NOTES TO FINANCIAL STATEMENTS

1. Principal accounting policies

The financial statements have been prepared in accordance with the Companies Act and applicable accounting standards in the United Kingdom.

A summary of the principal accounting policies is set out below. These polices have been applied consistently, with the exception of the adoption of UITF 38 as shown in note 14.

Basis of accounting
The financial statements are prepared in accordance with the historical cost convention.

Basis of consolidation
The consolidated financial statements include the Company and its subsidiary undertakings drawn up to 29 May 2005.

Goodwill
Goodwill arising on acquisition of subsidiaries, representing any excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired, is capitalised and amortised on a straight line basis over its useful economic life. The goodwill arising on the acquisition of Sabertooth Games Inc. is being amortised over six years. All other acquired goodwill is amortised over 20 years. Provision is made for any impairment by comparing the individual carrying values to the expected value in use, discounted at the Group's weighted average cost of capital.

Goodwill arising on acquisitions prior to 31 May 1998 was written off to reserves in accordance with the accounting standard then in force. As permitted by the current accounting standard, the goodwill previously written off to reserves has not been reinstated in the balance sheet. In the event of disposal or closure of a previously acquired business, the attributable amount of goodwill previously written off to reserves will be included in determining the profit or loss on disposal.

Development expenditure
Product development and design expenditure is written off as it is incurred.

Tangible fixed assets
Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. The cost of tangible fixed assets is their purchase cost, together with any incidental costs of acquisition.

Depreciation is calculated so as to write off the cost of tangible fixed assets on a straight line basis over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are:

	%
Freehold buildings	2
Plant and equipment	20-33
Motor vehicles	33
Fixtures and fittings	15-33
Moulding tools	25

Leasehold premises are amortised over the period of the lease. Freehold land is not depreciated.

Operating leases and finance leases
Costs in respect of operating leases and any benefits received as an incentive to sign a lease, are charged or credited on a straight line basis over the period to the first break in the lease term. Finance leases which transfer to the Group substantially all the benefits and risks of ownership of an asset are treated as if the asset had been purchased outright. The assets are included in fixed assets and the capital element of the finance lease commitment is shown as obligations under finance leases. The capital element of the payment is applied to reduce the outstanding obligations and the interest element is charged against profit in proportion to the reducing capital element outstanding.

Stocks
Stocks are valued at the lower of cost and net realisable value. In respect of finished goods, cost includes appropriate production overheads. Where necessary, provision is made for obsolete, slow moving and defective stocks.

Foreign currencies
Assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the end of the financial year or at rates of exchange fixed using related forward foreign currency contracts where they exist. Forward foreign currency contracts that are in place to hedge future transactions are unrecognised at the balance sheet date. Gains and losses arising on these contracts are recognised in subsequent periods to match the gains/losses on the cash flows generated from the underlying transaction.

The results of overseas subsidiary companies are translated at the average rate of exchange for the year. Gains and losses arising on the translation of the net assets of overseas subsidiary companies are taken to reserves, net of exchange differences arising on related foreign currency borrowings.

All other foreign exchange differences are taken to the profit and loss account in the year in which they arise.

Investments
Shares and loans in subsidiary undertakings are stated at cost less provision for impairment.

Own shares are held in treasury and recorded in shareholders' equity.

Turnover
Turnover, which excludes value added tax and sales between group companies, represents the invoiced value of goods and services supplied.

Turnover on goods sold to customers on a sale or return basis, is recognised after making full provision for the level of expected returns, based on past experience. The level of returns is reviewed on a regular basis and the provision is amended accordingly. Turnover on a sale or return basis represents no more than 1% of consolidated turnover.

Royalty income is recognised by spreading the guarantees and advances receivable over the term of the licence agreement, and recognising all other income receivable by reference to the underlying licencee performance.

Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid/recovered using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date.

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

Pension costs
The Group operates a defined contribution scheme and a group personal pension plan. Pension contributions are charged to the profit and loss account as they accrue.

Bonus and incentive plans
The costs of annual bonus schemes are charged to the profit and loss account as they accrue. For those incentive plans which are based upon performance criteria measured over a period in excess of one year, costs are charged to the profit and loss account based upon the directors’ estimate of the likely future outcome of those criteria.

Property provisions
Provision is made for committed costs outstanding under onerous or vacant property leases. The estimated liability is discounted at the Group's weighted average cost of capital.

