 2007 2006 Revenue £111.5m £115.2m Pre-exceptional operating profit £1.9m £4.2m Exceptional items - cost reduction programme £(4.0)m - Operating (loss)/profit £(2.1)m £4.2m Pre-tax (loss)/profit £(2.9)m £3.7m Year end net borrowings £10.2m £2.2m (Loss)/earnings per share (11.2)p 6.5p Dividend per share 4.95p 18.975p BUSINESS REVIEW BY THE CHAIRMAN AND CHIEF EXECUTIVE Summary of results - for the year to 3 June 2007 This has been a tough year for Games Workshop. However, as a result of the actions taken by management, the Group is now preparing itself for the future as a leaner and more responsive organisation, better equipped to face the growth challenges which lie before it. Our sales performance over the year has been patchy and difficult to predict accurately: a poor first quarter was followed by a more encouraging second quarter; our third quarter was soft, although we finished the year positively. This lack of consistency required us to make two trading statements during the year as small sales shortfalls created large percentile reductions in profits due to the high operational gearing of our business. Management's response to this has been twofold: firstly, a reinvigorated focus on growing sales, and secondly, a cost reduction programme to reduce the overhead base of the business. In terms of sales growth, while the overall portfolio shows flat sales for the year in constant currency, the evidence from our larger and more established sales businesses is encouraging. In the UK, which is our most mature sales business, we have seen sales growth for eight out of the last nine months of the financial year; the US sales business, which we expect to be a significant engine for future growth, has turned around its sales to independent retailers, which have also been in growth for eight out of the last nine months, and is now seeing sales growth in our own Games Workshop Hobby stores in its target cities; Australia and New Zealand, our second oldest sales business, has recorded growth in constant currency of 8% in the year. Our overall sales have been held back by our performance in Continental Europe - an area which was enjoying strong growth between 2001 and 2004. Management's response to the decline in sales since 2005 has led to changes in the management teams in all but one of our Continental European territories. These changes are designed to allow better focus on sales delivery, and to avoid the distractions of back office and infrastructure matters. Our confidence in growth remains: we have continued to open Games Workshop stores, adding a net eleven to the portfolio this year. Our efforts to restore the profitability of the business need to focus both on sales and costs. Even though we have set specific and measurable financial targets for the immediate costs and benefits of the cost reduction programme, we see this as a long-term process to ensure that the business only incurs those costs which are necessary to service our customers properly. In summary, we are confident that sales will return to growth in the future and we are continuing to invest in people and assets to secure that growth; but we are also removing unnecessary costs today and working at preventing their return. Cost reduction programme In May this year, we announced the acceleration and intensification of our programme of cost reduction to reduce overheads in the business. There are three key areas of this programme: • Closing loss making stores • Rationalisation of the manufacturing and supply chain • Simplification of the support infrastructure We have identified 32 stores which are unprofitable due to either low sales or high rents, and which we see as irremedial. Seventeen of the stores identified for closure are in the Americas, and these are located outside our selected metropolitan areas. A further eight are in the UK, six in Continental Europe and one in Asia Pacific. By closing these stores, we are also removing a significant management distraction from our sales businesses. The rationalisation of elements of our manufacturing and supply chain includes the closure of the tool making facility at Wisbech, UK, which is being relocated to our main Nottingham site where a new tool room is being established. In addition, our Canadian warehouse is being closed and the existing dispatch facility in Memphis will pick up its workload. A further element of the programme is to rationalise inventory management. As automatic inventory replenishment is introduced to our UK stores, we will transfer the responsibility for managing these inventories to our logistics team which also manages our warehouse inventory. This will coincide with a review of the store product range. Inventories will be further reduced by introducing just-in-time manufacturing to our plastics production. A few years ago we established a divisional structure for the business, which was organised into four separate management units, each with its own support infrastructure. We are simplifying this structure back to one operating