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Games Workshop Group PLC

Annual Report Jun 1, 2014

4735_10-k_2014-06-01_57b0070a-4b85-4a53-9974-8c40f0defa21.pdf

Annual Report

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GAMES WORKSHOP GROUP PLC

Annual report 2014

FINANCIAL HIGHLIGHTS

2014 2013
Revenue £123.5m £134.6m
Revenue at constant currency* £125.9m £134.6m
Operating profit – pre-exceptional items and royalties receivable £15.4m £20.2m
Exceptional costs £4.5m -
Royalties receivable £1.4m £1.0m
Operating profit £12.3m £21.3m
Profit before taxation £12.4m £21.4m
Cash generated from operations £25.0m £31.9m
Earnings per share 25.2p 51.5p
Pre-exceptional earnings per share 36.1p 51.5p
Dividends per share declared in the year - 58p

CONTENTS

Chairman's preamble 2
Strategic report 4
Directors' report 10
Corporate governance report 14
Remuneration report 18
Directors' responsibilities statement 26
Company directors and advisers 27
Independent auditors' report 28
Consolidated income statement 32
Statements of comprehensive income 32
Balance sheets 33
Consolidated and Company statements of changes in total equity 34
Consolidated and Company cash flow statements 35
Notes to the financial statements 36
Five year summary 59
Financial calendar 59
Notice of annual general meeting 60

*Constant currency revenue is calculated by comparing results in the underlying currencies for 2014 and 2013, both converted at the 2013 average exchange rates as set out on page 8.

CHAIRMAN'S PREAMBLE

Games Workshop has had a really good year.

If your measure of 'good' is the current financial year's numbers, you may not agree. But if your measure is the long-term survivability of a great cash generating business that still has a lot of potential growth, then you will agree.

Having taken on the conversion of our stores to a one man format with all the concomitant complexity of staff changes and new sites and new lease negotiations – a long job not quite finished – we decided to re-arrange the management of our sales channels from a countrybased system to a central one. This meant removing four european headquarters, consolidating all trade (third party) sales personnel at our Nottingham base, creating a new continental european grouping of our retail stores, and recruiting new management for these divisions whilst flattening the structure by removing all middle management. At the same time we changed leadership of our retail chain in the north american area, and gave birth to our new web store after many months' labour.

All this has significantly de-risked the business. We have far fewer key personnel to replace if need be, and a much lower cost base (£2 million p.a. less). It has cost, in total, around £4.5 million to accomplish. The new web store allows us to sell online more efficiently. It cost around £4 million.

This augurs well for our long term health and cash flow.

What is really remarkable, however, is that it was all accomplished in five months. The levels of complexity handled by our 'back-office' staff – personnel, IT and accounts – are beyond my descriptive abilities. And yet it was co-operatively done with precision, efficiency and calmness at a ferocious speed.

We all owe these people a big vote of thanks. They have saved the company millions.

Working with people like this is why it is a pleasure to work here.

In the technological world we occupy there is constant debate over who 'innovates' and who merely copies. We have, this last year, spent an indecent amount of your money trying to stop someone stealing our ideas and images. It is a very difficult thing to do when it is done through a legal system designed to prevent people stealing hogs from one another. Our experience has probably been typical of most – far too much money spent on far too little gain. The argument is that we have to do this or we will, bit by bit, lose everything that we hold dear, everything that keeps the business going. Our crops will wither, our children will die piteous deaths and the sun will be swept from the sky. But is it true?

°

Last year I published the secret that I believe is at the heart of what makes this business great. Steve Jobs once did the same over at heavily litigating Apple. He said they ignored everything that did not lead to 'insanely great products' and that was what made them great. None of the people Apple are suing are trying to do that, so why sue?

I said, 'we recruit for attitude and not for skill'. It is what makes us great. It is those people who design the miniatures; those people who make them and those people who sell them; those people who transformed our business systems in five short months. I have been deluged with two comments about that statement, neither of which was: 'you fool, you just gave away the crown jewels'. Why doesn't everyone do it? Ask them.

Because no one seems able to grasp the essential simplicity of what we do there has always been the search for the Achilles heel, the one thing that Kirby and his cronies have overlooked. These are legion. I run through the list from time to time when someone says that computer games will be the death of us – they are so much more realistic now! – again. This year it is 3-D printing. Pretty soon everyone will be printing their own miniatures and where will we be then, eh?

°

We know quite a lot about 3-D printers, having been at the forefront of the technology for many years. We know of what we speak. One day 3-D printers will be affordable (agreed), they are now, they will be able to produce fantastic detail (the affordable ones won't) and they will do it faster than one miniature per day (no, they won't, look it up). So we may get to the time when someone can make a poorly detailed miniature at home and have enough for an army in less than a year. That pre-supposes that 3-D scanning technology will be affordable and good enough (don't bet the mortgage on that one) and that everyone will be happy to have nothing but copies of old miniatures.

All of our great new miniatures come from Citadel. It is possible that one day we will sell them direct via 3-D printers to grateful hobbyists around the world. That will not happen in the next few years (or, in City-speak, 'forever') but if and when it does it will just mean that we can cut yet more cost out of the supply chain and be making good margins selling Citadel 3-D printers.

At the heart of the delusion is the notion that designing and making miniatures is easy. It isn't.

On the first of January next year I will be stepping down as CEO of Games Workshop. I intend staying on as non-executive Chairman (if the board will have me), so those of you who want to see an end to these preambles (rhymes with rambles), don't get your hopes up just yet.

°

The board has prepared a job specification for CEO, and the consequential advertisement. The ad. will be published the day after our AGM (September 18th). If you apply, we require that you write a letter saying why you want the job. No letter, no interview. The interviews will take place on November 7th and will be at Nottingham. An announcement will be made the following week. We have not decided what will happen if no suitable candidate is found but I suspect my wife will be livid.

Let me dilate about this letter. Last year I wrote here about our recruitment process, and shortly afterwards we recruited a new nonexecutive director (NXD) using the method described. We got a great (not good, great) new board member. She is still surprised that I did not read her CV (exasperated would be a more accurate word) but there was no need. Her letter told us what kind of person she was: sincere, open-minded, a learner, excited at the opportunity. The interview told us she had all the qualities needed. It mattered not one jot what her CV said. Appointing NXDs because of their careers rather than who they are is at the heart of the rot in the corporate world.

Tom Kirby Chairman and acting CEO 28 July 2014

STRATEGIC REPORT

Strategy and objectives

Games Workshop's strategy is to make the best fantasy miniatures in the world and sell them globally at a profit, and it intends doing so forever.

This statement includes all the key elements of what we do and why we do it that way.

The first element is the high quality. We consciously and deliberately pursue a niche market model. Not everyone wants to collect miniatures, but those that do demand high quality. All niche market customers are like that. It is what defines the niche — quality above price. Our strategy is to make the best miniatures in the world.

The second element is that we will only ever make fantasy miniatures, and by that we mean those that are in our imaginary worlds. This gives us complete control over the imagery and styles we use and complete ownership of the intellectual property.

The third element is the global nature of our business. Niche market customers are pretty thin on the ground and they need to be searched out all over the world. The main growth in our business will be as a result of this geographic spread.

The fourth element is our desire to make money doing it. We want to be efficiently profitable, partly because we enjoy paying ourselves and our owners well but even more because it allows us to keep going. We want to be in business for as long as possible and that means we need to be profitable in both good times and bad.

There is no fifth element which is a shame as it would have allowed me to indulge in a lot of movie jokes and references.

We measure our success by maintaining a high return on investments. (Efficiently profitable.)

The way we go about implementing this strategy is firstly to recruit the best staff we can by looking for the appropriate attitudes and behaviour each role requires, secondly by having flat, efficient management structures and thirdly by controlling costs tightly. There is no difference in our short-term, medium-term and long-term methods. All our strategic decision making is for the extreme long-term.

Business model

We are vertically integrated. We design, manufacture and distribute ourselves; we have our own stores and web store. With the sole, and rapidly declining, exception of products from Tolkien's books we use only our own imaginary worlds. They are rich enough and deep enough to accommodate anything we may want to make, and they remain our property.

We sell to third party retailers under closely controlled terms and conditions. Those terms and conditions mean that we are unlikely to be attractive to heavy discounters, chains or mass-marketers. In other words, I doubt you'll find our products in Toys 'R' Us or Walmart.

We publish two magazines. A weekly (White Dwarf) that announces new products and events and a monthly (Warhammer Visions) that glories in the aesthetics of our miniatures.

Our own stores attract a lot of attention, as they should, because they are the way we recruit the majority of new customers. Their modal style is small (cheap), off the beaten track (cheap), and with only one member of staff, the store manager (cheaper than five staff, but with our performance related pay scheme the managers are capable of earning far more than before). We require all our stores to be profitable. In bad times as well as good. Our growth comes from geographic spread, led by these stores, so it would make no sense to be growing less and less profitable as we went.

Our market is a niche market made up of people who want to collect our miniatures. They tend to be male, middle-class, discerning teenagers and adults. We do no demographic research, we have no focus groups, we do not ask the market what it wants. These things are otiose in a niche.

We control the business centrally. The big sales engines are: our own stores, split into three geographic areas (North America, Europe, Britain and Ireland), trade sales (sales to third parties) and our web store. Each store manager reports to the regional manager (Josh Wimberly in North America, Elmes Duo in Europe and Grant Peacey in Britain and Ireland) and each of them reports to me qua CEO. The trade sales manager (John Carter) reports to me, as does the web store manager (Erik Mogensen). Design, manufacturing and distribution is in Nottingham and the manager of that division (Max Bottrill) reports to me as well.

Back office functions are run largely from Nottingham. They are Accounts (Tim Wilson), IT (Karen Lathbury), Personnel (Vicki King), Lenton site (Dave Holmes), Legal and Compliance (Rachel Tongue), Projects (Helen Surgey) and they report to Kevin Rountree, qua COO.

Outliers are Australia and New Zealand (Ken Warton), Asia (Chris Harbor), and Forge World (Tony Cottrell) who all report to me, Licensing (Andy Jones) who reports to Kevin and Black Library (Rik Cooper) who reports to George Mann in the main Citadel studio.

Shareholder value

We believe shareholder value is created, primarily, by not destroying it. We have no intention to acquire other companies, nor dispose of any of those we own.

We return all our surplus cash to our owners and try to do so in ever increasing amounts. As a consequence it is probable the share price will rise. But we have no control over that. You do.

Graph of our shareholder value

Shareholder value for this graph is calculated as the price of the shares at year end plus the dividend per share paid in the year.

Review of the year

Structural re-organisation

As part of our constant drive to improve efficiency and reduce costs as well as in response to the realities of trading conditions in southern Europe we reorganised our sales structures during the last five months. These changes will also enable us to focus on the performance of our continental european retail and trade sales channels.

Until January 2014 we had a country based system with management in local countries and all the associated costs. We have closed four european offices (Aix-en-Provence, Dusseldorf, Barcelona and Frascati), consolidating trade sales in Nottingham, and have one manager for all continental european stores based in a new, tiny, office in Dusseldorf (he's mostly on the road, of course). Back office functions take place in Nottingham as far as possible. North american local autonomy was removed and for that region trade sales now reports to Nottingham and a new retail manager was appointed at the same time. Back office functions in North America now report to the appropriate manager in Nottingham.

At the same time we flattened our retail structures completely by removing all middle management.

It is early days but results so far have been encouraging. Sales in the last quarter are up on their equivalent quarter and costs down. There is also a stronger sense of belonging and Games-Workshop-ness. As I said in the preamble with my other hat on, it has been a really good year.

We paid £4.5 million for these benefits and we have classified these as exceptional costs. The costs and benefits are analysed below:

Annualised
Cost benefit
£million £million
Staff 3.0 1.0
Property 0.6 0.6
Other 0.9 0.4
4.5 2.0

Our operations in Australia and New Zealand and Asia remain unchanged.

STRATEGIC REPORT continued

Return on capital*

During the year our return on capital fell from 59% to 42%. This was driven by both a decline in operating profit and an increase in capital employed.

Sales

Reported sales fell by 8.2% to £123.5 million for the year. On a constant currency basis, sales were down by 6.5% from £134.6 million to £125.9 million; progress was achieved in Other sales businesses (+20.9%) and Export (+2.7%) while sales in UK (-7.1%), Continental Europe (-10.6%), North America (-7.5%), Australia (-9.4%) and Asia (-3.3%) were in decline.

Operating profit

Pre-exceptional core business operating profit (operating profit before royalty income) fell by £4.9 million to £15.4 million (2013: £20.2 million). On a constant currency basis, core business operating profit fell by £3.6 million to £16.7 million. This result was driven by an £8.7 million sales decline, on a constant currency basis, as a direct result of lower volumes and a decline in gross margin.

Operating expenses (excluding exceptional items) fell by £6.2 million; £3.1 million due to a reduction in retail store costs, £1.1 million employee profit share not incurred in the year and £0.3 million reduction in legal costs. Savings of £0.7 million from the continental european reorganisation have been realised. Costs remain a key area of focus.

Capital employed

Average capital employed* increased by £2.1 million to £36.6 million. The book value of tangible and intangible assets increased by £2.2 million whilst trade and other receivables fell by £1.7 million and current liabilities fell by £1.6 million.

Cash generation

During the year, the Group's core operating activities generated £17.9 million (2013: £25.5 million) of cash after tax payments. The Group also received cash of £2.4 million in respect of royalties in the year (2013: £1.1 million). After capital expenditure of £7.2 million there were net funds at the year end of £17.6 million (2013: £13.9 million).

The chart below shows a bridge of operating profit to cash generated.

Bridge of operating profit to cash generated

*We use average capital employed to take account of the significant fluctuation in working capital which occurs as the business builds both inventories and trade receivables in the pre-Christmas trading period. Return is defined as pre-exceptional operating profit before royalty income, and the average capital employed is adjusted by deducting assets and adding back liabilities in respect of cash, borrowings, exceptional provisions, taxation and dividends.

