Games Workshop Financial Results 2007

DIRECTORS' REPORT

The directors present their annual report together with the financial statements and independent auditors' report for the 53 weeks ended 3 June 2007.

Principal activities
The principal activities of the Group are the design and manufacture of miniature figures and games and the retail and wholesale distribution of these products.

Business review
A review of the business is given in the business review and financial review sections. This review contains or cross references the information required by section 234ZZB of the Companies Act 1985.

Dividend
The directors do not recommend a final dividend.

Substantial shareholdings
The following interests in 3% or more of the issued share capital of the Company as at 12 July 2007 have been disclosed to the Company:

	No. of ordinary shares	Percentage

The Nomad Investment Partnership LP	6,314,269	20.3
Phoenix Asset Management Partners Limited	4,405,419	14.2
Investec Asset Management Limited	3,806,148	12.2
Schroder Investment Management Limited	3,718,620	11.9
Legal & General Group PLC	1,943,091	6.2
Polar Capital Partners	945,220	3.0

The Company has not been notified of any other substantial shareholdings other than those of the directors, which are disclosed in the remuneration report.

Directors
The present directors of the Company are listed in the remuneration report. All of the directors were members of the board throughout the year. Under the Company's articles of association one third of the directors are required to retire by rotation at each annual general meeting. Those who retire are the longest in office since their election or last re-election. Under this formula one director is required to retire at this year's annual general meeting and is seeking re-election, namely M Sherwin. In addition, as a result of their long service, independent directors C J Myatt and A J H Stewart are required to retire and are seeking re-election. In relation to the independent directors, the chairman has confirmed that, following formal performance evaluation, the performance of C J Myatt and A J H Stewart continues to be effective and they continue to demonstrate commitment to their roles as independent directors, including commitment of the necessary time to board and committee meetings and other duties. C J Myatt and A J H Stewart are considered by the board to be independent of the Group as set out in the corporate governance report.

Directors' interests
The interests of the directors in the shares of the Company are disclosed in the remuneration report, together with details of share options granted to the directors. None of the directors had a material interest in any contract of significance to which the Company, or any of its subsidiaries, was a party during the year.

Directors' indemnities
The Company has made qualifying third party indemnity provisions for the benefit of its directors which were in force during the year.

Information on executive directors
T H F Kirby (age 57), chairman and chief executive. Tom Kirby joined Games Workshop in April 1986 as general manager and led the management buy-out in December 1991, becoming chief executive at that time. Between 1998 and 2000 he took on the role of non-executive chairman, returning to the role of chief executive in September 2000. Prior to joining Games Workshop, he worked for six years for a distributor of fantasy games in the UK and was previously an Inspector of Taxes.

M Sherwin (age 48), finance director. Prior to joining Games Workshop in June 1999, Michael Sherwin was group financial controller of Courtaulds Textiles plc where he had worked for six years. He was previously with Price Waterhouse for 12 years where he qualified as a chartered accountant in 1984. In January 2007, following the acquisition of PlusNet plc by BT Group PLC, Michael retired as an independent director of PlusNet plc. He is also Visiting Fellow in Durham Business School and a member of the Advisory Board of Durham Business School.

Information on independent directors
C J Myatt (age 63). Chris Myatt is the senior independent director, joining the board on 18 April 1996. He is an independent director of SRS Holdings Limited and Ying Tai (UK) Limited. He is honorary treasurer of Keele University, a member of its council and is additionally vice chairman of the Douglas Macmillan Hospice Limited. He was formerly a divisional managing director within Tarmac PLC.

A J H Stewart (age 47). Alan Stewart joined the board as an independent director on 12 September 1996. Alan is group finance director of WHSmith PLC. He was previously an executive director of Thomas Cook AG and chief executive of Thomas Cook UK Limited. Prior to that he was an investment banker for ten years with HSBC Investment Bank and is a qualified chartered accountant.

N J Donaldson (age 53). Nick Donaldson was appointed to the board on 18 April 2002. A barrister by profession, Nick is a partner and co-founder of The Capital Markets Group Limited. Nick was, until 2003, head of corporate finance at Arbuthnot Securities Limited and previously held senior investment banking positions at Robert W Baird Limited and at Credit Lyonnais Securities. He is an independent director of The Clapham House Group PLC and chairman of F4G Software plc.

Employees
The Group's policy is to consult and discuss with employees, at meetings, matters likely to affect employees' interests. Information on matters of concern to employees is given through information bulletins and reports which seek to achieve a common awareness on the part of all employees of the financial and economic factors affecting the Group's performance.

The Group operates an employee sharesave scheme as a means of further encouraging the involvement of employees in the Group's performance.

