FIRST HALF HIGHLIGHTS

  • 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
Six months to
27 November
2005		 Six months to
28 November
2004
A thick, black line.
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 here in accordance with IFRS 1 (First-time Adoption of IFRS).

T H F Kirby
Chairman and Chief Executive
6 January 2006

REVENUE BY GEOGRAPHICAL AREA OF SALES OPERATION IN LOCAL CURRENCY

Six months to
27 November
2005		 Six months to
28 November
2004
A thick, black line.
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