Investments in assets

This is what we have been spending your money on:

2014 2013
£million £million
Shop fits for new and existing stores 1.1 1.2
Production equipment and tooling 2.9 2.7
Computer equipment and software 2.7 4.5
Lenton site (infrastructure) 0.5 0.4
Total capital additions 7.2 8.8

We invested in shop fits: 44 new stores and 4 refurbishments. We invested an additional £0.9 million in the new web store (2013: £3.1 million) and £2.6 million in tooling, and milling and injection moulding machines. Capital investment is expected to be higher than depreciation and amortisation over the next few years as we upgrade our back office systems in Nottingham.

Dividends

We followed our principle of returning truly surplus cash to shareholders. Dividends of 16 pence per share were paid during the year (£5.1 million).

Royalty income

Royalty income increased in the period by £0.4 million to £1.4 million.

Taxation

The pre-exceptional tax rate for the year was 32.0% (2013: 23.7%). The post-exceptional tax rate was 35.4%. We would expect a preexceptional rate above that of business activities based solely in the UK, due to higher overseas tax rates.

Sales by channel

42% (2013: 43%) of sales were made through our own stores. 36% (2013: 37%) of sales were to independent retailers and 13% (2013: 11%) mail order. We are moving to this method of counting sales but we are also publishing sales by region, as we have in the past. Next year it will be by channel only.

STRATEGIC REPORT continued

Store openings and closures during the year

Number of stores Number of stores Number of one man
at May 13 Opened Closed at May 14 stores
UK 137 9 (4) 142 103
North America 100 10 (23) 87 63
Europe 135 15 (9) 141 99
Australia 37 9 (6) 40 29
Asia 3 1 - 4 3
412 44 (42) 414 297

Our ability to open new stores is still (and always will be) limited by our ability to find the right people to run them. Although we are getting better at it, it is still our number one priority.

Trade

Sales fell by 9% in the year, partially due to the continental european reorganisation and a disappointing year in North America.

Mail order

Our new online shop was launched this year and our online sales are broadly in line with the prior year.

Treasury

The objective of our treasury operation is the cost effective management of financial risk. The relationship with the Group's external credit facility provider is managed centrally. It operates within a range of board approved policies. No transactions of a speculative nature are permitted.

Funding and liquidity risk

The Group pays for its operations entirely from our cash flow. As a precaution we sometimes have a small facility at the bank (just-in-case, belt-and-braces, rainy days etc.). This year we arranged a short term bank loan of £5 million in case the continental european reorganisation was more expensive than expected. It wasn't. The loan was not needed. It still cost us £38,000 though.

Interest rate risk

Net interest receivable for the year (excluding net foreign exchange gains and unwinding of discounts on provisions) was £106,000 (2013: £176,000). Normally this risk is couched in terms of how much further in debt sudden rate rises would drag us. In our case we say: bring it on.

Foreign exchange

Our big currency exposures are the euro and dollar:

euro US dollar
2014 2013 2014 2013
Year end rate used for the balance sheet 1.23 1.17 1.68 1.52
Average rate used for earnings 1.20 1.22 1.62 1.57

The net impact in the year of these exchange rate fluctuations on our operating profit was a reduction of £1.3 million (2013: £0.6 million).

Gender diversity, greenhouse gases, social, community and human rights, and employees Our reporting on these topics is discussed in the directors' report on pages 12 to 13.

Product changes and initiatives

If we were planning radical changes in our products I certainly wouldn't publish them here.

Risks and uncertainties

That we are ex-growth is a big risk seen by some. As I said above I do not believe it. But if it is true we have built a wonderfully efficient cash-generating machine.

The bigger risk is the same one I repeat each year, and that is management. So long as we have great people we will be fine. Problems will arise if the board allows egos and private agendas to rule.

We also need a constant flow of great managers for our stores. In the end that is still the most important thing of all.

The future

Next year, internally, there will be some disruption remaining from the big reorganisation we have just made and from the one man store programme. Nevertheless I, and all the rest of Games Workshop, still believe we should be growing by opening new stores; particularly in North America and Germany.

External events that may affect us are only those things that bother everyone: interest rates, tax rates, exchange rates, directives from Brussels, war, pestilence and disease. What will not change is the eternal desire for some always to want yet more of the small, jewel-like objects of magic and wonder that we call Citadel miniatures.

Beyond next year, the business ought to be able to increase sales (single digit growth, not more) for many years and to provide owners with a steady flow of dividends. I say 'ought to' because no plan survives contact with the enemy and we will not promise what we cannot deliver — in particular our policy of only returning surplus cash as dividends will remain. We will not borrow (nor engage in fancy financial engineering) to pay a coupon.

Nevertheless, with or without growth, I expect to see dividends. I am not planning to sell any of my shares.

Tom Kirby Chairman and acting CEO 28 July 2014

DIRECTORS' REPORT

The directors present their annual report together with the financial statements and independent auditors' report for the year ended 1 June 2014.

General information

Games Workshop Group PLC (the 'Company') and its subsidiaries (together the 'Group') designs and manufactures miniature figures and games and distributes these through its own network of Hobby centres, independent retailers and direct via the internet and mail order. The Group has manufacturing activities in the UK and sells mainly in Continental Europe, North America and Asia Pacific.

The Company is a public listed company, incorporated and domiciled in the United Kingdom. The address of its registered office is Willow Road, Lenton, Nottingham, NG7 2WS, United Kingdom. The Company's ordinary share capital is listed on the London Stock Exchange.

Substantial shareholdings

The following interests in 3% or more of the issued share capital of the Company as at 25 July 2014 have been disclosed to the Company:

No. of shares %
Investec Asset Management Limited 3,087,765 9.7
Ruffer LLP 2,492,260 7.8
Phoenix Asset Management Partners Limited 1,865,218 5.9
FIL Limited 1,753,900 5.5
Legal & General Group plc 1,683,901 5.3
Schroders plc 1,677,861 5.3
Aberforth Partners LLP 1,636,300 5.1
Artemis Investment Management LLP 1,620,001 5.1

The Company has not been notified of any other substantial shareholdings other than those of the directors, which are disclosed in the remuneration report on page 24.

Dividends

Dividends of 16 pence per share were paid during the year (£5.1 million). After the balance sheet date a dividend of 20 pence per share, amounting to a total dividend of £6,372,000 was declared and paid on 4 July 2014.

Directors

The present directors of the Company are listed on page 27. All of the directors were members of the board throughout the year and up to the date of signing the financial statements with the exception of E O'Donnell who was appointed on 28 November 2013.

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, at this year's annual general meeting, K D Rountree is seeking re-election. E O'Donnell will also be seeking her election since appointment to the board in November 2013. In addition, as a result of their long service, non-executive directors C J Myatt and N J Donaldson are required to retire and are seeking reelection. In relation to the non-executive directors, the chairman has confirmed that, following formal performance evaluation, the performance of C J Myatt and N J Donaldson continues to be effective and they continue to demonstrate commitment to their roles as non-executive directors, including commitment of the necessary time to board and committee meetings and other duties. C J Myatt and N J Donaldson 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, together with details of share options granted to the directors, are disclosed in the remuneration report on page 24. 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, as permitted by section 234 of the Companies Act 2006, which were in force during the year and up to 28 July 2014.

Information on executive directors

T H F Kirby (age 64), chairman and acting CEO. 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 nonexecutive chairman, returning to the role of chief executive in September 2000. He performed the role of chairman from December 2007 to January 2013 when he became chairman and acting CEO. Prior to joining Games Workshop, Tom worked for six years for a distributor of fantasy games in the UK and was previously an Inspector of Taxes.

Information on executive directors continued

K D Rountree (age 44), COO. Kevin Rountree joined Games Workshop in March 1998 as assistant group accountant. He then had various management roles within Games Workshop, including head of sales for the Other Activities division (including Black Library, licensing and Sabertooth Games). Kevin was appointed CFO in September 2009. During the year ended 29 May 2011, he took on the responsibility of managing the Group's service centres globally. To reflect this, his title was changed to chief operating officer from chief financial officer. He, however, still retains responsibility for all financial matters within Games Workshop. He qualified as a chartered management accountant in August 2001. Prior to joining Games Workshop, Kevin was the management accountant at J Barbour & Sons Limited and trained at Price Waterhouse.

Information on non-executive directors

C J Myatt (age 70). Chris Myatt is the senior independent director, joining the board on 18 April 1996. He was formerly managing director of a division of Tarmac PLC, chairman and non-executive director of a number of manufacturing companies and treasurer of Keele University.

N J Donaldson (age 60). Nick Donaldson was appointed to the board on 18 April 2002. A barrister by profession, Nick is a partner of London Bridge Capital 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 chairman of DP Poland PLC and a director of The Fulham Shore plc.

E O'Donnell (age 43). Elaine O'Donnell was appointed to the board on 28 November 2013. A chartered accountant by profession, until recently Elaine was a corporate finance partner with EY.

Auditors

As at 28 July 2014, 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.

Share capital, share rights and other information

As at 25 July 2014, the Company's authorised share capital was £2,100,000 divided into 42,000,000 ordinary shares of 5p each nominal value ('ordinary shares'). On 25 July 2014 there were 31,860,894 (2013: 31,732,576) ordinary shares in issue. These ordinary shares are listed on the London Stock Exchange. All ordinary shares rank equally with respect to voting rights and the right to receive dividends. Shares acquired through the Company's share schemes rank pari passu with the shares in issue and have no special rights. The holders of ordinary shares are entitled to receive the Company's annual report, to attend and speak at general meetings of the Company, to appoint proxies and to exercise voting rights. There are no restrictions on transfer or limitations on the holding of any class of share and no requirements for prior approval of any transfers. The directors may refuse to register a transfer of shares if there is a failure to comply with certain requirements of the Company's articles of association. None of the shares carries any special rights with regard to control of the Company.

In accordance with the Company's articles of associations, each share (other than those held in treasury) entitles the holder to one vote at general meetings of the Company on votes taken on a poll. On a show of hands at a meeting, every member present in person or by one or more proxies and entitled to vote has one vote. Unless the directors decide otherwise, if a shareholder is given notice that he has failed to provide information required in relation to any shares pursuant to a notice under section 793 of the Companies Act 2006, that member will be unable to vote on those shares both in a general meeting and at a meeting of the shareholders of that class. If such shareholder holds more than 0.25% of the issued shares of a class (excluding treasury shares) and is in default of a section 793 notice, the directors may also state in the notice that: (i) the payment of any dividend shall be withheld; and (ii) that there can be no transfer of the shares held by such shareholder.

Subject to the provision of law, the Company may by ordinary resolution declare a dividend to be paid to the members according to their respective rights and interest, but no dividend may exceed the amount recommended by the directors. The directors may also declare and pay interim dividends. Subject to shareholder approval, the directors may pay dividends by issuing shares credited as fully paid up in lieu of cash dividends. If dividends remain unclaimed for 12 years they are forfeited and revert to the Company.

A director appointed by the board holds office only until the next annual general meeting ('AGM'). At each AGM one third of the directors will retire by rotation and be eligible for re-election. The directors to retire will be those who wish to retire and those who have been longest in office since their last appointment or re-appointment.

The rules about the appointment and replacement of directors are contained in the Company's articles of association. The Company's articles of association state that a director may be appointed by an ordinary resolution of the shareholders or by the directors, either to fill a vacancy or as an addition to the existing board but so that the total number of directors does not exceed the maximum number of directors allowed pursuant to the Company's articles of association. The Company's articles of association do not currently specify a maximum number of directors. The Company may by ordinary resolution remove a director from the board of directors.

The Company's articles of association also state that the board of directors is responsible for the management of the business of the Company and in doing so may exercise all the powers of the Company subject to the provision of relevant legislation and the Company's constitutional documentation. The powers of the directors set out in the Company's articles of association include those in relation to the issue and buy-back of shares.

DIRECTORS' REPORT continued

Share capital, share rights and other information continued

Changes to the articles of association must be approved by the shareholders in accordance with the legislation in force from time to time.

As at 1 June 2014, the Company had an unexpired authority to repurchase shares up to a maximum of 4,728,153 shares. During the year no shares were purchased in the market for cancellation.

The Company does not have agreements with any director or employee that would provide compensation for loss of office or employment resulting from a takeover, except that the provisions of the Company's sharesave scheme may cause options to be exercised on a takeover.

Constructive use of the annual general meeting

The chairmen of the audit, the City 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.

Corporate governance

The Company's statement on corporate governance is included in the corporate governance report on pages 14 to 17.

Conflicts of interest

The Company's articles of association take account of certain provisions of the Companies Act 2006 relating to directors' conflict of interest. These provisions permit the board to consider and, if thought fit, to authorise situations where a director has an interest that conflicts, or may possibly conflict, with the interest of the Company. The board has adopted procedures for the approval of such conflicts. The board's powers to authorise conflict are operating effectively and the procedures are being followed.

Health, safety and environment

Games Workshop aims to make the best fantasy miniatures in the world without adversely affecting anyone's safety or health. Our health and safety policy commits us to the following objectives:

  • Aiming, as a minimum, to comply with all relevant health and safety legislation
  • Protecting staff from any risks to their health and safety so far as is reasonably practicable by assessing risks staff are exposed to, eliminating risks where practicable, introducing adequate control measures, adopting safe working practices and providing information, instruction, training and supervision
  • Providing customers with the same standard of protection as our staff
  • Record, investigate and learn from safety and ill health incidents
  • Monitor the work of contractors on our properties to control risks

We require all staff to promote these objectives at all times and they apply worldwide.

The number of reported minor accidents at our Nottingham site decreased in the year (29 in 2013/14 versus 40 in 2012/13). There were two RIDDOR reportable accidents in the year (causing an absence of seven days or more). The IOSH Managing Safely course and the Working Safely course have been used extensively over the past two years to educate staff in best practice for health and safety at work.

Greenhouse gas emissions

Under the Greenhouse Gas Emissions (Directors' Reports) Regulations 2013, enforced under the Companies Act 2006, we have addressed our Greenhouse Gas (GHG) reporting requirements.