2. Segmental analysis

The Group has one business segment, the Games Workshop Hobby. A geographical analysis of the Group's business is provided below:

Turnover
By geographical area of sales operation

	2005 £000	2004 £000
Continental Europe	59,539	61,290
United Kingdom	40,166	48,241
The Americas	28,670	33,110
Asia Pacific	8,272	9,134
Turnover	136,647	151,775

By geographical area of destination

	2005 £000	2004 £000
Continental Europe	61,732	66,643
United Kingdom	36,666	42,143
The Americas	29,624	33,291
Asia Pacific	8,530	9,501
Other	95	197
Turnover	136,647	151,775

Operating profit
By geographical area of sales operation

	2005 £000	2004 £000
Continental Europe	15,356	19,948
United Kingdom	7,071	11,370
The Americas	365	(829)
Asia Pacific	1,027	756
	23,819	31,245
Design and development costs - core	(3,324)	(2,873)
Design and development costs - other	(1,667)	(3,761)
Central costs	(5,309)	(4,942)
Operating profit before royalties	13,519	19,669
Royalty income	374	186
Operating profit	13,893	19,855

Core design and development costs relate to expenditure incurred in the design and development of tabletop wargaming product.

Other design and development costs include £0.6 million (2004: £2.5 million) in respect of the Warhammer Online venture.

Net assets
By geographical area of sales operation

	2005 £000	2004 £000
Continental Europe	15,644	10,919
United Kingdom	11,851	8,252
The Americas	9,182	10,377
Asia Pacific	3,119	398
	39,796	29,946
Unallocated net assets/[liabilities]
- cash	8,610	8,570
- borrowings	(5,000)	-
- taxation	792	(813)
- central	(6,125)	(3,599)
Net assets	38,073	34,104

3. Turnover, cost of sales, gross profit and net operating expense

	2005 £000	2004 £000
Turnover	136,647	151,775
Cost of sales	42,071	50,099
Gross profit	94,576	101,676
Selling and distribution costs	45,311	45,035
Administravite costs	35,746	36,972
Other operating income - royalty income	(374)	(186)
Net operating expenses	80,683	81,821
Operating profit	13,893	19,855

	2005 £000	2004 £000
Administrative costs include:
Design and development costs - core	3,324	2,873
Design and development costs - other	1,667	3,761
Other administrative costs	30,755	30,338
Total administrative costs	35,746	36,972

4. Directors’ emoluments

	2005 £000	2004 £000
Aggregate emoluments and benefits	696	2,039
Pension contributions	59	51
	755	2,090

Further information relating to directors’ emoluments, shareholdings and share options are disclosed in the audited section of the remuneration report.

5. Employee information

The average monthly number of persons (including executive directors) employed by the Group during the year was:

	2005 Numbers	2004 Numbers
Production	341	349
Selling and distribution:
Full time	1,582	1,517
Key time*	754	825
Administration	484	486
	3,161	3,177

* Key time employees are employed in our Hobby stores and typically work a 20 hour week.

Staff costs (for the above persons)

	2005 £000	2004 £000
Wages and salaries	47,231	47,540
Social security costs	5,864	5,793
Other pension costs	1,255	1,117
	54,350	54,450

6. Interest payable and similar charges

	2005 £000	2004 £000
On bank loans and overdrafts	518	402
On finance leases	13	9
Other	7	16
	538	427

7. Profit on ordinary activities before taxation

	2005 £000	2004 £000
Profit on ordinary activities before taxation is stated after charging:
Amortisation of goodwill	379	366
Depreciation
tangible owned fixed assets	6,835	5,958
tangible fixed assets under finance leases	105	122
Operating leases
Hobby stores	7,357	7,412
other property	1,620	1,523
plant and equipment	412	384
other	192	121
Auditors' remuneration for audit services - PricewaterhouseCoopers LLP	228	-
Auditors' remuneration for non-audit services:
taxation services - advisory	1	-
further assurance services	12	-
Former auditors' remuneration for audit services - Deloitte & Touche LLP	-	226
Former auditors' remuneration for non-audit services:
taxation services - compliance	40	33
taxation services - advisory	143	178
further assurance services	22	21

8. Taxation on profit on ordinary activities

	2005 £000	2004 £000
Current taxation
UK corporation tax	3,503	4,716
Under/(over) provision in respect of prior years	130	(306)
	3,633	4,410
Overseas taxation	1,823	2,193
Total current taxation	5,456	6,603
Deferred taxation	(593)	642
Taxation on profit on ordinary activities	4,863	7,245