management team, while maintaining the control benefits of the reporting and KPIs that each division had developed. Also, in the sales businesses, we are removing the cell management structures from our store chains. We believe that these changes will create a leaner, flatter and more responsive organisation. In addition, we are centralising some support functions (White Dwarf magazine, marketing, IT) further to streamline the customer facing activities and remove unnecessary duplication of back office functions. We have set specific and measurable financial targets for the costs and benefits of each element of this programme. Estimated Estimated total annualised costs benefits £m £m Closing loss making stores 1.7 1.2 Rationalisation of the manufacturing and supply chain 2.3 1.7 Simplification of the support infrastructure 2.0 4.1 -------- -------- Total 6.0 7.0 -------- -------- £4.0 million of these costs has been recognised as an exceptional item in these accounts and the balance will be accounted for in 2008. Dividend We are using the cash which would have otherwise been applied in paying a final dividend for 2006/7 to finance the cost reduction programme described above. The board remains confident in the future growth and profitability of the Group, but has determined that, until that time, this cash is better used investing in this programme to secure those future profits. Sales by channel The Games Workshop Hobby is supported and promoted by our own Games Workshop Hobby stores, through which 49% of sales are made. As we continue to develop the Hobby, we opened 24 and closed 13 stores during the year taking our total at the end of May 2007 to 348. Sales are also made through independent retailers and direct, via the internet and mail order. An analysis of sales for 2006/7 for each of the channels is given below: 2007 2006 Independent retailers £44.9m 40% £48.1m 42% Hobby stores £54.5m 49% £54.9m 48% Direct £12.1m 11% £12.2m 10% Sales by territory An analysis of sales for 2006/7 for each of the geographical sectors is given below: Constant Growth/ currency growth/ 2007 2006 (decline) (decline) Continental Europe £45.2m £48.1m -£2.9m -£2.4m UK £34.1m £33.5m +£0.6m +£0.6m The Americas £24.6m £26.2m -£1.6m +£0.4m Asia Pacific £7.6m £7.4m +£0.2m +£0.6m Continental Europe There are five stand alone sales businesses in Continental Europe, responsible for development in France, Germany, Northern Europe, Spain and Italy. At the year end, we had 114 Games Workshop Hobby stores, up from 106 last year. Our sales have fallen in France, Germany and Spain, but there has been modest growth in Northern Europe and Italy. Most of the decline has been in our sales to independent retailers, which is the sales channel which enjoyed particularly strong growth during 2003 and 2004 throughout Continental Europe. We have been concerned that our local management teams in Germany and France have been slow to react to the decline in sales since 2005 and have, in addition to the changes mentioned above, appointed our most experienced senior manager as head of sales for Continental Europe in order to increase the focus on profitable growth. UK At the end of May 2007, we had 118 Games Workshop Hobby stores in the UK (2006: 119). After a weak first quarter, the business was in modest growth for the rest of the year. In the second half of the year we saw a return to growth in our sales to independent retailers, and our Games Workshop Hobby stores have continued to perform satisfactorily. Our focus has remained on staff training, recruitment and retention, particularly for the key posts of store managers. We continued to keep the cost base under close review, reducing both our back office costs and the regional management structure for the stores. The Americas During the year, we opened seven and closed eight Games Workshop Hobby stores in the Americas, which for us comprises the USA and Canada, bringing our total at the end of May 2007 to 82. We have established that our best model both for the development of the Hobby and for management command and control is to focus upon selected metropolitan areas where we can cluster our stores to grow and nurture the Hobby community. Our development plan moving forwards is to recruit staff, bring on middle management and deliver great Games Workshop Hobby activity centred around this metropolitan area strategy. We have concentrated our resources on five metropolitan areas, and in these areas our Games Workshop Hobby stores are enjoying growth. Our store programme has continued to shift the emphasis from the more expensive covered shopping mall stores to cheaper and more flexible strip mall locations. This strategy will also support and develop the independent retailer base in these major metropolitan areas. A key development this year was the stabilisation of our independent retailer base: in the USA we began the year with 729 active accounts and we ended it with 821. Our sales to independent retailers were in growth for eight out of the last nine months, and