We have used the Environmental Reporting Guidelines from DEFRA to identify our GHG inventory of Scope 1 (direct) and Scope 2 (indirect) global CO2 emissions. We have considered the six main GHG's and report in CO2 equivalent. Our data includes all manufacturing, office and retail sites controlled globally by Games Workshop. All calculations have used the 2013 DEFRA conversion factors.

  • Scope 1 covers activities owned or controlled by Games Workshop that release emissions straight into the atmosphere gas boilers, vehicle operation, air conditioning.
  • Scope 2 covers activities that that are not owned or controlled by Games Workshop but create emissions as a result of our activities – electricity consumption.
2014
Scope 1 – tonnes CO2e 767
Scope 2 – tonnes CO2e 4,421
Total tonnes CO2e 5,188
Tonnes CO2e per sq metre 0.082
Tonnes CO2e per £000 of revenue 0.042

This is the first year of reporting, in accordance with the Regulations, so there is no comparable data from previous years. The intensity ratios will provide meaningful comparisons for future results.

Waste management

In 2013/14 we sent 70% of our waste by weight from our Nottingham site for re-use or recycling (2013: 65%). 30% of our waste was sent for heat recovery at the Nottingham City Council incinerator (2013: 35%).

Nottingham Workplace Parking Levy and travel to work

Games Workshop will continue its policy of not recharging employees the Workplace Parking Levy (which increased by 8% in April 2014 to £362 per year for each used workplace parking space). We continue to promote our cycle to work scheme and have a very high ratio of cyclists (over 10% of employees) at our Nottingham site.

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.

Diversity

The board has noted the changes to the UK Corporate Governance Code (the 'Code') announced by the FRC in October 2011 to strengthen the principle of boardroom diversity, which was first introduced into the Code in June 2010. The Company supports the provision that boards should consider the benefits of diversity, including gender, when making appointments and is committed to ensuring diversity not just at board level, but also throughout the workforce. The board believes that business benefits from the widest range of perspectives and backgrounds. The Company's aim as regards composition of the board is that it should have a balance of attitudes and knowledge to enable each director and the board as a whole to discharge their duties effectively. The Company does not consider that diversity can be best achieved by establishing specific quotas and targets and appointments will continue to be made based on merit.

As at 1 June 2014 the workforce is comprised as follows:

Male Female Total
The board 4 1 5
Senior management 7 1 8
Total workforce 1,482 271 1,753

Social, community and human rights

The Group has policies that encompass a set of global sourcing principles covering fair terms of employment, human rights, health and safety, equal opportunities and good environmental practice. We seek to work with suppliers who adopt an ethical approach to human rights, working conditions and the environment in line with our own values. Our buyers are required to review supplier compliance with these policies, identify any areas of non-conformance and take action where appropriate. The Group monitors the quality and availability of all sourced components, to ensure high standards are maintained.

Employees continue to carry out fund raising events for their chosen charities. Although we have decided that we will no longer make cash donations to charities, we are fully supportive of the work our employees do.

Research and development

The Group does not undertake research activities. Development activities relate to the development of new product lines. The charge to the income statement for the year in respect of development activities is detailed in note 9 to the financial statements.

Future developments

The future developments for the Group are discussed in the strategic report on page 9.

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

R F Tongue Company secretary 28 July 2014

CORPORATE GOVERNANCE REPORT

The Listing Rules of the Financial Conduct Authority require listed companies to disclose, in relation to section 1 of the UK Corporate Governance Code 2012 (the 'Code'), how they have applied its principles and whether they have complied with its provisions throughout the accounting period. The UK Corporate Governance Code can be found at www.frc.org.uk.

This statement, together with the remuneration report on pages 18 to 25, explains how the Company has applied the principles and complied with the provisions set out in the Code.

The board operates through monthly meetings which senior executives attend on a regular basis. Major strategic decisions and the approval of any significant capital expenditure are reserved for decision by the board. The board is updated about operational decisions through the monthly meetings. Terms of reference for the board committees (as set out below) are available on the Company's website.

A review of the performance of the Group's main business activities are included in the strategic review. The board presents these reviews, together with the directors' report on pages 10 to 13, to give a fair, balanced and understandable assessment of the Group's position and prospects.

The board

The board comprises the chairman and acting CEO, the COO and three non-executive directors following the appointment of E O'Donnell during the year. It is chaired by the chairman and acting CEO, T H F Kirby. This arrangement does not comply with provision A.2.1 of the Code, which states that the roles of chairman and chief executive should not be exercised by the same person.

On 18 January 2013, the Company announced that M N Wells, the Company's CEO for five years, was stepping down from that role and that, pending the appointment of a new CEO, the chairman, T H F Kirby, would be chairman and acting CEO.

Before concluding that this interim arrangement was in the best interests of the Company and the shareholders as a whole, the board considered carefully the existing division of responsibilities between the chairman and the CEO and the likely requirements of the Company in the future, in terms of leadership, to underpin and promote its successful development. The Company's remuneration and nomination committee discussed the matter and came to the unanimous conclusion that the interim arrangement described above was appropriate.

The senior independent director is C J Myatt. The senior independent director is the lead non-executive director. His principal responsibilities include:

  • to be available to shareholders if they have concerns which contact through the normal channels of the chairman and acting CEO, or the COO, has failed to resolve, or for which such contact is not appropriate
  • to ensure that the performance evaluation of the chairman is conducted effectively

The three non-executive directors have a breadth of successful commercial and professional experience and are considered by the board to be independent of the Group. The Code states that the board should identify each non-executive director it considers to be independent, and the Code then lists various circumstances which may appear relevant to its determination. This includes (amongst others) if the director has served on the board for more than nine years.

At Games Workshop the board has had to confront one of these circumstances as two of the non-executive directors, C J Myatt and N J Donaldson, have served for more than nine years.

In making this assessment as to independence, the board has taken into account the personal attributes of each director in relation to the current and future needs of the board. In the opinion of the board, independence (like judgement and wisdom) is not an attribute which can be measured by reference to a checklist. It is rather an attribute which the members of the board can observe being demonstrated by a director in his actions and interactions with other members of the board as it faces the various issues which are placed before it. Independence is the absence of complacency, lazy thinking and acceptance of the status quo.

Regarding the specific Code circumstance of service of over nine years, the board's position is as follows:

The 'nine year rule' is a helpful guide to the risk of directors becoming 'stale'. The board considers this risk periodically, but has not yet found it to be an issue at Games Workshop. If it did, it would react accordingly. At present the board feels that the requirement for members of the board to have a real understanding of, and empathy with, the Games Workshop Hobby to be a point in favour of retaining the experience which the board currently has.

Based upon its assessment, which focuses on each director's attitude towards making his best contribution to the progress of the Company, the board considers that both of these non-executive directors are independent.

During the year E O'Donnell, a third non-executive director, was appointed to the board.

The board operates primarily through its monthly meetings and is responsible for leading and controlling the Group and monitoring executive management. It meets at least nine times a year. In 2013/14 the board had 10 scheduled meetings, each of which was attended by all members of the board.

The board continued

All directors bring an independent judgement to bear on issues of strategy, performance, resources (including key appointments) and standards of conduct. The board considers that it has been supplied with sufficient timely and accurate information to enable it to discharge its duties.

All members of the board have access to the services and advice of the Company secretary. There is a procedure for directors to take independent professional advice at the Company's expense where relevant to the execution of their duties. The executive directors attach great importance to ensuring that the non-executive directors are provided with accurate, timely and clear information on the Group. In addition, the non-executive directors are actively encouraged to update continually their knowledge of and familiarity with the Group and the issues affecting it, so as to enable them to fulfil effectively their roles on both the board and its committees.

The board has established a process for the ongoing assessment of its own performance and that of its committees. The board is currently undergoing an internal review process to determine and define the role that the board performs. An internal assessment will then be undertaken to review the board's performance against those objectives in 2014/15. This will be an iterative process which will inform the board's development agenda on a regular basis.

Board committees

The board has three principal committees, all with written terms of reference which are published on the Company's website and which are available on application to the Company secretary at the Company's registered office. The Company secretary serves as secretary to all three committees. The chairmen of the audit, the City and the remuneration and nomination committees will be available to answer questions at the Company's annual general meeting.

Audit committee

The audit committee comprises the three non-executive directors under the chairmanship of C J Myatt, who is a chartered management accountant and has significant relevant financial and accounting knowledge and experience. The audit committee's terms of reference include monitoring the appropriateness of accounting policies, financial reporting, internal control and risk assessment and keeping under review the scope, results and effectiveness of the external and internal audits and the independence of the Company's external auditors.

Significant issues considered by the audit committee

The committee had three meetings during the year which were attended by all members of the committee. It has an agenda linked to the events in the Group's financial calendar. The external auditors met with the committee without management being present and the chairman and members of the committee have direct contact with the audit partner as required. During the year the committee:

  • reviewed the half-year and full-year results
  • received and considered, as part of the review of the annual financial statements, reports from the external auditors in respect of the auditors' review of the audit plan for the year and the results of the annual audit. These reports included the scope of the annual audit, the approach adopted by the auditors to address and conclude upon key estimates and other key audit areas, the basis on which the auditors assess materiality, the terms of engagement for the auditors and an ongoing assessment of the impact of future accounting developments on the Group
  • considered whether the annual report is fair, balanced and understandable. In doing so, the committee reviewed and discussed with management the content and appropriateness of the information included within the 2014 annual report. This provided the committee with the supporting detail to ensure that it was in a position to report to the board that the 2014 annual report taken as a whole was fair, balanced and understandable. This was on the basis that the business description, business model and strategy agreed with its own understanding of the Group, and the balance in the reporting of performance reflected both positive and negative issues and reflected the Group's activities during the year
  • considered the effectiveness and independence of the external auditors and made a recommendation to the board regarding the re-appointment of PricewaterhouseCoopers LLP as external auditors
  • reviewed the Company's policy on non-audit fees and ensured appropriate safeguards are in place
  • considered and agreed the internal audit work programme and received regular reports on the key issues arising from its implementation during the year
  • reviewed reports on the key business risks, including a review of the internal control processes used to identify, monitor and mitigate the principal risks and uncertainties

CORPORATE GOVERNANCE REPORT continued

Significant issues considered by the audit committee continued

The committee received, reviewed and challenged reports from management and the external auditors setting out the significant issues in relation to the 2014 annual report. These issues were discussed and challenged with management during the year. They were also discussed with the auditors at the time the committee reviewed and agreed the auditors' Group audit plan and at the conclusion of the audit of the financial statements. The issues that were discussed were:

  • Profit in inventory calculation: following a review of the methodology used by management, the committee concluded that the method of calculating the profit in inventory was appropriate.
  • Inventory provisions: the committee considered and agreed that the inventory provisions were appropriate given the robust formulaic process applied and the level of risk.
  • Capitalisation of software and development costs: the committee concluded that the accounting for and disclosure of software, following the launch of the new web store was appropriate. The committee reviewed the accounting and disclosure of development costs and concluded that this was appropriate but that management should continue to closely monitor this in the context of product release cycles and underlying sales trends.
  • Exceptional costs: the committee was comfortable with management's assessment that the costs identified as a result of the restructuring of the business to a channel management structure, which were in accord with those identified in the original project proposal on which the action was agreed, should be recognised as exceptional.
  • Continental european reorganisation and deferred tax recognition: the committee, having made enquiries of management and having considered the opinions given by of the Group's tax advisers, are comfortable that the costs associated with and deferred tax asset arising on the reorganisation of the business have been appropriately recorded and will be utilised in the foreseeable future.

The committee reviews the independence of the external auditors by assessing the arrangements for the day to day management of the audit relationship as well as reviewing the auditors' report which describes their procedures for identifying and reporting conflicts of interest. To maintain the auditors' independence, the committee has also established the policy that the primary role of the external auditors is to perform services directly related to their audit responsibilities. The Group uses other advisers for taxation advice and other services. The audit fees are disclosed in note 9.

The committee calls upon the external auditors, the internal auditors and the executive directors to attend formal meetings as required. These meetings are held at least three times a year. The external and internal auditors are given the opportunity to raise any matters or concerns they may have in the absence of the executive directors at separate meetings with the audit committee or its chairman.

The audit committee considers the reappointment of the external auditors each year, as well as remuneration and other terms of engagement. PricewaterhouseCoopers LLP have acted as external auditors of the Group since the 2005 year end, which was the last time the external audit process was put out to tender. There are no contractual obligations which restrict the choice of external auditors. The committee will next tender the position for external auditors in the Autumn of 2014.

City committee

The City committee comprises the non-executive directors and is chaired by N J Donaldson. It normally meets at least twice a year and is responsible for corporate governance, investor relations, City presentations and liaison with City advisers. The City committee held two meetings during the year, each of which was attended by all members of the committee.

Remuneration and nomination committee

The remuneration and nomination committee comprises the non-executive directors and is chaired by N J Donaldson. It normally meets at least twice a year and is responsible for making recommendations to the board on remuneration policy for all executive directors (including determining specific remuneration packages, terms of employment and performance incentive arrangements). It is also responsible for nominating, for approval by the board, candidates for appointment to the board. The procedures and guidelines used by the remuneration and nomination committee in determining remuneration are outlined in the separate remuneration report. The remuneration and nomination committee held three meetings in the year, which were attended by all members of the committee. The committee meets without the executive directors at least annually to appraise the executive directors' performance.

Appointments to the board

On 28 November 2013, E O'Donnell was appointed to the board as a non-executive director, effective from that date. Following the Company's recruitment procedures, discussed elsewhere in this document, the board determined that E O'Donnell would be a suitable and valuable addition to the board. Open advertising was used in respect of this appointment but an external search consultancy was not considered appropriate.

Newly appointed directors are given training appropriate to the level of their previous experience. Non-executive directors meet regularly with members of the executive and other staff within the Group. In addition, site visits ensure that the non-executive directors gain first hand experience of developments within the Group.

Any director appointed during the year is required, under the provisions of the Company's articles of association, to retire and seek election by the shareholders at the next annual general meeting.