	2005 £000	2004 £000
Profit on ordinary activities before taxation	13,508	19,573
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30%	4,052	5,872
Effects of:
Expenses not deductible for tax purposes	233	(211)
Movement in deferred tax not recognised	521	1,182
Origination and reversal of timing differences	360	(222)
Losses attributable to minority interests	22	218
Higher tax rates on overseas earnings	29	208
Adjustments to tax charge in respect of previous years	239	(444)
Current tax charge for the year	5,456	6,603

9. Profit for the financial year
As permitted by section 230 of the Companies Act 1985, the Company’s profit and loss account has not been included in these financial statements. Of the profit for the financial year, £0.5 million (2004: £11.4 million) is attributable to the Company, after including dividends from subsidiary companies of £3.3 million (2004: £18.3 million).

10. Dividends

	2005 £000	2004 £000
Interim paid of 4.95 pence per share [2004: 4.725 pence]	1,523	1,444
Final proposed of 14.025 pence per share [2004: 14.025 pence]	4,357	4,290
Under/[over] provision in respect of prior years	6	15
	5,886	5,749

11. Earnings per ordinary share

The calculation of basic earnings per ordinary share has been based on profit for the year of £8.6 million (2004: £12.3 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 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.

	2005	2004
Weighted average number of shares:
For basic earnings per ordinary share	30,691,357	30,223,087
Dilution effect of share options understanding	384,946	495,036
For diluted earnings per ordinary share	31,076,303	30,718,123

12. Goodwill

	£000
Group
Cost
As at 31 May 2004	3,765
Exchange adjustments	9
At 29 May 2005	3,774
Amortisation
At 31 May 2004	1,302
Charge for the year	379
Exchange adjustments	8
At 29 May 2005	1,689
Net book value at 29 May 2005	2,085
Net book value at 30 May 2004	2,463
The Company had no goodwill at either year end.

13. Tangible fixed assets

	Freehold land and buildings £000	Short leasehold premises £000	Plant & equipment & vehicles £000	Fixtures and fittings £000	Moulding tools £000	Total £000
Group
Cost
At 31 May 2004	11,639	615	16,386	17,062	8,743	54,445
Exchange adjustments	-	18	163	324	4	509
Additions	2,950	24	3,603	3,272	2,457	12,306
Disposals	-	(2)	(2,770)	(1,082)	-	(3,854)
At 29 May 2005	14,589	655	17,382	19,576	11,204	63,406
Depreciation
At 31 May 2004	1,290	358	9,638	10,870	6,662	28,818
Exchange adjustments	-	11	120	215	2	348
Charge for the year	250	76	2,981	2,444	1,189	6,940
Eliminated in respect of disposals	-	-	(2,703)	(1,046)	-	(3,749)
At 29 May 2005	1,540	445	10,036	12,483	7,853	32,357
Net book value at 29 May 2005	13,049	210	7,346	7,093	3,351	31,049
Net book value at 30 May 2004	10,349	257	6,748	6,192	2,081	25,627

The net book value of tangible fixed assets includes an amount of £301,000 (2004: £367,000) in respect of assets held under finance leases. The depreciation charged on these assets was £105,000 (2004: £122,000). Freehold land amounting to £4,055,000 (2004: £4,055,000) has not been depreciated.

Assets in the course of construction, and not depreciated, amount to £5,540,000 (2004: £2,588,000).

The Company held no tangible fixed assets at either year end.

14. Fixed asset investments

	Group		Company
	2005 £000	2004 £000	2005 £000	2004 £000
Cost Subsidiary undertakings - equity	-	-	30,281	30,281

Interests in group undertakings
The directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. The following information relates to those subsidiary undertakings whose results or financial position, in the opinion of the directors, principally affect the Group.

