Trading Statement & Interims

Games Workshop Group PLC 06 January 2006 TRADING STATEMENT AND INTERIM RESULTS Games Workshop Group PLC ('Games Workshop' or the 'Group') announces its interim results for the six months to 27 November 2005. Key points: * Revenue £57.1m (2004: £71.0m); Lord of the Rings 'bubble' still deflating * Gross margin holding up at 69.1% (2004: 70.5%) * Overheads reduced to £39.0m (2004: £42.2m) * Operating profit £0.5m (2004: £7.9m) * Major supply chain investment completed and nine new Hobby stores opened * Maintained interim dividend of 4.95p Tom Kirby, Chairman and Chief Executive of Games Workshop, said: 'Our sales for the five weeks to 1 January 2006 show a year on year decline of 17%. We can now see that our full year sales, and therefore profits, are likely to fall short of current market expectations. This is why we have brought forward the timing of our interim results announcement this year. 'Whilst recognising that at present our levels of trading are below last year, the directors firmly believe that the prospects for the business remain very good.' For further information, please contact: Games Workshop Group PLC Today only: 01756 770 376 Tom Kirby, Chairman and Chief Executive Thereafter: 0115 900 4000 Michael Sherwin, Finance Director Julia Woodall, PR Manager 0115 900 4006 Investor relations website http://investor.games-workshop.com General website http://www.games-workshop.com Rawlings Financial PR Limited Tel: 01756 770 376 John Rawlings Catriona Valentine FIRST HALF HIGHLIGHTS Six months to Six months to 27 November 28 November 2005 2004 Revenue £57.1m £71.0m Operating profit £0.5m £7.9m Profit before tax £0.1m £7.7m Basic earnings per share 0.2p 16.6p Interim dividend per share 4.95p 4.95p CHAIRMAN'S STATEMENT Results As first reported last year, our business continues to experience the downside of a trading cycle as the Lord of the Rings 'bubble' deflates. This has continued throughout 2005 to date, resulting in a 20% decline in sales in the first half against the previous year. The decline has been largely consistent across all of our markets and has been slightly more severe than originally expected. The position has been exacerbated by the continued reduction in our sales to independent toy and hobby retailers, notably in the US, where many smaller independent operators are ceasing to trade. We have sought to mitigate the impact of these difficult conditions by working closely with stronger outlets to nurse them through their current problems and by generating healthier performances from our own Hobby stores. Our emphasis has been to focus on the development of our own Hobby stores and on investing in recruitment and also in structured training at all levels of management and staff. We are strengthening all direct channels to market. Despite lower production volumes and the consequent reductions in the benefits of scale, gross margins at 69.1% are higher than our original expectations and only slightly short of the comparative first half in 2005 (70.5%). Greater operational efficiency from the capital investments at Memphis and Nottingham (all completed on time and on budget), and sourcing bought in components and print more cost effectively from both Europe and Asia, have further helped to mitigate the effects of lower volume. Additionally, overheads have been reduced from £42.2m last year to £39.0m this first half after absorbing the cost of making the reductions, whilst increasing our expenditure on customer facing activities including 17 new store openings since November 2004. Dividend A maintained interim dividend of 4.95 pence per share (2005: 4.95p) will be paid on 21 April 2006 to shareholders on the register at 17 March 2006. Prospects Our sales for the five weeks to 1 January 2006 show a year on year decline of 17%. We can now see that our full year sales, and therefore profits, are likely to fall short of current market expectations. This is why we have brought forward the timing of our interim results announcement this year. We now have a total of 336 Hobby stores. Although 2005/6 is proving to be a difficult trading year for the Group, we remain confident that we will re-establish our sales growth by continuing to open new stores