Internal control

The directors recognise that they have overall responsibility for ensuring that the Group maintains a sound system of internal control to safeguard shareholders' investment and the Group's assets, and for reviewing its effectiveness. The system is designed to manage risks that may prevent the Group from achieving its business objectives, rather than to eliminate these risks. However, even the most effective system can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The directors have established an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which has been in place from the start of the year until the date of approval of this report. This process is regularly reviewed by the board throughout the period in accordance with the document 'Internal Control: Revised Guidance for Directors on the Combined Code' (the revised Turnbull guidance).

The effectiveness of the Group's system of internal control is continuously reviewed by the board. The review covers all material controls, including financial, operational and compliance controls and risk management. The monitoring of control procedures is achieved through regular review by the COO, reporting to the board. This review process considers whether significant risks have been identified, evaluated and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. Regular reporting by senior management ensures that, as far as possible, the controls and safeguards are being operated appropriately. This process is considered by the audit committee, alongside the external auditors' reports.

The Group has continued its programme of internal audit reviews during the year. The audit committee agrees an annual internal audit plan, focusing on business specific issues. Actions agreed by management, in response to recommendations made, are followed up.

The board, with advice from the audit committee, has completed its annual review of the system of internal control in accordance with the guidance as set out in the revised Turnbull guidance, and is satisfied that it has acted appropriately and in accordance with that guidance. During the course of its review of the system of internal control, the board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore a confirmation in respect of necessary actions is not considered appropriate.

Communication with shareholders

The Company attaches great importance to its annual general meeting, which it considers to be the primary platform of communication between the Company and its shareholders. On a continuing basis the Company encourages two way communication with its institutional and private shareholders and responds promptly to queries received verbally, in writing or directly through its investor relations website investor.games-workshop.com.

The chairman and acting CEO and the COO are available to meet with shareholders in Nottingham to discuss any issues which shareholders may have. Any issues arising at such meetings are reported to and considered by the board.

Remuneration report

The Company's policy on executive remuneration and details of the executive directors' salaries, profit share and pensions, and fees for the non-executive directors are set out in the board report on remuneration on pages 18 to 25.

Statement of compliance with the UK Corporate Governance Code

With the exception of provision A.2.1, the Company has complied with all of the provisions set out in section 1 of the Code.

By order of the board

R F Tongue Company secretary 28 July 2014

REMUNERATION REPORT

Introduction

The remuneration report for the year ended 1 June 2014 has been prepared on behalf of the board by the remuneration committee in accordance with the requirements of the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended, and meets the relevant requirements of the Listing Rules of the Financial Conduct Authority and the UK Corporate Governance Code.

The remuneration report is split into two parts:

  • The directors' remuneration policy, which sets out the Company's proposed policy on directors' remuneration, which will apply with effect from this year's annual general meeting ('AGM') and the key factors that were taken into account in setting the policy. The directors' remuneration policy is subject to a binding shareholder vote at this year's AGM and after that at least every third year.
  • The annual report on remuneration, which sets out payments made to executive directors and non-executive directors and details the link between company performance and remuneration for the 2013/2014 financial year. This report on remuneration is subject to an advisory shareholder vote at the 2014 AGM.

2013/14 – A year in review

As described by the chairman and acting CEO earlier in this annual report, the 2013/14 financial year has been a year of significant change for the Company.

The committee undertook a review of the executive directors' base salaries at the start of the 2013/14 financial year, taking into account general economic and market conditions. At that time the base annual salary of T H F Kirby was increased from £350,000 to £450,000 for so long as he maintained the joint roles of chairman and acting CEO; the base annual salary of T H F Kirby of £350,000 had remained unchanged since 2005. The base annual salary of K D Rountree was increased at the start of the 2013/14 financial year from £210,000 to £240,000 (before salary sacrifice arrangements for pension contributions) in view of his increased responsibilities.

The proposal for base salaries payable to the executive directors in the year ahead is for T H F Kirby, whilst he maintains his joint roles of chairman and acting CEO, to continue to be remunerated at the rate of £450,000 per annum, and for K D Rountree to continue to be remunerated at the rate of £240,000 per annum.

2014/15 – The year ahead

The committee also undertook a review of the consistency of remuneration policy across the Group and is satisfied that an appropriate reward structure exists below board level to recognise and retain the Group's top talent, particularly while the Group goes through a period of change management with the implementation of new business systems to support future growth.

N J Donaldson Chairman Remuneration and nomination committee 28 July 2014

Policy report

This part of the report sets out the directors' remuneration policy to apply from the AGM to be held on 17 September 2014 and which will be subject to a binding vote by shareholders during that meeting. The policy, once approved, will apply until the AGM in 2017, unless revised by a vote of shareholders before that time.

Games Workshop is a most individual business. We have a simple strategy: we make the best fantasy miniatures in the world and sell them globally at a profit and we intend to do this forever. We embrace long-term thinking, and hence we do not operate bonus schemes of the usual kind or incentive schemes as we believe they can sow the seeds of short-termism. We seek to pay the right remuneration for the job – our real 'bonus' is the opportunity to work at Games Workshop and grow the business.

In terms of senior management, Games Workshop is in a phase of transition. T H F Kirby, our chairman for 16 years, has been chairman and acting CEO since M N Wells left the business in January 2013. We believe he is being compensated appropriately for his additional responsibilities.

The aim of the Group's remuneration policy is to reward fairly, attract, motivate and retain high quality management. The total size of the remuneration package for executive directors is judged by comparison with the remuneration packages of similar companies, having regard to:

  • the size of the company, its turnover, profits and number of people employed
  • the diversity and complexity of the business
  • the geographical spread of the business
  • the growth and expansion profile

Non-executive directors are remunerated with fees in line with market rates. They do not receive any pension or other benefits, other than the reimbursement of reasonable expenses, and they do not participate in any bonus or share schemes.

Remuneration policy table

Purpose and link to
Component strategy Operation Maximum potential value Performance metrics
Salary Core element of fixed
remuneration, reflecting
the size and scope of the
role.
Reviewed annually and
usually fixed for 12 months
from 1 June. There is no
entitlement to an annual
There is no prescribed
maximum annual increase
in salary.
Not applicable, although
the individual's
contribution and overall
performance is one of the
Purpose is to recruit and increase. Salaries are reviewed
taking into consideration
considerations in
determining the level of
retain directors of the
calibre required for the
business.
Takes into consideration the
director's role and attitudes.
salary increases across the
Group.
any salary increase.
Takes into account
prevailing market conditions
and is aligned with staff pay
reviews.
Increases out of line with
the workforce are carefully
considered but may be
awarded taking all relevant
factors into account, for
Externally benchmarked by
independent remuneration
consultants from time to
time against companies of a
similar size and complexity.
example, increases in
scope and responsibility or
salary falling significantly
below market positioning.

REMUNERATION REPORT continued

Remuneration policy table continued

Purpose and link to
Component strategy Operation Maximum potential value Performance metrics
Benefits Ensures the overall
package is competitive.
T H F Kirby receives fuel and
private medical insurance.
The executive directors
Set at a level which the
committee considers
appropriate against the
Not applicable.
Purpose is to recruit and
retain directors of the
calibre required for the
both receive life assurance
cover.
market and provides a
sufficient level of benefit
based on individual
business. The sharesave scheme is a
HMRC approved monthly
circumstances.
Participation in the savings scheme facilitating Sharesave contributions
sharesave scheme creates the purchase of shares at a are as permitted in
staff alignment with the discount. accordance with the
Group and promotes a relevant tax legislation.
sense of ownership. Where appropriate other
benefits may be offered
including allowances for
relocation and other
expatriate benefits.
Pension To provide cost effective
retirement benefits.
Participation in a group
personal pension scheme
(or other such plan as may
be deemed appropriate).
Up to 10% of salary. Not applicable.
Profit share Rewards performance Targets are set annually and Maximum potential value The financial target is
against annual targets
linked to the achievement
of sustainable profit
growth.
any pay out is determined
by the committee after the
period end, based on
performance against those
is £1,000 per person per
year.
based on growth in core
business operating profit
from the prior year.
targets. Payments range from nil to
£1,000 dependent on the
All staff participate equally
in the scheme.
Awards are payable in cash.
level of increase in
operating profit from the
prior year.
Non-executive
directors' fees
Sole element of non
executive director
remuneration set at a level
that reflects market
conditions.
Fees are reviewed annually
taking into account time
commitment,
responsibilities and fees
paid by comparable
companies.
Fees are based on the level
of fees paid to non
executive directors serving
on boards of listed
companies of a similar size
and complexity.
Not applicable.
Additional fees are paid to
the senior independent
director to reflect additional
responsibilities.
Non-executive directors are
entitled to claim reasonable
out of pocket expenses in
connection with the
performance of their duties.

Explanation of the performance metrics chosen

The performance measures selected are aligned with the Company's strategy and business objectives. For the profit share, this is based on growth in core business operating profit.

Illustration of application of the policy

The charts below show the relative split of remuneration between fixed pay (base salary, benefits and pension) and variable pay (profit share) for each executive director on the basis of minimum remuneration, remuneration receivable for performance in line with the Company's expectations and maximum remuneration.

Differences in policy from the wider employee population

The Company aims to provide a remuneration package that is market competitive, complies with any statutory requirements and is applied fairly and equitably across the wider employee population. Where remuneration is not determined by statutory regulation, the Company operates the same core principles as it does for the executive directors, namely;

  • to remunerate people in a manner that allows for stability of the business and the opportunity for sustainable long-term growth
  • to seek to remunerate fairly and consistently for each role with due regard to the market place and internal consistency
  • to apply the profit share equally to all employees, including the executive directors
  • to encourage employees to own shares through the operation of the sharesave scheme

Remuneration policy for new directors

When setting the remuneration package for a new executive director, the committee would seek to apply the same principles and implement the policy framework as set out above.

Base salary will be set at a level appropriate to the role and the experience of the director being appointed. Benefits, pension and profit share will be in line with the stated policy.

Non-executive director fees will be set at a competitive market level, reflecting the skills, knowledge, experience, responsibilities and time commitment.

Directors' service contracts and letters of appointment

Executive Date of contract Unexpired term of contract Notice period
T H F Kirby 4 June 2009 Rolling contract 12 months
K D Rountree 25 February 2009 Rolling contract 12 months
Non-executive Date of appointment Date of last re-election at an AGM Notice period
C J Myatt 18 April 1996 18 September 2013 6 months
N J Donaldson 18 April 2002 18 September 2013 6 months
E O'Donnell* 28 November 2013 n/a 6 months
* Elaine O'Donnell will stand for election at the 2014 AGM

In accordance with best practice and as set out in the Code, notice periods in new service contracts for executive directors are set at one year.

Non-executive director appointments are made through letters of appointment for a one year term, subject to election and re-election by the Company's shareholders in accordance with the Company's articles and the Code.

REMUNERATION REPORT continued

Policy on payment for loss of office

If an executive director's employment is to be terminated, the committee's policy in respect of the service agreement (in the absence of a breach of the service agreement by the director) is to agree a termination payment based on the value of base salary and contractual pension and other benefits that would have accrued to the director during the contractual notice period. Depending on the particular circumstances, a director may work the notice period, be placed on garden leave for some or all of the notice period or receive a payment in lieu of notice in accordance with the service agreement. The committee will consider mitigation to reduce the termination payment to a leaving director when appropriate to do so, having regard to the specific circumstances.

Non-executive directors' letters of appointment may be terminated without compensation but with six months' notice.

External appointments

The executive directors may accept one external appointment with the prior approval of the board from which any fees may be retained. At present, neither of the executive directors holds any outside directorships.

Consideration of employment conditions elsewhere in the Group

The Group aims to provide a remuneration package to all employees that is market competitive, complies with any statutory requirements and is applied fairly and equitably across the employee population, taking into account local employment market conditions.

All employees receive a base salary, may join a pension scheme, when eligible, or have equivalent state provided pension benefits. Employees are also eligible to participate in the sharesave scheme when an invitation is made to do so.

The committee takes into account the general basic salary increase being offered to employees elsewhere in the Group when annually reviewing the salary increase and remuneration of the executive directors. Employees are not consulted in respect of board remuneration.

Consideration of shareholder views

The committee takes into account shareholder feedback received on remuneration matters, including comments in relation to the AGM plus any additional comments in correspondence direct with the Company. The committee would seek to engage directly with major shareholders should any material changes be made to the policy.

Annual report on remuneration (subject to audit)

The tables below set out in a single figure the total remuneration, including each element, for each person who served as a director of the Company during the financial years ended 2 June 2013 and 1 June 2014.

Year ended 1 June 2014

Pension related
Salary/fees Taxable benefits Profit share Sharesave benefits Total
£000 £000 £000 £000 £000 £000
T H F Kirby 450 4 - 12 45 511
K D Rountree 229 - - 2 28 259
C J Myatt 60 - - - - 60
N J Donaldson 52 - - - - 52
E O'Donnell* 21 - - - - 21
Total 812 4 - 14 73 903

*appointed 28 November 2013

Year ended 2 June 2013

Taxable Compensation Pension related
Salary/fees benefits for loss of office Profit share Sharesave benefits Total
£000 £000 £000 £000 £000 £000 £000
T H F Kirby 352 5 - 1 2 35 395
K D Rountree 202 11 - 1 2 24 240
M N Wells* 177 2 569 - - 26 774
C J Myatt 50 - - - - - 50
N J Donaldson 42 - - - - - 42
Total 823 18 569 2 4 85 1,501

* resigned 31 January 2013

Annual report on remuneration (subject to audit) continued

The figures in the single figure tables above are derived as follows:

Salary/fees – the amount of salary/fees received in the year, after any salary sacrifice arrangements for pension contributions.

Taxable benefits – the taxable value of benefits received during the year. These include fuel and private medical insurance.

Profit share – the amount of profit share earned in the year.

Sharesave – the value of the sharesave options granted is based on the fair value of the options at grant. On exercise the value is based on the gain made between the option price and the market value of the shares on the date of exercise.

Pension related benefits – the cash value of pension contributions received by the executive directors. This includes the Company's contribution into the group personal pension scheme (in the case of K D Rountree) and into T H F Kirby's self invested personal pension plan.