Name of undertaking	Country of incorporation or registration	Proportion of nominal value of issued shares held by:			Principal business activity
		Description of shares held	Company	Subsidiary Company
Games Workshop Limited	England and Wales	£1 ordinary	100%		Manufacturer, distributor and retailer of games and miniatures
Games Workshop America, Inc	United States of America	$1 common stock $100,000 preferred stock	100%	100%	Distributor and retailer of games and miniatures
Games Workshop Retail, Inc	United States of America	$1 common stock	100%		Distributor and retailer of games and miniatures
Games Workshop US Manufacturing LLC	United States of America	Owners capital		100%	Manufacturer of games and miniatures
Games Workshop (Queen Street) Limited	Canada	Can $1		100%	Distributor and retailer of games and miniatures
EURL Games Workshop	France	Euro 1		100%	Distributor and retailer of games and miniatures
Games Workshop SL	Spain	Euro 1		100%	Distributor and retailer of games and miniatures
Games Workshop Oz Pty Limited	Australia	Aus $1		100%	Distributor and retailer of games and miniatures
Games Workshop Deutschland GmbH	Germany	Euro 1		100%	Distributor and retailer of games and miniatures
Games Workshop Limited	New Zealand	NZ $1		100%	Distributor and retailer of games and miniatures
Games Workshop Italia SRL	Italy	Euro 1		100%	Distributor and retailer of games and miniatures
Sabertooth Games, Inc	United States of America	$1 common stock		100%	Distributor of collectible card games
Games Workshop International Limited	England and Wales	£1 ordinary	100%		Holding company for overseas subsidiary companies
Warhammer Online Limited	England and Wales	£1 ordinary		100%	Developer of online games

All the above companies operate principally in their country of incorporation or registration.

Own shares

	Cost £000	Amortisation £000	Total £000
Group and Company
At 31 May 2004	1,011	(1,011)	-
Prior year adjustment	(1,011)	1,011	-
At 30 May 2004 as restated and at 29 May 2005	-	-	-

During the year the Group adopted UITF 38 'Accounting for ESOP trusts'. Investment in own shares, previously included within fixed asset investments at amortised cost, are now treated as treasury shares and is shown as a deduction from shareholders' equity. Since the shares were fully amortised at 30 May 2004 this has had no impact on net assets.

15. Stocks

	2005 £000	2004 £000
Group
Raw materials and consumables	850	1,013
Work in Progress	1,135	946
Finished goods and goods for resale	10,853	10,143
	12,838	12,102

There is no material difference between the balance sheet value of stocks and their replacement cost.

The Company held no stocks at either year end.

16. Debtors

	Group		Company
	2005 £000	2004 £000	2005 £000	2004 £000
Amounts falling due within one year
Trade debtors	6,748	8,598	-	-
Amounts owed by group undertakings	-	-	8,048	9,751
Other debtors	819	858	155	42
Prepayments and accrued income	2,589	2,041	87	11
Deferred taxation	601	824	31	86
	10,757	12,321	8,321	9,890

	Group		Company
	2005 £000	2004 £000	2005 £000	2004 £000
Amounts falling due after more than one year
Other debtors	397	267	-	-
Deferred taxation	1,886	1,024	11	12
	2,283	1,291	11	12

Deferred taxation
Deferred tax can be analysed over the following timing differences:

Recognised	Group		Company
	2005 £000	2004 £000	2005 £000	2004 £000
Accelerated depreciation	1,041	972	11	12
Short-term timing differences	1,376	824	31	86
Tax losses	70	52	-	-
	2,487	1,848	42	98

Unrecognised	Group		Company
	2005 £000	2004 £000	2005 £000	2004 £000
Tax losses	4,306	3,475	-	-
Short-term timing differences	695	360	-	-
	5,001	3,835	-	-

No deferred tax asset has been recognised on unrelieved tax losses in certain countries due to the uncertainty at the balance sheet date as to their recovery over the next 12 months.

	Group £000	Company £000
At 31 May 2004	1,848	98
Credited/(charged) to the profit and loss account	593	(56)
Exchange difference	46	-
At 29 May 2005	2,487	42

17. Creditors: amounts falling due within one year

	Group		Company
	2005 £000	2004 £000	2005 £000	2004 £000
Obligations under finance leases	143	161	-	-
Trade creditors	4,158	5,663	72	3
Amounts owed to group undertakings	-	-	4,162	4,135
Corporation tax	1,698	2,661	-	-
Other taxation and social security	2,244	2,373	202	93
Other creditors	2,067	1,451	126	20
Accruals and deferred income	8,866	9,959	430	1,292
Proposed dividend	4,357	4,290	4,357	4,290
	23,533	26,558	9,349	9,833

18. Creditors: amounts falling due after more than one year

	Group		Company
	2005 £000	2004 £000	2005 £000	2004 £000
Bank and other loans	5,000	-