for the full year they were flat - the first year without a decline since 2002. Our plan to close loss making stores during 2007/8 includes 17 stores in the Americas. The closure of the stores will improve the profitability of the business in the Americas and will also remove a significant burden from the local management. Asia Pacific This territory comprises Australia, New Zealand and Japan. At the year end, we had 34 stores in the whole region (2006: 29). Our operations in Australia and New Zealand enjoyed a successful year, led by a strong performance from our Games Workshop Hobby stores. We opened our second and third stores in Japan during the year and we see this as the beginning of a long-term investment which cost us £0.5 million this year. The initial indications are promising and we expect to open our fourth store shortly. Other activities Computer games licensing We have in place three third party licences with publishers of computer games: THQ Inc. for Warhammer 40,000, NAMCO BANDAI Games America Inc. for Warhammer and Electronic Arts Inc. (which acquired Mythic Entertainment Inc. during the year) which is developing a massively multiplayer online role-play game set in the Warhammer world. We understand that this online role-play game (WAR - Warhammer Online: Age of Reckoning) is due to be launched during the first half of the 2008 calendar year. We expect licensing income to fluctuate from year to year, depending on the commercial success of the products created by our licensees. BL Publishing Our publishing business, which made sales of £3.1 million this year (2006: £2.6 million), continues to develop as a small but profitable niche publishing portfolio, focusing on fantasy and science fiction titles. Sabertooth Games This US based collectible card game business, which has been struggling to break even since we acquired it in 2002, has enjoyed significant success this year with its Universal Fighting System collectible card game which has begun the turnaround of its fortunes. Sales for the year were $2.3 million (2006 : $1.1 million). Workforce This has been a particularly hard year for everybody at Games Workshop. We have lost some dear and old friends; many families are facing the worry and hardship of redundancy. Nevertheless there is determination and resolve to drive forward our sales plans and to push through the changes we are making to the cost base. What I find inspiring is the ability our staff are showing, throughout this period of personally disruptive and unsettling structural change, to remain focused on their jobs. All the stakeholders in Games Workshop should remain proud of the workforce we have all over the world. So once again, I would like to use this annual report to say thank you to all our staff and I trust that our shareholders will join me. Risks facing the business Managing the risks which face our business is what we do every day. Our management structure and the reporting systems which we have developed make this process transparent and accountable. The head of sales is responsible for keeping the Games Workshop Hobby fresh and exciting and for managing market facing risk; the head of operations is responsible for managing product delivery risks; the head of finance is responsible for using our intellectual property appropriately, for managing corporate risks and for ensuring we comply with the ever waxing (and never waning) regulatory environment. We have a formal risk reporting process as part of our annual budgeting and planning cycle, which is linked into the internal and external audit process, but the management of these risks is an integral part of the daily management process. Amongst the product delivery risks are those relating to input prices. The cost of raw materials, such as metal and plastic, represents no more than 4% of our sales and therefore we do not believe that the price volatility of these inputs represents a significant threat to our long-term profitability. In the short term our buying team continues to work to minimise these risks and the people in our manufacturing and supply functions continue to seek process efficiencies to offset any cost impact. Many of our risks are mitigated by the portfolio effect which we enjoy with different geographies, different routes to market and different currencies. This leads me to conclude, as it does every year, that the main source of risk to this business remains management error. This is why management recruitment, development and succession planning are so important. Prospects In the short term our trading prospects remain challenging: as I have indicated above, we finished the year positively. Nevertheless, we have yet to establish a consistent pattern of trading in growth, and our cost reduction programme is likely to cause some further volatility, at least during the first quarter of 2007/8. We believe that the business is now returning to growth, but 'calling the turn' remains difficult. We remain confident, nevertheless, that we are right to refer to these as short-term trading issues. Our confidence is based upon the following four fundamentals: 1. The health of the Games Workshop Hobby Despite the short-term difficulties of this year, our internal measures - both hard and soft - tell us the Hobby is in good health. 