and by ensuring that our in-store activity of introductory gaming, painting lessons and other structured Hobby events is well delivered. Games Workshop is a tightly run, well invested business. Our overheads continue to be reduced and, having come to the end of our factory investment programme, our investment efforts going forwards will be in new Hobby stores and in ensuring that our sales staff receive good training. We are moving from a period of investment in our supply infrastructure assets to a period of investment in the training of our people. Whilst recognising that at present our levels of trading are below last year, the directors firmly believe that the prospects for the business remain very good. International Financial Reporting Standards (IFRS) These financial statements have been prepared in accordance with IFRS, and the impact of the conversion of the accounts for previous periods (which were prepared under UK GAAP) is set out in summary in note 9 and in detail on our investor relations web site at http://investor.games-workshop.com in accordance with IFRS 1 (First-time Adoption of IFRS). T H F Kirby Chairman and Chief Executive 6 January 2006 TURNOVER BY GEOGRAPHICAL AREA OF SALES OPERATION IN LOCAL CURRENCY Six months to Six months to 27 November 28 November 2005 2004 Continental Europe €35.8m €45.4m United Kingdom £16.6m £21.0m The Americas US$21.6m US$27.1m Asia Pacific Aus$8.7m Aus$10.5m CONSOLIDATED INCOME STATEMENT Six months to Six months to Year to 27 November 28 November 29 May 2005 2004 2005 Notes £000 £000 £000 Revenue 2 57,090 70,972 136,647 Cost of sales (17,650) (20,918) (42,126) ---------- ---------- ---------- Gross profit 39,440 50,054 94,521 Net operating expenses (38,977) (42,180) (80,253) ---------- ---------- ---------- Operating profit 2 463 7,874 14,268 Finance income 69 71 153 Finance costs (413) (266) (538) ---------- ---------- ---------- Profit before taxation 119 7,679 13,883 Income tax expense 3 (54) (2,610) (4,889) ---------- ---------- ---------- Profit for the period 65 5,069 8,994 ========== ========== ========== Basic earnings per ordinary share 5 0.2p 16.6p 29.3p Diluted earnings per ordinary share 5 0.2p 16.3p 28.9p Proposed interim dividend per ordinary share 4 4.95p 4.95p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Six months to Six months to Year to 27 November 28 November 29 May 2005 2004 2005 £000 £000 £000 Profit for the period 65 5,069 8,994 Net exchange adjustments offset in reserves 717 463 486 Cash flow hedges - fair value gains in the period 178 (306) 331 - transferred to net profit (315) (581) (615) Tax on items recognised directly in equity 40 275 85 ---------- ---------- ---------- Total recognised income for the period 685 4,920 9,281 ========== ========== ========== CONSOLIDATED BALANCE SHEET As at As at As at 27 November 28 November 29 May 2005 2004 2005 Notes £000 £000 £000 Non-current assets Goodwill 2,531 2,437 2,468 Other intangible assets 4,401 3,570 3,995 Property, plant and equipment 29,777 26,232 28,973 Other receivables 420 274 398 Deferred income tax assets 2,224 2,276 2,178 ---------- ---------- ---------- 39,353 34,789 38,012 ---------- ---------- ---------- Current assets Inventories 13,382 14,965 12,838 Trade and other receivables 13,614 16,762 10,350 Current tax assets 374 - - Derivative financial instruments 338 174 476 Cash and cash equivalents 6,253 8,811 8,622 ---------- ---------- ---------- 33,961 40,712 32,286 ---------- ---------- ---------- Total assets 73,314 75,501 70,298 ---------- ---------- ---------- Current liabilities Financial liabilities (4,108) (559) (252) Trade and other payables (16,687) (20,845) (18,021) Current income tax liabilities - (2,744) (1,698) Provisions (222) (133) (322) ---------- ---------- ---------- (21,017) (24,281) (20,293) ---------- --------- ---------- Net current assets 12,944 16,431 11,993 ---------- ---------- ---------- Non-current liabilities Financial liabilities (10,007) (9,172) (5,038) Other non-current liabilities (907) (360) (345) Provisions (903) (877) (881) ---------- ---------- ---------- (11,817) (10,409) (6,264) ---------- ---------- ---------- Net assets 40,480 40,811 43,741 ========== ========== ========== Capital and reserves Called up share