In addition, Mrs K Kirby (Lathbury) received £117,461 (2013: £73,620) during the year from the Group for her work as interim head of IT.

During 2013/14 there were no payments made for loss of office. There were also no payments made to past directors (2013: £nil).

CEO remuneration

M N Wells T H F Kirby
2010 2011 2012 2013* 2013 2014
£000 £000 £000 £000 £000 £000
Total remuneration 282 309 319 774 132 511
% of maximum profit share paid 100 - 48 - 54 -

*M N Wells resigned on 31 January 2013 and so all of his remuneration for 2012/13, including the payment for compensation for loss of office is included in this table.

Percentage change in CEO's remuneration

The table below shows how the percentage change in the CEO's salary in 2013 and 2014 compares with the percentage change in the average salary of all employees within the Group. The committee has selected the Group entire staff population (excluding the CEO) as these represent the most appropriate comparator.

CEO Wider workforce
Salary +28.5% +1.7%

Relative importance of spend on pay

The following table sets out the percentage change in dividends, pre-exceptional profit attributable to owners and employee remuneration for the year 1 June 2014, compared to the year ended 2 June 2013.

2013 2014 % change
Total staff costs 51,002 48,614 -4.7
Pre-exceptional profit attributable to owners 16,318 11,487 -29.6
Dividends 18,404 - n/a

Statement of voting at the last AGM

At the last AGM, votes on the remuneration report were cast as follows:

Votes
Votes for % of vote Votes against % of vote withheld
To approve the remuneration report 13,497,220 71.9% 3,950,793 21.1% 1,315,546

Implementation statement

A summary of the remuneration arrangements in 2013/14 and how the policy will be applied during 2014/15 is set out below:

Salary and fees

In May 2013 the committee undertook a benchmarking exercise performed by external remuneration advisers. This reviewed the salaries of the executive and non-executive directors in order to assess how they compared with prevailing market levels of remuneration. This review resulted in the increases in salary shown above as it was highlighted that executive and non-executive directors' salaries were below the market average for companies of a similar size and complexity as the Group.

The remuneration policy for the non-executive directors is determined by the board and is reviewed every year. Fees were externally benchmarked, as discussed above, taking account of the duties and responsibilities placed on the non-executive directors. The nonexecutive directors do not participate in the Group's sharesave scheme or profit share scheme nor do they receive any benefits or pension contributions.

REMUNERATION REPORT continued

Implementation statement continued

Profit share

The maximum profit share that is payable is £1,000 per person per year. The performance targets are based upon operating profit growth in the core business.

Sharesave

A further award of options will be made under the sharesave scheme during the year on the same basis as previous years.

Remuneration committee

The committee is appointed by the board and membership comprises N J Donaldson (chairman), C J Myatt and E O'Donnell (from 28 November 2013). The committee is responsible for setting the remuneration packages of the executive directors as well as approving their service contracts. The terms of reference are available on the investor relations website.

Advisers

In May 2013 the committee was assisted in its work by Innecto, a remuneration consultancy which was appointed by the Company in consultation with the committee. The committee assessed whether Innecto was independent in the provision of its advice and concluded that it was independent. The amount paid to Innecto during the 2013/14 year for their advice was £5,000.

Directors' interests in shares of the Company

The directors' interests (including their families) in the shares of the Company were as follows:

As at As at
1 June 2014 2 June 2013
ordinary shares ordinary shares
of 5p each of 5p each
Non Non
Beneficial beneficial Beneficial beneficial
T H F Kirby 2,108,650 25,385 2,106,009 25,385
K D Rountree 12,274 - 12,028 -
C J Myatt 66,500 - 66,500 -
N J Donaldson 20,000 - 20,000 -
E O'Donnell - - - -

Share options

Share options granted to the directors under the sharesave scheme were as follows:

Number as at Exercise dates Exercise
At 2 June 2013 Exercised 1 June 2014 Commencement Expiry price
K D Rountree 2,513 - 2,513 Nov-14 Apr-15 358p
T H F Kirby 2,641 (2,641) - Nov-13 Apr-14 340.7p

The options above were granted under the Games Workshop Group PLC 2005 Savings-Related Share Option Scheme which grants options at a 20% discount on the market price at grant. Participants save a fixed amount monthly for three years in order to fund the exercise of the option. At exercise an individual may choose to exercise their option or have their savings repaid to them. This scheme is open to all eligible employees and directors who satisfy a service qualification of at least three months. There are no performance targets associated with these options.

There were no other movements in directors' share options during the year. No other directors have been granted share options in the shares of the Company.

On 4 July 2014, K D Rountree acquired 396 of the Company's shares under the Company's dividend reinvestment plan. This is the only movement in directors' interests in shares of the Company between 1 June 2014 and the date of this report.

Performance graph

The graph below represents the comparative total shareholder return performance of the Company against that of the index of the FTSE small cap companies during the previous five years. The index of the FTSE small cap companies has been used because the constituents of this index most appropriately reflect the Company's size when compared to alternative indices.

On behalf of the board

N J Donaldson Chairman Remuneration and nomination committee 28 July 2014

DIRECTORS' RESPONSIBILITIES STATEMENT

The directors are responsible for preparing the annual report, the remuneration report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

In preparing these financial statements, the directors are required to:

  • select suitable accounting policies and then apply them consistently
  • make judgements and accounting estimates that are reasonable and prudent
  • state whether applicable IFRS as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements
  • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements and the remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The directors consider that the annual report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.

Each of the directors, whose names and functions are listed on page 27, confirms that, to the best of his/her knowledge:

  • the Group and Company financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company; and
  • the strategic report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

By order of the board

R F Tongue Company secretary 28 July 2014

COMPANY DIRECTORS AND ADVISERS

Directors

T H F Kirby, chairman and acting chief executive officer K D Rountree, chief operating officer C J Myatt, senior non-executive director N J Donaldson, non-executive director E O'Donnell, non-executive director

Company Secretary

R F Tongue

Registered office Willow Road, Lenton, Nottingham, NG7 2WS

Registered number

2670969

Financial advisers and stockbrokers Peel Hunt LLP, Moor House, 120 London Wall, London, EC2Y 5ET

Principal bankers Bank of Scotland, 2 nd Floor, 125 Colmore Row, Birmingham, B3 3SF

Chartered accountants and independent statutory auditors

PricewaterhouseCoopers LLP, Donington Court, Pegasus Business Park, Castle Donington, DE74 2UZ

Registrars

Equiniti Limited, Aspect House, Spencer Road, Lancing, BN99 6DA

Solicitors

Browne Jacobson, Victoria Square House, Victoria Square, Birmingham, B2 4BU

INDEPENDENT AUDITORS' REPORT

To the members of Games Workshop Group PLC

Report on the financial statements

Our opinion

In our opinion:

  • the financial statements, defined below, give a true and fair view of the state of the Group's and of the Company's affairs as at 1 June 2014 and of the Group's profit and the Group's and the Company's cash flows for the year then ended;
  • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union;
  • the Company financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
  • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements Article 4 of the IAS Regulation.

This opinion is to be read in the context of what we say in the remainder of this report.

What we have audited

The group financial statements and company financial statements (the 'financial statements'), which are prepared by Games Workshop Group PLC, comprise:

  • the Group and Company balance sheets as at 1 June 2014;
  • the consolidated income statement and the consolidated and Company statements of comprehensive income for the year then ended;
  • the consolidated and Company cash flow statements for the year then ended;
  • the consolidated and Company statements of changes in equity for the year then ended; and
  • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

Certain disclosures required by the financial reporting framework have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.

What an audit of financial statements involves

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ('ISAs (UK & Ireland)'). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

  • whether the accounting policies are appropriate to the Group's and the Company's circumstances and have been consistently applied and adequately disclosed;
  • the reasonableness of significant accounting estimates made by the directors; and
  • the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Overview of our audit approach

Materiality

We set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the group financial statements as a whole to be £850,000. This represents approximately 5% of operating profit before exceptional items. We consider this to be the key financial benchmark of the Group.

We agreed with the audit committee that we would report to them misstatements identified during our audit above £50,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Overview of the scope of the audit

The Group is a vertically integrated business and the group financial statements are a consolidation of 51 reporting units, comprising the Group's sales, manufacturing and distribution businesses and centralised functions.

In establishing the overall approach to the group audit, we determined the type of work that needed to be performed at the reporting units, and at the Group level, to give us the evidence we needed for our opinion on the consolidated financial statements as whole.

Areas of particular audit focus

In preparing the financial statements, the directors made a number of subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We primarily focused our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or areas of focus identified by our audit. We discussed these areas of focus with the audit committee. Their report on those matters that they considered to be significant issues in relation to the financial statements is set out on page 16.

Area of focus How the scope of our audit addressed the area of focus
Capitalisation of software and development costs • We tested capitalised product development and software costs
We focused on this area due to the significant level of costs which by agreeing them to source documentation, including invoices and
are capitalised in respect of both product development and timesheets.
computer software. There is a risk that such costs should not have • We obtained the latest forecasts in respect of projects to
been capitalised. confirm recoverability of the capitalised costs.
Further, there is a risk that costs that have been capitalised are • We evaluated management's assessment of useful economic
not supported by the future cash inflows expected to be lives.
generated. • We assessed future sales forecasts by evaluating historic
accuracy and applying that accuracy in sensitivity analysis.
Classification of expenditure as exceptional • We agreed items of expenditure classified as exceptional to
We focused on this area because the decision to classify items of supporting documentation to confirm that they were incurred in
expenditure as exceptional is inherently judgemental and is connection with the reorganisation.
considered material in the context of the Group's financial • We considered the appropriate classification as either
statements due to the presentation of underlying and non exceptional or non-exceptional based on the accounting policy set
underlying results on the face of the group income statement. out in note 2 to the financial statements.
Tax implications of the continental european reorganisation • We reviewed the underlying contracts to confirm the
We focused on this area as non-compete payments for trade appropriateness of the payments made.
(third party) sales made between reporting units in the european • We tested the recognition of the deferred tax position through
territory, result in a deferred tax position on consolidation. agreement of the appropriate accounting treatment of payments
made in the underlying reporting units.
• We agreed the rates used in the calculation of deferred tax to
the underlying tax rates enacted in the relevant territories.
Inventory valuation • We tested that the provision for obsolete inventory held is
The Group holds significant inventory. We focused on this area calculated in accordance with the Group policy.
because of the judgement in determining the inventory provision • We tested the future stock sales forecasts, by understanding the
and the inherent complexity in the elimination of intergroup profit process by which they were drawn up and how they were
held in inventory. challenged and stress-tested by management.
• We tested the assumptions around future sales forecasts by
assessing historic forecast accuracy and we tested the integrity of
the underlying calculations.
• We considered historic levels of inventory write downs and the
actual utilisation of previous provisions.
• We tested that the internally generated profit which results
from movement of inventory within the group has been
appropriately eliminated on consolidation.
Fraud in revenue recognition • We evaluated the relevant IT systems and internal controls
ISAs (UK & Ireland) presume there is a risk of fraud in revenue surrounding the recognition of revenue.
recognition because of the pressure management may feel to • We tested the reconciliations between the revenue systems
achieve planned results, as well as the significance of reported used by the Group and its financial ledgers and journal entries
revenue in the context of the financial statements. posted to revenue accounts to identify unusual or irregular items.
• We agreed revenue transactions to cash receipts or other
supporting documentation and assessed that revenue was
recognised in line with the revenue recognition policies detailed in
note 2 of the financial statements.

INDEPENDENT AUDITORS' REPORT continued

Fraud due to management override of internal controls
• We assessed the overall control environment of the Group,
ISAs (UK & Ireland) require that we consider this risk as a result of
including the arrangements for staff to highlight inappropriate
management's ability to override the internal controls in place in
actions.
the Group.
• We examined the significant accounting estimates and
judgements relevant to the financial statements for evidence of
bias by the directors that may represent a risk of material
misstatement or fraud.
• In addition, we tested manual journal entries based on certain
risk criteria, including size and nature.

Going concern

Under the Listing Rules we are required to review the directors' statement, set out on page 13, in relation to going concern. We have nothing to report having performed our review.

As noted in the directors' statement, the directors have concluded that it is appropriate to prepare the financial statements using the going concern basis of accounting. The going concern basis presumes that the Group and Company have adequate resources to remain in operation, and that the directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate.

However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group's and Company's ability to continue as a going concern.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion:

  • the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements;
  • the part of the remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and
  • the information given in the corporate governance report set out on pages 14 to 17 in the annual report with respect to internal control and risk management systems and about share capital structures is consistent with the financial statements.

Other matters on which we are required to report by exception

Adequacy of accounting records and information and explanations received

Under the Companies Act 2006 we are required to report to you if, in our opinion:

  • we have not received all the information and explanations we require for our audit; or
  • adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or
  • the company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Directors' remuneration

Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.

Corporate governance report

Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance statement has not been prepared by the parent company. We have no exceptions to report arising from this responsibility. Under the Listing Rules we are required to review the part of the corporate governance report relating to the Company's compliance with nine provisions of the UK Corporate Governance Code (the 'Code'). We have nothing to report having performed our review.

On page 26 of the annual report, as required by the Code provision C.1.1, the directors state that they consider the annual report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group's and Company's performance, business model and strategy. On page 16, as required by C.3.8 of the Code, the audit committee has set out the significant issues that it considered in relation to the financial statements, and how they were addressed. Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

  • the statement given by the directors is materially inconsistent with our knowledge of the Group and Company acquired in the course of performing our audit; or
  • the section of the annual report describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee.

We have no exceptions to report arising from this responsibility.

Other information in the annual report

Under ISAs (UK & Ireland) we are required to report to you if, in our opinion, information in the annual report is:

  • materially inconsistent with the information in the audited financial statements; or
  • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Company acquired in the course of performing our audit; or
  • is otherwise misleading.

We have no exceptions to report arising from this responsibility.