The Group's policy is to consider, for recruitment, disabled workers for those vacancies that they are able to fill. All necessary assistance with training courses is given. Once employed, a career plan is developed so as to ensure suitable opportunities for each disabled person. Arrangements are made, wherever possible, for retraining employees who become disabled, to enable them to perform work identified as appropriate to their aptitudes and abilities.

Creditor payment policy
The Company's current policy concerning the payment of the majority of its trade creditors is to follow the DTI's Better Payment Practice Code. For other suppliers, the Company's policy is to:

settle the terms of payment with those suppliers when agreeing the terms of each transaction
ensure that those suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts
pay in accordance with its contractual and other legal obligations.

This payment policy applies to all payments to creditors for revenue and capital supplies of goods and services without exception. Wherever possible UK subsidiaries follow the same policy and overseas subsidiaries are encouraged to adopt similar policies, by applying local best practices.

The number of days’ credit taken by the Group from its suppliers at the year end was 37 days (2006: 39 days).

Environment and community
We know it is important to understand and manage the relationship between our business and the economy, the environment and the community. We have already found that recycling and energy saving bring us cost benefits and that changing the materials we use improves staff health and the working environment. One of the benefits of our open and inclusive culture is that our people are constantly coming up with new and innovative ideas to benefit our business in ways which are sympathetic to the environment and the community.

Community support and donations
The Group does not make significant cash donations to charities. However, the Group encourages all employees to engage with their communities in whatever way each individual believes to be most appropriate. In many instances this is in the field of education, and the Group provides time and resources for staff members who work with local libraries, who take on leadership roles (such as school governors) or occasional teaching roles.

The Group encourages staff to raise money for children's charities by providing time and resources. During this financial year, staff in several of our businesses raised money for good causes through sponsored events. The Group helped them to realise their fundraising targets by matching the sponsorship monies raised. This matching cost for the Group was £2,800 during the year. In addition to staff fundraising, gifts in kind have been donated to a number of charities. The Group made no contributions for political purposes.

Health and safety
The Group's policy is to achieve and maintain high standards of health and safety. The Group believes this to be a key part of good business management. The chairman and chief executive has overall responsibility for health and safety (H&S) matters across the Group, however the day to day execution of this responsibility is embedded into the roles of the general managers and line managers in each business area. H&S developments, initiatives and best practices are co-ordinated by the corporate social responsibility (CSR) group, which is chaired by the finance director and includes both the head of sales and the head of operations.

The number of reportable accidents is tracked by business area. In our manufacturing activities, which have been assessed as the areas of highest risk in our operations, there were two reportable accidents during the year (2006: 4). This reduction is a result of our focus on continuing improvements in all areas of H&S.

In 2006/7 we have begun the formalisation of our H&S management system in line with Occupational Health and Safety Assessment Standard (OHSAS) 18001. Although not an internationally recognised standard as yet, OHSAS 18001 is modelled on the environmental management system ISO 14001. Our plan for 2007/8 is to merge our environmental and H&S management systems into one integrated management system. A detailed gap analysis has been carried out and we are continuing to address the outstanding issues.

To enhance further H&S at all sites, extensive training programmes are undertaken ranging from induction improvements through cell leader training to senior management responsibilities training. In 2007/8, all manufacturing operations managers will complete the National Examination Board in Occupational Safety and Health (NEBOSH), general level certificate. Team leaders will complete a four day Institute of Occupational Safety and Health (IOSH) Managing Safely course. These are nationally recognised H&S qualifications that will ensure that H&S is integral to our managers' roles as well as providing continued personal development.

Environmental performance
The Group aims to manage its operations in ways which are environmentally sustainable and economically feasible, and to minimise the negative impact of its activities on the environment.

The chairman and chief executive has overall responsibility for environmental matters across the Group, however the day to day execution of this responsibility is embedded in the supply chain. Environmental developments, initiatives and best practices are co-ordinated by the CSR group.

Waste management
We continue to focus on the ‘three Rs’ Reduce, Re-use and Recycle. Our disposal to landfill has increased slightly from 2006 but the total waste produced has reduced by 62 tonnes to 460 tonnes.

2007 Waste - proportions recycled by category		2006 Waste - proportions recycled by category

We are working with our waste partners to identify further opportunities to increase our level of recycling. We are starting to compost waste from the restaurant at our Nottingham facility which will be used on our flower beds and garden areas. We have also placed recycling facilities in the restaurant and are already seeing a large volume of cans and plastic bottles come out of the general waste stream.

Pollution assessment and control
Our environmental management system includes a biodiversity action plan developed to cover pollution present in the air, water and on land. Games Workshop is involved in biodiversity conservation and protection through our association with Nottinghamshire Wildlife Trust. This year we have implemented an employee suggestion to create natural meadow areas within the grounds of our Nottingham warehousing facility to encourage local flora and fauna. We have also worked closely with the local environmental agency team to improve our pollution control procedures specifically on surface water drainage.