capital 6 1,555 1,550 1,553 Share premium 6 6,728 6,272 6,542 Other reserves 6 1,437 374 819 Retained earnings 6 30,760 32,615 34,827 ---------- ---------- ---------- Total equity 40,480 40,811 43,741 ========== ========== ========== CONSOLIDATED CASH FLOW STATEMENT Six months to Six months to Year to 27 November 28 November 29 May 2005 2004 2005 Notes £000 £000 £000 Net cash from operating activities Cash generated from operations 7 1,961 5,161 21,149 UK corporation tax paid (1,137) (1,764) (4,141) Overseas tax paid (1,275) (1,120) (2,186) ---------- ---------- ---------- Net cash from operating activities (451) 2,277 14,822 ---------- ---------- ---------- Cash flows used in investing activities Purchases of property, plant and equipment (4,931) (5,254) (11,015) Proceeds on disposal of property, plant and equipment 19 3 49 Expenditure on product development (1,236) (1,100) (2,106) Purchases of other intangible assets (336) (590) (895) Interest received 72 70 151 ---------- ---------- ---------- Net cash used in investing activities (6,412) (6,871) (13,816) ---------- ---------- ---------- Cash flows from financing Proceeds from issue of ordinary share capital 164 587 727 Proceeds from borrowings 5,000 9,000 5,000 Repayment of principal under finance leases (72) (81) (165) Equity dividends paid (4,340) (4,295) (5,818) Interest paid (371) (212) (516) ---------- ---------- ---------- Net cash from financing activities 381 4,999 (772) ---------- ---------- ---------- Effects of foreign exchange rates 173 241 223 ---------- ---------- ---------- Net (decrease)/increase in cash and cash equivalents (6,309) 646 457 ========== ========== ========== Opening cash and cash equivalents 8,622 8,165 8,165 ---------- ---------- ---------- Closing cash and cash equivalents 2,313 8,811 8,622 ========== ========== ========== Analysis of net funds/(debt) As at As at 29 May Exchange 27 November 2005 Cash flow movement 2005 £000 £000 £000 £000 Cash at bank and in hand 8,622 (2,542) 173 6,253 Current borrowings - bank overdraft - (3,940) - (3,940) ---------- ---------- ---------- ---------- Cash and cash equivalents 8,622 (6,482) 173 2,313 Non-current borrowings (5,000) (5,000) - (10,000) Finance leases (181) 72 (1) (110) --------- --------- ---------- ---------- Net funds/(debt) 3,441 (11,410) 172 (7,797) ========= ========= ========== ========== NOTES TO THE INTERIM RESULTS 1. Interim results The interim results for the six months to 27 November 2005 and for the comparative six months to 28 November 2004 are unaudited and do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. With effect from 30 May 2005, the Company has moved to reporting its financial results in accordance with International Financial Reporting Standards ('IFRS') endorsed by the European Union. Reconciliations and descriptions of the effect of the transition from UK GAAP to IFRS on the Group's equity and its income statement are detailed in note 8. The financial information set out in the interim report has been prepared in accordance with the accounting policies under IFRS detailed on our investor relations website at http://investor.games-workshop.com. These policies are expected to be followed in the full financial statements for the year to 28 May 2006. Standards currently in issue and adopted by the EU are subject to interpretation issued from time to time by the International Financial Reporting Interpretations Committee ('IFRIC'). Further standards may be issued by the International Accounting Standards Board that may be adopted for financial years beginning 30 May 2005. Additionally, IFRS is currently being applied in the United Kingdom and in a large number of countries simultaneously for the first time. Furthermore, due to a number of new and revised standards included within the body of the standards that comprise IFRS there is not yet a significant body of established practice on which to draw in forming opinions regarding interpretation and application. Accordingly, practice is continuing to evolve. At this preliminary stage, therefore, the full financial effect of reporting under IFRS as it will be applied and reported on in the Company's first IFRS financial statements for the year to 28 May 2006, may be subject to change. Copies of the interim results will be sent to shareholders and are available to members of the public at the Company's registered office. 