Responsibilities for the financial statements and the audit

Our responsibilities and those of the directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Mark Smith (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors East Midlands 28 July 2014

CONSOLIDATED INCOME STATEMENT

Total Restated**
Pre-exceptional Exceptional Year ended Year ended
items items* 1 June 2014 2 June 2013
Notes £000 £000 £000 £000
Revenue 3 123,501 - 123,501 134,597
Cost of sales (36,766) - (36,766) (36,772)
Gross profit 86,735 - 86,735 97,825
Operating expenses 4,5 (71,380) (4,500) (75,880) (77,596)
Other operating income - royalties receivable 1,442 - 1,442 1,025
Operating profit 3 16,797 (4,500) 12,297 21,254
Finance income 7 106 - 106 176
Finance costs 8 (7) - (7) (35)
Profit before taxation 9 16,896 (4,500) 12,396 21,395
Income tax expense 10 (5,409) 1,020 (4,389) (5,077)
Profit attributable to owners of the parent 28 11,487 (3,480) 8,007 16,318

Earnings per share for profit attributable to the owners of the parent during the period (expressed in pence per share):

Notes
Basic earnings per ordinary share 12 25.2p 51.5p
Diluted earnings per ordinary share 12 25.1p 51.2p
Basic earnings per ordinary share – pre-exceptional items 12 36.1p 51.5p
Diluted earnings per ordinary share – pre-exceptional items 12 36.0p 51.2p

STATEMENTS OF COMPREHENSIVE INCOME

Group Company
Year ended Year ended Year ended Year ended
1 June 2014 2 June 2013 1 June 2014 2 June 2013
£000 £000 £000 £000
Profit/(loss) attributable to owners of the parent 8,007 16,318 (1,798) 17,050
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations (1,233) 445 - -
Other comprehensive (expense)/income for the period (1,233) 445 - -
Total comprehensive income/(expense) attributable to owners of
the parent 6,774 16,763 (1,798) 17,050

As permitted by section 408 of the Companies Act 2006, the Company's income statement has not been included in these financial statements.

The notes on pages 36 to 59 are an integral part of these financial statements.

* See note 5 for a description of the exceptional item. There were no exceptional items in the prior year.

**Prior periods have been restated to reflect a change in the classification of translator costs within the income statement with effect from 3 June 2012 (see note 11).

BALANCE SHEETS

Group Company
1 June 2014 2 June 2013 1 June 2014 2 June 2013
Notes £000 £000 £000 £000
Non-current assets
Goodwill 14 1,433 1,433 - -
Other intangible assets 15 8,683 8,033 - -
Property, plant and equipment 16 21,027 20,604 - -
Investments in subsidiaries 17 - - 30,584 30,584
Trade and other receivables 20 1,408 1,638 3,900 3,900
Deferred tax assets 18 4,715 7,221 6 5
37,266 38,929 34,490 34,489
Current assets
Inventories 19 8,035 8,170 - -
Trade and other receivables 20 9,145 10,864 313 1,142
Current tax assets 636 524 - -
Cash and cash equivalents 21 17,550 13,931 266 5,727
35,366 33,489 579 6,869
Total assets 72,632 72,418 35,069 41,358
Current liabilities
Trade and other payables 23 (12,765) (19,637) (583) (5,801)
Current tax liabilities (587) (2,863) - -
Provisions 25 (3,009) (946) (10) (9)
(16,361) (23,446) (593) (5,810)
Net current assets/(liabilities) 19,005 10,043 (14) 1,059
Non-current liabilities
Other non-current liabilities 24 (360) (360) - -
Provisions 25 (517) (758) - -
(877) (1,118) - -
Net assets 55,394 47,854 34,476 35,548
Capital and reserves
Called up share capital 26 1,593 1,586 1,593 1,586
Share premium account 26 9,490 9,059 9,490 9,059
Other reserves 27 1,655 2,888 101 101
Retained earnings 28 42,656 34,321 23,292 24,802
Total equity 55,394 47,854 34,476 35,548

The notes on pages 36 to 59 are an integral part of these financial statements.

The financial statements on pages 32 to 59 were approved by the board of directors on 28 July 2014 and were signed on its behalf by:

T H F Kirby, Director

K D Rountree, Director

Registered number 2670969

CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY

Share Retained
Called up premium Other reserves earnings Total
share capital account (note 27) (note 28) equity
£000 £000 £000 £000 £000
At 3 June 2012 and 4 June 2012 1,579 8,737 2,443 35,848 48,607
Profit for the year to 2 June 2013 - - - 16,318 16,318
Exchange differences on translation of foreign operations - - 445 - 445
Total comprehensive income for the period - - 445 16,318 16,763
Transactions with owners:
Share-based payments - - - 286 286
Shares issued under employee sharesave scheme 7 322 - - 329
Deferred tax credit relating to share options - - - 41 41
Current tax credit relating to exercised share options - - - 232 232
Dividends to Company shareholders - - - (18,404) (18,404)
Total transactions with owners 7 322 - (17,845) (17,516)
At 2 June 2013 and 3 June 2013 1,586 9,059 2,888 34,321 47,854
Profit for the year to 1 June 2014 - - - 8,007 8,007
Exchange differences on translation of foreign operations - - (1,233) - (1,233)
Total comprehensive (expense)/income for the period - - (1,233) 8,007 6,774
Transactions with owners:
Share-based payments - - - 288 288
Shares issued under employee sharesave scheme (note 26) 7 431 - - 438
Deferred tax charge relating to share options - - - (34) (34)
Current tax credit relating to exercised share options - - - 74 74
Total transactions with owners 7 431 - 328 766
At 1 June 2014 1,593 9,490 1,655 42,656 55,394

COMPANY STATEMENT OF CHANGES IN TOTAL EQUITY

Share Capital
Called up premium redemption Retained Total
share capital account reserve earnings equity
£000 £000 £000 £000 £000
At 3 June 2012 and 4 June 2012 1,579 8,737 101 25,870 36,287
Profit for the year to 2 June 2013 - - - 17,050 17,050
Total comprehensive income for the period - - - 17,050 17,050
Transactions with owners:
Share-based payments - - - 286 286
Shares issued under employee sharesave scheme 7 322 - - 329
Dividends to Company shareholders - - - (18,404) (18,404)
Total transactions with owners 7 322 - (18,118) (17,789)
At 2 June 2013 and 3 June 2013 1,586 9,059 101 24,802 35,548
Profit for the year to 1 June 2014 - - - (1,798) (1,798)
Total comprehensive income for the period - - - (1,798) (1,798)
Transactions with owners:
Share-based payments - - - 288 288
Shares issued under employee sharesave scheme 7 431 - - 438
Total transactions with owners 7 431 - 288 726
At 1 June 2014 1,593 9,490 101 23,292 34,476

The notes on pages 36 to 59 are an integral part of these financial statements.

CONSOLIDATED AND COMPANYCASH FLOW STATEMENTS

Group Company
Year ended Year ended Year ended Year ended
1 June 2014 2 June 2013 1 June 2014 2 June 2013
Notes £000 £000 £000 £000
Cash flows from operating activities
Cash generated from operations 29 24,997 31,908 (887) 17,750
UK corporation tax paid (4,492) (4,291) - -
Overseas tax paid (229) (976) - -
Net cash from operating activities 20,276 26,641 (887) 17,750
Cash flows from investing activities
Purchases of property, plant and equipment (5,673) (5,361) - -
Proceeds on disposal of property, plant and equipment 29 54 113 - -
Purchases of other intangible assets (1,522) (3,398) - -
Expenditure on product development (4,652) (3,531) - -
Interest received 104 176 79 90
Net cash from investing activities (11,689) (12,001) 79 90
Cash flows from financing activities
Proceeds from issue of ordinary share capital 438 329 438 329
Interest paid - (13) - -
Dividends paid to Company shareholders (5,077) (18,381) (5,077) (18,381)
Net cash from financing activities (4,639) (18,065) (4,639) (18,052)
Net increase/(decrease) in cash and cash equivalents 3,948 (3,425) (5,447) (212)
Opening cash and cash equivalents 13,931 17,358 5,727 5,932
Effects of foreign exchange rates on cash and cash equivalents (329) (2) (14) 7
Closing cash and cash equivalents 21 17,550 13,931 266 5,727

The notes on pages 36 to 59 are an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

1. General information

Games Workshop Group PLC (the 'Company') and its subsidiaries (together the 'Group') designs and manufactures miniature figures and games and distributes these through its own network of Hobby centres, independent retailers and direct via the internet and mail order. The Group has manufacturing activities in the UK and sells mainly in Continental Europe, North America and Asia Pacific.

The Company is a public listed company, incorporated and domiciled in the United Kingdom. The address of its registered office is Willow Road, Lenton, Nottingham, NG7 2WS, United Kingdom.

The Company's ordinary share capital is listed on the London Stock Exchange.

2. Summary of significant accounting policies

The principal accounting policies applied in these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Basis of preparation

These financial statements are prepared under the going concern basis and in accordance with International Financial Reporting Standards (IFRSs), International Financial Reporting Interpretations Committee (IFRIC) interpretations and Standing Interpretations Committee (SIC) interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to those companies reporting under IFRSs.

The consolidated financial statements are prepared in accordance with the historical cost convention, except for the measurement of certain financial instruments to their fair value.

Basis of consolidation

The consolidated financial statements include the Company and its subsidiary undertakings drawn up for the years ended 1 June 2014 and 2 June 2013. Subsidiaries are entities over which the Group has the power to govern the financial and operating policies and are fully consolidated from the date on which control is transferred to the Group.

Inter-company transactions, balances and unrealised gains and losses on transactions between group companies are eliminated on consolidation. Accounting policies of subsidiaries are consistent with the policies adopted by the Group. The financial statements of all subsidiaries are prepared to the same reporting date as the parent Company with the exception of the financial statements of Games Workshop Good Hobby (Shanghai) Commercial Co. Ltd which are prepared to 31 December. The management accounts of Games Workshop Good Hobby (Shanghai) Commercial Co. Ltd, prepared to 1 June 2014 and 2 June 2013 have been used for consolidation purposes.

Goodwill

Goodwill arising on acquisition of subsidiaries represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment, or when an indicator of impairment arises, and is carried at cost less accumulated impairment losses. Provision is made for any impairment by comparing the value in use to the net carrying value. Goodwill is allocated to cash generating units for the purpose of impairment testing.

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.

Other intangible assets

Development costs

Costs incurred in respect of product design and development activities are recognised as intangible assets when they meet the criteria of IAS 38 'Intangible Assets' and are wholly attributable to specific projects. Product development costs recognised as intangible assets are amortised on a straight line basis over periods ranging between 1 and 48 months to match the expenditure incurred to the expected revenue generated from the subsequent product release.

Computer software

Acquired computer software licences and related development expenditure are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Computer software licences are held at cost and amortised on a straight line basis over the expected useful lives of the assets. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when they meet the criteria of IAS 38 'Intangible Assets'.

Other development expenditure that does not meet these criteria is recognised as an expense as incurred.

Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. The principal annual amortisation rates are:

% of cost
Core business systems computer software 15-33
Web store computer software 20
Other computer software 33-50

2. Summary of significant accounting policies continued

Property, plant and equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation and any provision for impairment. The cost of property, plant and equipment is their purchase cost, together with any incidental costs of acquisition.

Depreciation is calculated on a straight line basis over the expected useful economic lives of the assets' concerned to write down to the assets residual value and commences from the date the asset is available for use. The principal annual depreciation rates are:

% of cost
Freehold buildings 2-4
Plant and equipment and vehicles 15-33
Fixtures and fittings 20-25
Moulding tools 25

Leasehold improvements are depreciated over the shorter of the useful economic life of the asset or the period of the lease. These assets are included within fixtures and fittings. Freehold land is not depreciated.

Trade receivables

Trade receivables are recognised initially at fair value, which is typically the original invoice amount, and carried at amortised cost thereafter. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. The amount of the provision is recognised in the income statement immediately.

Leases

Operating leases

Leases in which a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The Group's commitment in respect of its Hobby centres is included within this category. Payments in respect of operating leases and any benefits received as an incentive to sign a lease, are charged or credited to the income statement on a straight line basis over the period of the entire lease term.

Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined using a standard costing method taking into account variances. In respect of finished goods, cost includes raw materials, direct labour, other direct costs and related production overheads based on a normal level of production. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Where necessary, provisions are made for obsolete, slow moving and defective inventories.

Foreign currency translation

The consolidated financial statements are presented in sterling, which is the Company's functional and presentation currency. Items included in the financial statements of each of the Group entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). Monetary assets and liabilities expressed in currencies that are not the functional currency are translated into the functional currency at rates of exchange ruling at the balance sheet date. The financial statements of overseas subsidiary companies prepared in functional currencies other than sterling are translated into sterling as follows:

  • Assets and liabilities are translated at the closing rate at the date of the balance sheet;
  • Income and expenses are translated at the average rate for the period;
  • All resulting exchange differences are recognised as a separate component of equity.

Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise deposits with banks and bank and cash balances, net of overdrafts.

Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Other employee benefits

Pension costs

The Group operates defined contribution schemes and a group personal pension plan. Pension contributions are charged to the income statement as they accrue. There are no further obligations to the Group once payment has been made.

Bonus and incentive plans

The costs of annual bonus schemes are charged to the income statement as they accrue.

Long service benefits

The Group operates a long service incentive scheme under which employees receive a one off additional holiday entitlement of two weeks when they reach 10 years of employment (10 Year Veterans). The costs of these benefits are accrued over the period of employment based on expected staff retention rates and the anticipated future employment costs discounted to present value.

NOTES TO THE FINANCIAL STATEMENTS continued

2. Summary of significant accounting policies continued

Investments

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

Revenue

Revenue, which excludes value added tax and sales between group companies, represents the invoiced value of goods supplied (net of trade discounts for sales to independent retailers). Revenue is recognised on dispatch of goods to the customer for sales via the global web store or mail order and for sales to independent retailers. This represents when the significant risks and rewards of ownership of the goods have transferred to the customer. For revenue earned through the Group's Hobby centres and for digital products, revenue is recognised at the point of sale. Revenue for magazine subscriptions is recognised on a straight line basis over the subscription period.