There have been no notifiable pollution incidents in the year under review.

Energy management
There have been significant changes in our energy use this year in Nottingham, as a result of the transfer of plastic injection moulding activities to Nottingham, factory layout changes and the installation of new equipment. To facilitate accurate measurement and tracking, we have installed electricity monitoring meters to identify periods of maximum usage. Energy efficiencies have also been built into the new mezzanine extension to our Nottingham warehouse. There is a high degree of individual lighting control and low energy lighting has been installed where possible.

Specific targets have been set for the reduction in energy use across the Nottingham manufacturing, warehousing and office operations.

We are now monitoring our power usage half hourly so that we can identify immediate results from improvements or additional equipment use. This also allows us to assess power use out of hours to identify equipment that could be switched off. Improvements put in place so far include resetting the controllers on air conditioning units, turning off production equipment during breaks and isolating compressed air services at break times and at the end of shifts to ensure leakages are kept to a minimum.

Future improvements will include sensors on certain lighting circuits, timers and split controls on factory lighting. In our manufacturing and supply activities, compliance audits of the Group's policies and practices have been carried out annually or more frequently if a new process has been introduced. These audits have been performed following the ISO 14001 standard.

The Group has continued to work in co-operation with environmental lobby groups and non-governmental organisations, including Friends of the Earth and EIRIS, to assist in data compilation and transparent public environmental reporting with a view to incorporating ethical values into our manufacturing principles.

Additional activities
During the year the Group was involved in the following additional activities:

Assisting Action Aid to raise £890 through the collection of our used printer cartridges and mobile phones.
Host, every two months, to the Create Sustainability Committee to assist in their organisation of the Nottinghamshire County and City Councils' yearly environmental initiative.
Nottingham City Council partnered with Games Workshop to launch Nottingham Greenweeks 2007 involving three weeks of environmental events throughout the local area.
Games Workshop has led an initiative to bring the seven surrounding businesses in Nottingham together, in a waste and energy management forum, to discuss and share ideas on reducing business costs.

For further fuller information on our commitment to the environment and community, including our ethical and environmental policies, please see our Environment and Community section.

Constructive use of the annual general meeting
The chairmen of the audit and the remuneration and nomination committees will be available to answer questions at the annual general meeting. Separate resolutions are proposed for substantially separate issues at the meeting and the chairman of the Company will declare the number of proxy votes received both for and against each resolution.

Special business at the annual general meeting

Resolution 7
Under the Companies Act 2006 there are updated rules for company communications with shareholders. If this resolution is adopted, the Company will in future have the option of asking each member individually as to whether the Company may send out or supply documents or information by means of a website. Such a request would explain that, if the Company has not received a response within 28 days beginning with the date of the request, the shareholder will be taken to have agreed. However, shareholders who make an election or a deemed election to receive documents or information from the Company by electronic means would still be able to notify the Company at any time that they wish to receive documents or information from the Company in hard copy, and in this respect the future rights of shareholders to receive hard copies of documents and information would be safeguarded.

Resolutions 8 and 9
The directors are currently authorised to allot relevant securities under section 80 of the Companies Act 1985 and to allot equity securities under section 95 of the Companies Act 1985. Those authorities expire at the conclusion of the annual general meeting. Resolutions are therefore being put to the annual general meeting to renew those authorities. Resolution 8 gives the directors authority to allot relevant securities up to an aggregate nominal amount of £513,622 (representing approximately 33 per cent of the Company's current issued share capital); the directors have no present intention of exercising this authority. Resolution 9 authorises the directors to allot equity securities for cash otherwise than on a pre-emptive basis in certain limited circumstances and otherwise up to an aggregate nominal amount of £77,821 (representing approximately 5 per cent of the Company's current issued share capital).

Resolution 10
The directors are also currently authorised to make market purchases of the Company's shares pursuant to section 166 of the Companies Act 1985. This authority expires at the conclusion of the next annual general meeting of the Company. Resolution 10 renews this authority for up to a maximum of 4,638,164 ordinary shares (representing 14.9 per cent of the Company's current issued share capital). The directors have no present intention of exercising this authority.

Under the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003, the Company is allowed to hold its own shares in treasury following a buy-back as an alternative to cancelling them. Shares held in treasury may be subsequently sold for cash, but all rights attaching to them, including voting rights and the right to receive dividends, are suspended while they are held in treasury.

Auditors
Resolution 5, to re-appoint PricewaterhouseCoopers LLP as auditors of the Company, will be proposed at the annual general meeting.

As at 30 July 2007, so far as each director is aware, there is no relevant audit information of which the auditors are unaware and each director has taken all steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the auditors are aware of that information.

Going concern
After making appropriate enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Group's and Company's financial statements.

By order of the board

M Sherwin
Secretary
30 July 2007

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