2. The long-term growth credentials of the business We continue to see Games Workshop as a growth business. Between 2002 and 2005 our sales were above our normal growth line. We believe that it is only a matter of time and hard work before we re-establish our historic linear growth rate. 3. The market opportunity for our existing sales businesses The table below shows our sales per capita in our key sales markets, based upon our 2007 sales and the population statistics for each country. In the long term we see no reason why we shouldn't achieve similar levels of sales penetration in each of these markets to those which we currently have in the UK. Achieving this would at least treble the current level of our sales. Sales per capita by geographical area UK 51p Asia Pacific 36p Continental Europe 16p The Americas 9p Japan 0p This is not a sales forecast but a rough indication of the potential sales of Games Workshop. 4. The capital infrastructure We have come to the end of our investment programme, which leaves the business seriously well invested. These are the reasons why the directors still believe the prospects for the business remain very good. Tom Kirby Chairman and chief executive 30 July 2007 CONSOLIDATED INCOME STATEMENT 53 weeks to 52 weeks to 3 June 2007 28 May 2006 Notes £000 £000 Revenue 3 111,483 115,150 Cost of sales (33,697) (34,265) --------- --------- Gross profit 77,786 80,885 Operating expenses (81,284) (77,838) Other operating income - royalties receivable 1,423 1,170 --------- --------- Operating (loss)/profit 3 (2,075) 4,217 ------------------------------------------------------------------------------ Operating profit - pre-exceptional 1,953 4,217 Exceptional items - cost reduction programme (4,028) - ------------------------------------------------------------------------------ Finance income 326 238 Finance costs (1,110) (797) --------- --------- (Loss)/profit before taxation (2,859) 3,658 Income tax expense 5 (622) (1,660) --------- --------- (Loss)/profit attributable to equity shareholders (3,481) 1,998 ========= ========= Basic (loss)/earnings per ordinary share (11.2)p 6.5p Diluted (loss)/earnings per ordinary share (11.2)p 6.4p All items dealt with in arriving at (loss)/profit before taxation relate to continuing activities. STATEMENT OF RECOGNISED INCOME AND EXPENSE 53 weeks to 52 weeks to 3 June 2007 28 May 2006 £000 £000 (Loss)/profit attributable to equity shareholders (3,481) 1,998 Exchange differences on translation of foreign operations (614) (131) Cash flow hedges: - fair value gains (88) 86 - transferred to the income statement (86) (331) Net investment hedge - (2) Tax on items recognised directly in equity 52 73 --------- --------- Total recognised (expense)/income for the year (4,217) 1,693 ========= ========= CONSOLIDATED BALANCE SHEET As at As at 3 June 2007 28 May 2006 Notes £000 £000 Non-current assets Goodwill 2,390 2,449 Other intangible assets 4,963 4,320 Property, plant and equipment 27,986 29,475 Trade and other receivables 1,204 992 Deferred income tax assets 2,314 2,121 --------- --------- 38,857 39,357 --------- --------- Current assets Inventories 11,260 12,407 Trade and other receivables 8,351 8,801 Current tax assets 1,056 382 Financial assets - derivative financial instruments 24 181 Cash and cash equivalents 6,103 6,444 --------- --------- 26,794 28,215 --------- --------- Total assets 65,651 67,572 --------- --------- Current liabilities Financial liabilities - borrowings (6,461) (1,705) Financial liabilities - derivative financial instruments (120) (14) Trade and other payables (13,889) (15,714) Current income tax liabilities (38) (415) Provisions (3,225) (584) --------- --------- (23,733) (18,432) --------- --------- Net current assets 3,061 9,783 --------- --------- Non-current liabilities Financial liabilities - borrowings (9,820) (6,960) Other non-current liabilities (958) (1,317) Provisions (1,283) (927) --------- --------- (12,061) (9,204) --------- --------- Net assets 29,857 39,936 ========= ========= Capital and reserves Called up share capital 7 1,556 1,556 Share premium account 7 7,822 7,822 Other reserves 7 (1,210) (596) Retained earnings 7 21,689 31,154 --------- --------- Total shareholders' equity 7 29,857 39,936 ========= ========= CONSOLIDATED CASH FLOW STATEMENT 53 weeks to 52 weeks to 3 June 2007 28 May 2006 Notes £000 £000 Cash flows from operating activities Cash generated from operations 9 10,341 15,789 UK corporation tax paid (503) (1,665) Overseas tax paid (1,345) (1,838) --------- --------- Net cash from operating activities 8,493 12,286 --------- --------- Cash flows from investing activities Purchases of property, plant and equipment (5,813) (8,321) Proceeds on disposal of property, plant and equipment 13 32 Purchases