Revenue on goods sold to customers on a sale or return basis (which includes book sales) 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. Revenue on a sale or return basis represents no more than 3% of consolidated revenue (2013: no more than 3%).

Royalty income

Royalty income is recognised in the income statement when it can be reliably measured by reference to the underlying licensee performance, after allowing for expected returns and price protection claims, as notified to the Group by the licensee and following validation of the amounts receivable by the Group. Cash received as guarantees and advances are deferred on balance sheet whilst it is considered probable that future royalty earnings will at least equal the amounts received. Such amounts are recognised in the income statement at the point at which they are earned as royalties. In the event that it is no longer considered probable that future royalty earnings will at least equal the guarantees and advances received, the guarantee and advance payments are taken to the income statement on a straight line basis over the remaining term of the licence agreement.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive directors.

Taxation

The charge for current tax is based on the results for the period as adjusted for items which are non-assessable or disallowed. It is calculated using rates that have been enacted or substantively enacted by the balance sheet date.

Deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax is calculated at the rates that are expected to apply when the asset or liability is settled. Deferred tax is charged or credited in the income statement, except where it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Dividends

Dividend distributions are recognised in the financial statements in the period in which they are declared.

Impairment of assets

Assets are tested for impairment in accordance with IAS 36 'Impairment Of Assets'. For the purposes of assessing impairment, assets are grouped together at the lowest levels for which there are separately identifiable cash flows (cash-generating units – equivalent to the reportable segments within note 3). Discount rates reflecting the asset specific risks and the time value of money are used for the value in use calculation.

Provisions

Provisions are recognised in accordance with IAS 37 ' Provisions, Contingent Assets and Contingent Liabilities'.

Provisions are made for committed costs outstanding under onerous or vacant property leases and the estimated liability is discounted to its present value. Provisions are made for property dilapidations where a legal obligation exists and when the decision has been made to exit a property, or where the end of the lease commitment is imminent and a reliable estimate of the exit liability can be made. The estimated employee benefit liability arising from the 10 Year Veterans incentive scheme is classified within provisions. Amounts relating to employees who reach 10 years' service in more than one year are classified as non-current. Provisions are made for redundancy costs once the employees affected have a valid expectation that their roles will become redundant.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

2. Summary of significant accounting policies continued

Critical accounting estimates and judgements

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, including capitalised development costs and fixtures and fittings within loss making Hobby centres, 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 the provisions (including inventory, loss making Hobby centres, other property, bad debt and returns) and hence in setting the level of the required provisions.
  • management estimates and judgements are required in assessing the recognition of deferred tax assets, particularly in relation to the timing and amount of future profits.

Exceptional items

Costs which are both material and non-recurring, whose significance is sufficient to warrant separate disclosure in the financial statements, are referred to as exceptional items. These items are costs that have been incurred in relation to the continental european reorganisation.

New accounting standards

New accounting standards or interpretations effective in the current period which are relevant to the Group are a revision to IAS 1 'Presentation of financial statements', a revision to IAS 19 'Employee benefits', a new standard in IFRS 13 'fair value measurement' and an amendment to IFRS 7 on financial asset and liability offsetting. These have not had a material impact on the financial statements of the Group and Company and are unlikely to have a material impact in the future.

New standards, amendments to standards and interpretations which have been published but are not yet effective are not expected to have a significant impact on the Group or Company.

3. Segment information

The chief operating decision-maker has been identified as the executive directors. They review the Group's internal reporting in order to assess performance and allocate resources. Management has determined the segments based on these reports.

As Games Workshop is a vertically integrated business, management assess the performance of sales businesses and manufacturing and distribution businesses separately. The segment information reported to the executive directors is organised as follows:

  • Sales businesses. These businesses sell product to external customers, through the Group's network of Hobby centres, independent retailers and direct via the global web store. The sales businesses have been aggregated into segments where they sell products of a similar nature, have similar production processes, similar customers, similar distribution methods and are affected by similar economic factors. The segments are as follows:
  • UK. This sales business operates in the UK and Ireland.
  • Continental Europe. This combines the France, Germany, Italy, Spain and Northern Europe sales businesses.
  • North America. This combines the United States and Canada sales businesses.
  • Australia. This is the Australia sales business.
  • Export. This is the export sales business selling into emerging market territories.
  • Asia. This combines the Japan, China retail and Asia trade sales businesses.
  • Other. This includes the other operating segments reviewed by the chief operating decision-maker. These are the Forge World business, the Black Library business, digital sales and Warhammer World.
  • Product and Supply. This includes the design and manufacture of the products and incorporates production facilities in the UK and, until March 2013, in North America.
  • Logistics and stock management. This represents the warehousing and distribution activities needed to supply product to the sales businesses and includes facilities in the UK, Australia and North America.
  • Licensing costs. These are the costs of running the licensing department.
  • Service centre costs. Service centres are established in the UK and in North America to provide support services (IT, accounting, payroll, personnel, supplier development, legal and customer services) to activities across the Group.
  • Web costs. These are the costs associated with the running of the Games Workshop global web store.
  • Central costs. These include the Company's overheads, head office site costs and the costs of running the Games Workshop Academy.
  • Profit in stock. This includes adjustments for profit in stock arising from inter-segment sales.
  • Royalty income. This is royalty income earned from third party licensees.

NOTES TO THE FINANCIAL STATEMENTS continued

3. Segment information continued

The chief operating decision-maker assesses the performance of each business based on operating profit, excluding share option charges recognised under IFRS 2, 'Share-based payment' and charges in respect of the Group's profit share scheme. This has been reconciled to the Group's total profit before taxation below.

The segment information reported to the executive directors for the year ended 1 June 2014 is as follows:

External revenue Internal revenue Total
Year ended Year ended Year ended Year ended Year ended Year ended
1 June 2014 2 June 2013 1 June 2014 2 June 2013 1 June 2014 2 June 2013
£000 £000 £000 £000 £000 £000
Sales businesses
UK 28,535 30,922 - - 28,535 30,922
Continental Europe 35,739 39,452 - - 35,739 39,452
North America 32,652 36,688 - - 32,652 36,688
Australia 8,633 10,943 - - 8,633 10,943
Export 1,785 1,741 - - 1,785 1,741
Asia 1,677 1,854 - - 1,677 1,854
All other sales businesses 14,480 12,997 1,316 1,719 15,796 14,716
Other segments
Product and Supply - - 57,428 67,062 57,428 67,062
Total 123,501 134,597 58,744 68,781 182,245 203,378
Intra-group sales eliminations - - (58,744) (68,781) (58,744) (68,781)
Total revenue 123,501 134,597 - - 123,501 134,597

Segment revenue and segment profit include transactions between business segments; these transactions are eliminated on consolidation. Sales between segments are carried out at arm's length. The revenue from external parties reported to the executive directors is measured in a manner consistent with that in the income statement.

Total segment operating profit is as follows and is reconciled to profit before taxation below:

Restated*
Year ended Year ended
1 June 2014 2 June 2013
£000 £000
Operating profit
Sales businesses
UK 2,244 5,227
Continental Europe 4,790 5,218
North America 3,720 3,336
Australia 557 756
Export 581 457
Asia 223 155
All other sales businesses 7,403 6,554
Other segments
Product and Supply 18,930 27,824
Total segment core business operating profit 38,448 49,527
Logistics and stock management (10,138) (10,980)
Licensing costs (372) (321)
Service centre costs (9,773) (9,391)
Web costs (2,324) (1,673)
Central costs (5,402) (5,610)
Profit in stock 704 51
Share-based payment charge (288) (286)
Profit share scheme charge - (1,088)
Total group core business operating profit 10,855 20,229
Royalty income 1,442 1,025
Total group operating profit 12,297 21,254
Finance income 106 176
Finance costs (7) (35)
Profit before taxation 12,396 21,395

3. Segment information continued

Costs of £928,000 for the year ended 2 June 2013 relating to finance, IT and personnel teams based in Australia have been restated since the last annual report into Service centre costs rather than being shown in Product and Supply. This reflects the current management structure in place.

Costs of £529,000 for the year ended 2 June 2013 relating to european language translation costs have been restated since the last annual report into Product and Supply rather than being shown in Continental Europe, as well as being reclassified from operating expenses to cost of sales to reflect a change in the classification of translation costs with effect from 3 June 2012 (see note 11). This reflects the current management structure in place.

Exceptional costs of £4,500,000 for the year ended 1 June 2014 are included within Product and Supply (£4,060,000), Continental Europe (£115,000) and Central costs (£325,000).

Operating profit as reported above includes impairment, depreciation and amortisation charges as follows:

Depreciation and
Impairment amortisation
Year ended Year ended Year ended Year ended
2 June 2013
1 June 2014 2 June 2013 1 June 2014
£000 £000 £000 £000
Sales businesses
UK (12) 3 332 331
Continental Europe (9) 10 407 477
North America (8) (77) 404 468
Australia - (5) 165 188
Asia - - 21 35
All other sales businesses - - 1,304 1,070
Other segments
Product and Supply (175) - 6,449 5,445
Total segment charges (204) (69) 9,082 8,014
Logistics and stock management - - 455 584
Web costs - - 340 379
Total group (credit)/charge (204) (69) 9,877 8,977

An impairment reversal of £29,000 (2013: £69,000) relates to fixtures and fittings within loss making retail stores previously written down to estimated value in use for which impairment is no longer required. An impairment reversal of £175,000 (2013: £nil) relates to the previous write down of the warehouse floor. All items have been credited in selling costs in the current period.

Operating expenses by segment are regularly reviewed by the executive directors and are provided below:

Restated*
Year ended Year ended
1 June 2014 2 June 2013
£000 £000
Operating expenses
Sales businesses
UK 13,651 13,767
Continental Europe 17,240 19,379
North America 12,507 13,792
Australia 4,057 5,449
Export 288 260
Asia 865 964
All other sales businesses 1,942 1,892
Other segments
Product and Supply 7,415 3,664
Total segment operating expenses 57,965 59,167
Logistics and stock management (9) 131
Licensing costs 374 321
Service centre costs 9,775 9,391
Web costs 1,882 1,775
Central costs 5,605 5,437
Share-based payment charge 288 286
Profit share scheme charge - 1,088
Total group operating expenses 75,880 77,596

*Prior periods have been restated to reflect a change in the classification of translator costs within the income statement with effect from 3 June 2012 (see note 11).

NOTES TO THE FINANCIAL STATEMENTS continued

3. Segment information continued

External revenue analysed by customer geographical location is as follows:

Year ended Year ended
1 June 2014 2 June 2013
£000 £000
UK 34,406 34,316
Continental Europe 39,673 43,519
North America 36,776 40,693
Asia Pacific 11,229 13,979
Rest of the World 1,417 2,090
123,501 134,597

The Group is not reliant on any one individual customer.

Non-current assets (excluding deferred tax assets) are located in the following countries:

2014 2013
£000 £000
UK 28,930 27,896
All other countries 3,621 3,812
Total non-current assets (excluding deferred tax assets) 32,551 31,708

Tangible and intangible asset additions included within the UK were £10,155,000 (2013: £11,292,000) and all other countries were £1,552,000 (2013: £970,000).

Other non-cash charges and significant costs included in operating profit are as follows:

Redundancy costs and
Net charge/(credit) to Impairment/(reversal of
compensation for loss of
Net charge/(credit) to
inventory provisions impairment) of receivables office property provisions
Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended
1 June 2014 2 June 2013 1 June 2014 2 June 2013 1 June 2014 2 June 2013 1 June 2014 2 June 2013
£000 £000 £000 £000 £000 £000 £000 £000
Sales businesses
UK 4 99 (90) 88 49 134 3 50
Continental Europe - - 70 89 443 453 7 44
North America 63 65 32 16 390 57 106 38
Australia - (1) 15 7 71 75 (7) (37)
Asia (2) (5) - - 38 - - -
All other sales businesses - - 110 79 55 5 - -
Other segments
Product and Supply 646 1,124 - - 3,006 346 - (58)
Total segment expense 711 1,282 137 279 4,052 1,070 109 37
Logistics and stock management - - - - 25 18 - -
Licensing costs - - - - 14 - -
Service centre costs - - - - 51 72 - -
Web costs - - 38 59 6 - - -
Central costs - - - - 47 865 - -
Total group expense 711 1,282 175 338 4,195 2,025 109 37

Asset and liability information is not reported to the chief operating decision-maker on a segment basis and therefore has not been disclosed.

4. Operating expenses – pre-exceptional items

Restated*
Year ended Year ended
1 June 2014 2 June 2013
£000 £000
Selling costs 43,193 47,725
Administrative expenses 28,187 29,871
71,380 77,596

*Prior periods have been restated to reflect a change in the classification of translator costs within the income statement with effect from 3 June 2012 (see note 11).

5. Exceptional items

The exceptional items relate to the continental european reorganisation announced in January 2014. As part of this reorganisation, £2,987,000 has been incurred in redundancy and severance costs, £608,000 in closing local country head offices and £905,000 in professional fees and other costs.

6. Directors and employees

Group Company
Year ended Year ended Year ended Year ended
1 June 2014 2 June 2013 1 June 2014 2 June 2013
£000 £000 £000 £000
Total directors' and employees' costs:
Wages and salaries 41,809 43,888 1,487 1,522
Social security costs 4,867 5,272 190 183
Other pension costs 1,650 1,556 115 109
Share-based payment 288 286 - -
48,614 51,002 1,792 1,814

Details of capitalised salary costs, included in the above, are provided in note 15. Redundancy costs and compensation for loss of office, not included in the above, are provided in note 9.

Key management compensation

The remuneration of the directors and other key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'.

Year ended Year ended
1 June 2014 2 June 2013
£000 £000
Short-term employee benefits 972 1,157
Post-employment benefits 98 148
Share-based payment 2 4
Other long term employee benefits 4 17
Termination benefits - 569
1,076 1,895

Further information relating to directors' emoluments, shareholdings and share options is disclosed in the remuneration report on pages 22 to 24. Key management are the directors of the Company and the head of Product and Supply. In the prior year key management also included the head of sales.