2. Geographical analysis Revenue by geographical area of sales operation Six months to Six months to Year to 27 November 28 November 29 May 2005 2004 2005 £000 £000 £000 Continental Europe 24,339 30,918 59,539 United Kingdom 16,634 21,006 40,166 The Americas 12,428 14,853 28,670 Asia Pacific 3,689 4,195 8,272 ---------- ---------- ---------- Revenue 57,090 70,972 136,647 ========== ========== ========== Operating profit by geographical area of sales operation Six months to Six months to Year to 27 November 28 November 29 May 2005 2004 2005 £000 £000 £000 Continental Europe 3,760 8,717 15,350 United Kingdom 1,812 4,257 7,252 The Americas (706) 53 317 Asia Pacific (260) 414 1,014 ---------- ---------- ---------- 4,606 13,441 23,933 Design and development costs - amortisation (974) (983) (1,809) Design and development costs - not capitalised (1,032) (1,656) (2,872) Central costs (2,641) (3,084) (5,358) ---------- ---------- ---------- Operating (loss)/profit before royalties (41) 7,718 13,894 Royalty income 504 156 374 ---------- ---------- ---------- Operating profit 463 7,874 14,268 ========== ========== ========== 3. Income tax expense Six months to Six months to Year to 27 November 28 November 29 May 2005 2004 2005 £000 £000 £000 UK corporation tax 27 1,967 3,633 Overseas tax 32 1,104 1,823 Origination and reversal of timing differences (5) (461) (567) ---------- ---------- ---------- 54 2,610 4,889 ========== ========== ========== 4. Dividends Six months to Six months to Year to 27 November 28 November 29 May 2005 2004 2005 £000 £000 £000 Paid in the period Interim ordinary dividend - - 1,523 Final ordinary dividend 4,340 4,295 4,295 ---------- ---------- ---------- 4,340 4,295 5,818 ========== ========== ========== An interim dividend was proposed in the period for the year ended 28 May 2006 of 4.95p (November 2004: 4.95p) resulting in a proposed dividend of £1,541,000 (November 2004: £1,523,000). The interim dividend was declared by the board on 5 January 2006 and as such has not been included as a liability as at 27 November 2005. 5. Earnings per ordinary share The calculation of basic earnings per ordinary share is based on the profit for the period and the weighted average number of ordinary shares in issue throughout the relevant period, excluding treasury shares. The calculation of diluted earnings per ordinary share has been based on the profit for the period and the weighted average number of shares in issue during the relevant period, excluding treasury shares, adjusted for the dilution effect of share options outstanding at the end of the period. Six months to Six months to Year to 27 November 28 November 29 May 2005 2004 2005 Weighted average number of shares: For basic earnings per ordinary share 30,789,543 30,620,058 30,691,357 Dilution effect of share options 207,844 467,107 384,946 ---------- ---------- ---------- For diluted earnings per ordinary share 30,997,387 31,087,165 31,076,303 ========== ========== ========== 6. Consolidated statement of changes in shareholders' equity Other reserves Retained earnings -------------------------------- -------------------- Called up Capital share Share redemption Translation Hedging Treasury Profit and Total capital premium reserve reserve reserve shares loss equity £000 £000 £000 £000 £000 £000 £000 £000 As at 30 May 2005 1,553 6,542 101 486 232 (1,132) 35,959 43,741 Exchange adjustments - - - 717 - - - 717 Profit for the period - - - - - - 65 65 Shares vested - - - - - 672 (672) - Dividends paid - - - - - - (4,340) (4,340) Share-based payment - - - - - - 230 230 Deferred tax - - - - - - 2 2 Current tax - - - - 38 - - 38 Cash flow hedges - fair value gains in the period - - - - 178 - - 178 - transferred to net profit - - - - (315) - - (315) Issue of ordinary share capital 2 186 - - - - (24) 164 ------- ------- ------- ------- ------- ------- ------- ------- As at 27 November 2005 1,555 6,728 101 1,203 133 (460) 31,220 40,480 ======= ======= ======= ======= ======= ======= ======= ======= Other reserves Retained earnings -------------------------------- -------------------- Called up Capital share