of other intangible assets (951) (830) Expenditure on product development (2,937) (2,505) Interest received 336 234 --------- --------- Net cash from investing activities (9,352) (11,390) --------- --------- Cash flows from financing activities Proceeds from issue of ordinary share capital - 207 Proceeds from borrowings 2,908 1,955 Repayment of principal under finance leases (41) (143) Equity dividends paid (5,904) (5,874) Interest paid (1,113) (886) --------- --------- Net cash from financing activities (4,150) (4,741) --------- --------- Effects of foreign exchange rates (107) (5) --------- --------- Net decrease in cash and cash equivalents (5,116) (3,850) ========= ========= Opening cash and cash equivalents 4,772 8,622 --------- --------- Closing cash and cash equivalents 8 (344) 4,772 ========= ========= NOTES TO THE PRELIMINARY RESULTS 1. The consolidated financial statements of Games Workshop Group PLC are prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations, that are adopted by the European Union and with those parts of the Companies Act 1985 applicable to those companies reporting under IFRS. 2. These results for the 53 weeks to 3 June 2007 together with the corresponding amounts for the 52 weeks to 28 May 2006 are extracts from the 2007 annual report and do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 (as amended). The annual report for the year to 3 June 2007, on which the auditors have issued a report that does not contain a statement under section 237(2) or (3) of the Companies Act 1985, will be posted to shareholders on 1 August 2007 and will be delivered to the Registrar of Companies in due course. Copies will also be available from Michael Sherwin, Games Workshop Group PLC, Willow Road, Lenton, Nottingham NG7 2WS. This information is also available on the company website at http://investor.games-workshop.com. The annual general meeting will be held at Willow Road, Lenton, Nottingham NG7 2WS at 10.00am on 20 September 2007. The preliminary announcement is prepared in accordance with the Listing Rules of the Financial Services Authority and accounting policies consistent with those used in the 2006 annual report. 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: • Management estimates and judgements are required in assessing the impairment of assets, particularly in relation to the forecasting of future cash flows and the discount rate applied to the cash flows. • Judgement is involved in assessing the exposures in provisions and hence in setting the level of the required provisions. 3. Segmental analysis The Group has one business segment, the Games Workshop Hobby. Geographical segments represent the dominant source and nature of the Group's risk and returns and is therefore provided below as the primary reporting format. 53 weeks ended 3 June 2007 Rest Central/ Continental United The Asia of the un- Design and Royalty Europe Kingdom Americas Pacific World allocated development income Group £000 £000 £000 £000 £000 £000 £000 £000 £000 Total gross segment sales by operation 45,221 34,104 24,540 7,618 - - - - 111,483 Inter-segment sales 554 (3,356) 2,100 502 200 - - - - -------- ------- ------- ------- ------- -------- -------- ------ ------- Total gross segment sales by location of customers 45,775 30,748 26,640 8,120 200 - - - 111,483 ======== ======= ======= ======= ======= ======== ======== ====== ======= Pre-exceptional operating profit/segment result by location of customers 5,408 4,032 (137) 32 84 (4,958) (3,931) 1,423 1,953 Exceptional items (800) (2,084) (1,120) (24) - - - - (4,028) -------- ------- ------ ------ ------ -------- -------- ------ ------- Operating profit/segment result by location of customers 4,608 1,948 (1,257) 8 84 (4,958) (3,931) 1,423 (2,075) ======== ======= ======= ======= ======= ======== ======== ====== ======= 52 weeks ended 28 May 2006 Rest Central/ Continental United The Asia of the un- Design and Royalty Europe Kingdom Americas Pacific World allocated development income Group £000 £000 £000 £000 £000 £000 £000 £000 £000 Total gross segment sales by operation 48,112 33,507 26,121 7,410 - - - - 115,150 Inter-segment sales 1,348 (3,489) 1,645 444 52 - - - - -------- ------- ------ ------ ------ -------- -------- ------ ------- Total gross segment sales by location of customers 49,460 30,018 27,766 7,854 52 - - - 115,150 ======== ======= ======= ======= ======= ======== ======== ====== ======= Operating profit/segment result by location of customers 8,154 3,799 (487) 470 22 (4,872) (4,039) 1,170 4,217 ======== ======= ======= ======= ======= ======== ======== ====== ======= 4. The calculation of basic (loss)/earnings per ordinary share has been based on (loss)/profit attributable to equity shareholders of £(3.5) million (2006: £2.0 million) and the weighted average number of shares in issue throughout the year. The calculation of diluted earnings per ordinary share has been based on (loss)/ profit for the year and the weighted average number of shares in issue throughout the year, adjusted for the dilution effect of share options outstanding at the year end. There is no impact on the diluted EPS for the 53 weeks ended 3 June 2007 for the share options in existence as, due to losses, these options are anti-dilutive. 