Share redemption Translation Hedging Treasury Profit and Total capital premium reserve reserve reserve shares loss equity £000 £000 £000 £000 £000 £000 £000 £000 As at 31 May 2004 1,542 5,251 101 - 431 (1,011) 33,067 39,381 Exchange adjustments - - - 463 - - - 463 Profit for the period - - - - - - 5,069 5,069 Shares vested - - - - - - 215 215 Dividends paid - - - - - - (4,295) (4,295) Share-based payment - - - - - - 3 3 Deferred tax - - - - 266 - 9 275 Cash flow hedges - fair value gains in the period - - - - (306) - - (306) - transferred to net profit - - - - (581) - - (581) Issue of ordinary share capital 8 1,021 - - - - (442) 587 ------- ------- ------- ------- ------- ------- ------- ------- As at 28 November 2004 1,550 6,272 101 463 (190) (1,011) 33,626 40,811 ======= ======= ======= ======= ======= ======= ======= ======= Other reserves Retained earnings -------------------------------- -------------------- Called up Capital share Share redemption Translation Hedging Treasury Profit and Total capital premium reserve reserve reserve shares loss equity £000 £000 £000 £000 £000 £000 £000 £000 As at 31 May 2004 1,542 5,251 101 - 431 (1,011) 33,067 39,381 Exchange adjustments - - - 486 - - - 486 Profit for the period - - - - - - 8,994 8,994 Purchase of treasury shares - - - - - (150) - (150) Shares vested - - - - - 29 121 150 Dividends paid - - - - - - (5,818) (5,818) Share-based payment - - - - - - 170 170 Deferred tax - - - - 85 - - 85 Cash flow hedges - fair value gains in the period - - - - 331 - - 331 - transferred to net profit - - - - (615) - - (615) Issue of ordinary share capital 11 1,291 - - - - (575) 727 ------- ------- ------- ------- ------- ------- ------- ------- As at 29 May 2005 1,553 6,542 101 486 232 (1,132) 35,959 43,741 ======= ======= ======= ======= ======= ======= ======= ======= 7. Reconciliation of profit to net cash from operations Six months to Six months to Year to 27 November 28 November 29 May 2005 2004 2005 £000 £000 £000 Profit for the period 65 5,069 8,994 Income tax expense 54 2,610 4,889 Depreciation of property, plant and equipment 3,697 3,142 6,214 Loss on disposal of property, plant and equipment 11 33 59 Amortisation of capitalised development costs 974 983 1,809 Amortisation of other intangibles 272 332 695 Interest income (69) (71) (153) Interest expense 413 266 538 Other non-cash changes 189 327 465 Changes in working capital: Increase in inventories (143) (2,879) (644) (Increase)/decrease in trade and other receivables (3,137) (4,744) 1,498 (Decrease)/increase in payables (279) 248 (3,034) Decrease in provisions (86) (155) (181) ---------- ---------- ---------- Net cash from operating activities 1,961 5,161 21,149 ========== ========== ========== 8. IFRS reconciliations The following reconciliations provide a quantification of the effect of the transition to IFRS: Six months to Year to 28 November 29 May 2004 2005 £000 £000 Operating profit reported under UK GAAP 7,864 13,893 Capitalisation of development expenditure 116 294 Recognition of employee benefit liabilities (180) (95) Write back of goodwill amortisation 192 379 Share-based payment (3) (170) Derivatives not qualifying for hedge accounting/hedge ineffectiveness (97) (68) Other adjustments (18) 35 -------- --------- Operating profit reported under IFRS 7,874 14,268 ======== ========= As at As at As at 30 May 28 November 29 May 2004 2004 2005 £000 £000 £000 Net assets reported under UK GAAP 34,104 38,675 38,073 Capitalisation of development expenditure 1,721 1,838 2,014 Recognition of employee benefit liabilities (647) (833) (732) Write back of goodwill amortisation - 192 383 Derivatives not qualifying for hedge accounting/hedge ineffectiveness 112 15 44 Derivatives recognised and measured at fair value relating to future transactions 616 (272) 330 Deferred recognition of lease incentives/payments (236) (247) (218) Dividend recognition 4,290 1,523 4,357 Other adjustments (205) (217) (201) Tax effect of the above adjustments (374) 137 (309) -------- -------- -------- Net assets reported under IFRS 39,381 40,811 43,741 ======== ======== ======== This information is provided by RNS The company news service from the London Stock Exchange

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