2007 2006 Weighted average number of shares (thousands): For basic (loss)/earnings per ordinary share 31,116 30,959 Dilution effect of share options outstanding - 47 ------- ------- For diluted (loss)/earnings per ordinary share 31,116 31,006 ======= ======= 5. Income tax expense 2007 2006 £000 £000 Current taxation UK corporation tax 50 530 Overseas tax 748 1,072 -------- -------- Total current taxation 798 1,602 Deferred taxation (176) 58 -------- -------- Income tax expense 622 1,660 ======== ======== 2007 2006 £000 £000 (Loss)/profit before taxation (2,859) 3,658 ------- -------- (Loss)/profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (858) 1,097 ------- -------- Effects of: Expenses not deductible for tax purposes 393 274 Movement in deferred tax not recognised 1,282 677 Higher rates on overseas earnings (60) 26 Adjustments to tax charge in respect of previous years (135) (414) ------- -------- Total tax charge for the year 622 1,660 ======= ======== 6. No final dividend is proposed. The dividends paid in the year were £5,904,000 (18.975p per share). 7. Consolidated statement of changes in shareholders' equity Other reserves Retained earnings --------------------------------- --------------------------- Called up Share Capital Profit share premium redemption Translation Other Hedging Treasury and Total capital account reserve reserve reserve reserve shares loss equity £000 £000 £000 £000 £000 £000 £000 £000 £000 As at 28 May 2006 1,556 7,822 101 353 (1,050) 60 (49) 31,143 39,936 Exchange adjustments - - - (614) - - - - (614) Loss attributable to equity shareholders - - - - - - - (3,481) (3,481) Dividends paid - - - - - - - (5,904) (5,904) Share-based payments - - - - - - - 42 42 Deferred tax - - - - - 26 - - 26 Current tax - - - - - 26 - - 26 Cash flow hedges: - fair value losses in the year - - - - - (88) - - (88) - transfers to net profit - - - - - (86) - - (86) ------- ------ ------- --------- ------ -------- ------- ------- ------- As at 3 June 2007 1,556 7,822 101 (261) (1,050) (62) (49) 21,800 29,857 ======= ====== ======= ========= ====== ======== ======= ======= ======= Other reserves Retained earnings --------------------------------- --------------------------- Called up Share Capital Profit share premium redemption Translation Other Hedging Treasury and Total capital account reserve reserve reserve reserve shares loss equity £000 £000 £000 £000 £000 £000 £000 £000 £000 As at 29 May 2005 1,553 7,592 101 486 (1,050) 232 (1,132) 35,960 43,742 Exchange adjustments - - - (131) - - - - (131) Profit attributable to equity shareholders - - - - - - - 1,998 1,998 Shares vested - - - - - - 1,083 (1,083) - Dividends paid - - - - - - - (5,874) (5,874) Share-based payments - - - - - - - 168 168 Current tax - - - - - 73 - - 73 Cash flow hedges: - fair value gains in the year - - - - - 86 - - 86 - transfers to net profit - - - - - (331) - - (331) Net investment hedge - - - (2) - - - - (2) Issue of ordinary share capital 3 230 - - - - - (26) 207 ------- ------ ------- --------- ------ -------- ------- ------- ------- As at 28 May 2006 1,556 7,822 101 353 (1,050) 60 (49) 31,143 39,936 ======= ====== ======= ========= ====== ======== ======= ======= ======= 8. Analysis of net debt As at As at 28 May Cash Non-cash Exchange 3 June 2006 flow changes movement 2007 £000 £000 £000 £000 £000 Cash at bank and in hand 6,444 (229) - (112) 6,103 Current borrowings - bank overdraft (1,672) (4,780) - 5 (6,447) ------- ------- -------- -------- ------- Cash and cash equivalents 4,772 (5,009) - (107) (344) Non-current borrowings (6,955) (2,908) - 52 (9,811) Finance leases (38) - (28) 2 (23) ------- ------- -------- -------- -------- Net debt (2,221) (7,876) (28) (53) (10,178) ======= ======= ======== ======== ======== 9. Reconciliation of (loss)/profit to net cash from operations 2007 2006 £000 £000 (Loss)/profit attributable to equity shareholders (3,481) 1,998 Income tax expense 622 1,660 Depreciation of property, plant and equipment 6,925 7,145 Impairment loss on property, plant and equipment 306 - Loss on disposal of property, plant and equipment 95 113 Amortisation of capitalised development costs 2,525 2,289 Amortisation of other intangibles 720 736 Finance income (326) (238) Finance costs 1,168 908 Net fair value (gains)/losses on derivative financial instruments 88 (43) Share-based payments 42 168 Exchange gains on borrowings (58) (111) Changes in working capital: Decrease in inventories 901 465 Decrease in trade and other receivables 128 948 Decrease in trade and other payables (2,326) (562) Increase in provisions 3,012 313 --------- --------- Net cash from operating activities 10,341 15,789 ========= ========= This information is provided by RNS The company news service from the London Stock Exchange

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