Employee numbers Group
Year ended Year ended
Monthly average number of employees 1 June 2014 2 June 2013
(including executive directors) by activity: Number Number
Design and development 203 145
Production 150 168
Selling:
- Full time 844 916
- Part time 191 232
Administration 365 414
1,753 1,875

The monthly average number of employees for the Company was 11 (2013: 13).

7. Finance income

Year ended Year ended
1 June 2014 2 June 2013
£000 £000
Interest income:
- On cash and cash equivalents 105 175
- Other interest income receivable 1 1
106 176
8.
Finance costs
Year ended Year ended
1 June 2014 2 June 2013
£000 £000
Interest expense:
- Unwinding of discount on provisions 3 12
- Other interest payable - 14
- Net foreign exchange losses on financing activities 4 9
7 35

NOTES TO THE FINANCIAL STATEMENTS continued

9. Profit before taxation

Year ended Year ended
1 June 2014 2 June 2013
£000 £000
Profit before taxation is stated after charging/(crediting):
Depreciation:
- Owned property, plant and equipment 4,907 5,099
- Reversal of impairment of property, plant and equipment (204) (69)
Amortisation:
- Owned computer software 849 1,178
- Development costs 4,121 2,700
Non-capitalised development costs 1,831 2,087
Staff costs (excluding capitalised salary costs shown in note 15 and non-capitalised development costs above) 43,585 45,997
Impairment of trade receivables 175 338
Operating leases:
- Hobby centres 8,474 9,945
- Other property 860 920
- Plant and equipment 140 105
- Other 149 210
Cost of inventories included in cost of sales 19,417 21,381
Net inventory provision creation (note 19) 711 1,282
Loss/(profit) on disposal of property, plant and equipment 370 (7)
Loss on disposal of intangible assets 333 403
Redundancy costs and compensation for loss of office 4,195 2,025
Net charge to property provisions including closed or loss making Hobby centres (note 25) 109 37
Auditors' remuneration and services provided
Services provided by the Group's auditors and network firms are analysed as follows:
Year ended
1 June 2014
Year ended
2 June 2013
£000 £000
Audit services
Audit of the Group and Company's financial statements 61 61
Other services
The audit of the Company's subsidiaries pursuant to legislation 141 143
All other services 10 10
Total services provided 212 214

10. Income tax expense

Total
Pre-exceptional Exceptional Year ended Year ended
items items 1 June 2014 2 June 2013
£000 £000 £000 £000
Current UK taxation:
UK corporation tax on profits for the period 2,956 (1,051) 1,905 4,200
Over provision in respect of prior periods (54) - (54) (104)
2,902 (1,051) 1,851 4,096
Current overseas taxation:
Overseas corporation tax on profits for the period 908 - 908 802
Over provision in respect of prior periods (360) - (360) (107)
Total current taxation 3,450 (1,051) 2,399 4,791
Deferred taxation:
Origination and reversal of timing differences 1,645 31 1,676 192
Under provision in respect of prior periods 314 - 314 94
Tax expense recognised in the income statement 5,409 (1,020) 4,389 5,077
Current tax credit relating to sharesave scheme (74) - (74) (232)
Deferred tax charge/(credit) relating to sharesave scheme 34 - 34 (41)
Credit taken directly to equity (40) - (40) (273)

The tax on the Group's profit before taxation differs from the standard rate of corporation tax in the UK as follows:

Year ended Year ended
1 June 2014 2 June 2013
£000 £000
Profit before taxation 12,396 21,395
Profit before taxation multiplied by the standard rate of corporation tax in the UK of 22.67% (2013: 23.83%) 2,810 5,098
Effects of:
Items not deductible/(assessable) for tax purposes 662 (384)
Movement in deferred tax not recognised (10) -
Higher tax rates on overseas earnings 1,027 480
Adjustments to tax charge in respect of prior periods (100) (117)
Total tax charge for the period 4,389 5,077

10. Income tax expense continued

Included within the £4,389,000 disclosed above, £3,000 relates to changes in rates of UK corporation tax in the year. The Finance Act 2012 included legislation to reduce the main rate of corporation tax from 24% to 23% from 1 April 2013. Further reductions were included in the Finance Act 2013, which have been substantively enacted, to reduce the rate to 21% from 1 April 2014 and 20% from 1 April 2015. The overall effect of these further changes, if applied to the deferred tax balance at the balance sheet date, would be to further reduce the deferred tax asset by an additional £16,000.

11. Change of accounting policy

Since the last annual report the Group has changed the application of its accounting policy for the classification of translator costs within the income statement. Previously translator costs were recognised in the income statement within operating expenses. Under the new policy, translator costs are recognised in the income statement within cost of sales. Comparative amounts have been restated for the prior period as if the application of the new accounting policy had always been applied in accordance with IAS 1 (revised), 'Presentation of financial statements'. The Group believes that the new policy results in a fairer reflection of the nature of translator costs in the Group income statement.

There is no impact on assets or liabilities reported at either 2 June 2013 or 3 June 2012, hence no balance sheet has been presented as at 3 June 2012.

The change in accounting policy has resulted in an increase in cost of sales and a decrease in operating expenses of £529,000 in the income statement for the year to 2 June 2013.

The impact of the change in policy for the current financial period is an increase in cost of sales and a decrease in operating expenses of £717,000 in the income statement.

12. Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to owners of the parent by the weighted average number of ordinary shares in issue during the period.

Year ended
1 June 2014 2 June 2013
Profit attributable to owners of the parent (£000) 8,007 16,318
Weighted average number of ordinary shares in issue (thousands) 31,805 31,671
Basic earnings per share (pence per share) 25.2 51.5

Basic earnings per share - pre-exceptional items

Basic earnings per share - pre-exceptional items is calculated by dividing the profit attributable to owners of the parent, before exceptional items, by the weighted average number of ordinary shares in issue during the period.

Year ended Year ended
1 June 2014 2 June 2013
Pre-exceptional profit attributable to owners of the parent (£000) 11,487 16,318
Weighted average number of ordinary shares in issue (thousands) 31,805 31,671
Basic earnings per share – pre-exceptional items (pence per share) 36.1 51.5

Diluted earnings per share

The calculation of diluted earnings per share has been based on the profit attributable to owners of the parent and the weighted average number of shares in issue throughout the period, adjusted for the dilutive effect of share options outstanding at the period end.

Year ended Year ended
1 June 2014 2 June 2013
Profit attributable to owners of the parent (£000)
8,007
16,318
Weighted average number of ordinary shares in issue (thousands)
31,805
31,671
Adjustment for share options (thousands)
129
192
Weighted average number of ordinary shares for diluted earnings per share (thousands)
31,934
31,863
Diluted earnings per share (pence per share)
25.1
51.2

Diluted earnings per share - pre-exceptional items

The calculation of diluted earnings per share - pre-exceptional items has been based on the profit attributable to owners of the parent, before exceptional items, and the weighted average number of shares in issue throughout the period, adjusted for the dilutive effect of share options outstanding at the period end.

Year ended Year ended
1 June 2014 2 June 2013
Pre-exceptional profit attributable to owners of the parent (£000) 11,487 16,318
Weighted average number of ordinary shares in issue (thousands) 31,805 31,671
Adjustment for share options (thousands) 129 192
Weighted average number of ordinary shares for diluted earnings per share (thousands) 31,934 31,863
Diluted earnings per share – pre-exceptional items (pence per share) 36.0 51.2

NOTES TO THE FINANCIAL STATEMENTS continued

13. Dividends per share

A dividend of 18 pence per share, amounting to a total dividend of £5,711,000 and a dividend of 24 pence per share, amounting to a total dividend of £7,616,000 were declared and paid during the year ended 2 June 2013. A further dividend of 16 pence per share, amounting to a total dividend of £5,077,000 was declared during the year ended 2 June 2013 and paid during the current period.

After the balance sheet date, a dividend of 20 pence per share, amounting to a total dividend of £6,372,000 was declared and it was paid on 4 July 2014.

14. Goodwill

Group £000
Cost
At 2 June 2013 and 3 June 2013 2,355
Additions 54
Exchange differences (1)
At 1 June 2014 2,408
Accumulated amortisation
At 2 June 2013 and 3 June 2013 (922)
Impairment charge (54)
Exchange differences 1
At 1 June 2014 (975)
Net book value at beginning of period and end of period 1,433

The Company had no goodwill at either period end.

Impairment tests for goodwill

The goodwill arose on the acquisition of TJA Tooling Limited and Triple K Plastic Injection Moulding Limited.

During the year EURL Games Workshop entered into an agreement to purchase the lease associated to Heroic Diffusion SARL. Under IFRS this amounted to the purchase of a business. The cost of €64,000 was fully impaired during the year to reflect the carrying value of the business to the Group.

In accordance with the requirements of IAS 36 'Impairment of Assets' the Group completed a review of the carrying value of goodwill as at each period end. The impairment review was performed to ensure that the carrying value of the Group's assets are stated at no more than their recoverable amount, being the higher of fair value less costs to sell and value in use. The key assumptions for the recoverable amount of the goodwill are the long-term growth rate and the discount rate. The long-term growth rate used is purely for the impairment testing of goodwill under IAS 36 'Impairment of Assets' and does not reflect the long-term planning assumptions used by the Group for any other assessments.

In determining the value in use, the calculations use cash flow projections for a period no greater than five years based on plans approved by management and, for the Group's cash-generating unit concerned, assumes a long term growth rate no higher than 2% (2013: 2%). The estimated future cash flows expected to arise from the continuing use of the assets are calculated using a pre-tax discount rate of 10% (2013: 10.25%).

Management reviewed the planned sales growth and gross margin on the investment in future product releases and initiatives currently being undertaken, to deliver the expected future performance.

Goodwill is allocated to the Group's cash-generating units (CGUs) for impairment testing. All of the current goodwill arises in the Product and Supply segment. Sensitivity analysis has not been disclosed in these financial statements since management consider that there is no reasonably possible change in the key assumptions that would cause the carrying value of goodwill to fall below its recoverable amount.

15. Other intangible assets

Computer Development
software costs Total
Group £000 £000 £000
Cost
At 3 June 2012 and 4 June 2012 10,905 21,205 32,110
Additions 3,605 3,531 7,136
Exchange differences 58 - 58
Disposals (1,617) (2,722) (4,339)
At 2 June 2013 and 3 June 2013 12,951 22,014 34,965
Additions 1,316 4,652 5,968
Exchange differences (247) - (247)
Disposals (4,395) (1,754) (6,149)
At 1 June 2014 9,625 24,912 34,537
Accumulated amortisation
At 3 June 2012 and 4 June 2012 (8,041) (18,892) (26,933)
Amortisation charge (1,178) (2,700) (3,878)
Exchange differences (57) - (57)
Disposals 1,214 2,722 3,936
At 2 June 2013 and 3 June 2013 (8,062) (18,870) (26,932)
Amortisation charge (849) (4,121) (4,970)
Exchange differences 232 - 232
Disposals 4,062 1,754 5,816
At 1 June 2014 (4,617) (21,237) (25,854)
Net book amount
At 2 June 2013 4,889 3,144 8,033
At 1 June 2014 5,008 3,675 8,683

Amortisation of £4,394,000 (2013: £2,949,000) has been charged in cost of sales and £576,000 (2013: £929,000) in operating expenses.

The net book amount of internally generated intangible assets is £4,203,000 (2013: £3,561,000) and acquired intangible assets is £4,480,000 (2013: £4,472,000). All development costs are internally generated and £3,004,000 (2013: £2,569,000) is capitalised salary costs.

Salary costs of £195,000 (2013: £349,000) were capitalised during the period as part of computer software.

Assets in the course of development, and not amortised, amount to £189,000 (2013: £3,142,000). In both years these were included in computer software. The current year assets relate to trade CRM modules, and in the prior year related to the new web store which was launched in April 2014.

The Company had no other intangible assets at either period end.

NOTES TO THE FINANCIAL STATEMENTS continued

16. Property, plant and equipment

Freehold Plant and Fixtures
land and equipment and Moulding
buildings and vehicles fittings tools Total
Group £000 £000 £000 £000 £000
Cost
At 3 June 2012 and 4 June 2012 14,763 19,428 21,607 25,209 81,007
Additions 7 1,556 1,472 2,091 5,126
Exchange differences - 110 424 (13) 521
Disposals - (2,398) (2,007) (1,032) (5,437)
At 2 June 2013 and 3 June 2013 14,770 18,696 21,496 26,255 81,217
Additions 246 1,701 1,548 2,244 5,739
Exchange differences - (345) (972) (6) (1,323)
Disposals (210) (3,757) (3,265) (2,295) (9,527)
At 1 June 2014 14,806 16,295 18,807 26,198 76,106
Accumulated depreciation
At 3 June 2012 and 4 June 2012 (4,443) (15,621) (19,213) (21,163) (60,440)
Charge for the period (265) (1,702) (1,308) (1,824) (5,099)
Exchange differences - (100) (387) 13 (474)
Impairment - - 69 - 69
Disposals - 2,365 1,996 970 5,331
At 2 June 2013 and 3 June 2013 (4,708) (15,058) (18,843) (22,004) (60,613)
Charge for the period (243) (1,557) (1,262) (1,845) (4,907)
Exchange differences - 294 839 1 1,134
Impairment 175 - 29 - 204
Disposals - 3,632 3,180 2,291 9,103
At 1 June 2014 (4,776) (12,689) (16,057) (21,557) (55,079)
Net book amount
At 2 June 2013 10,062 3,638 2,653 4,251 20,604
At 1 June 2014 10,030 3,606 2,750 4,641 21,027

Depreciation expense of £2,917,000 (2013: £3,292,000) has been charged in cost of sales, £1,226,000 (2013: £1,446,000) in selling costs and £764,000 (2013: £361,000) in administrative expenses.

Freehold land amounting to £3,836,000 (2013: £3,836,000) has not been depreciated.

Assets in the course of construction, and not depreciated, amount to £943,000 (2013: £140,000). £500,000 (2013: £140,000) of these are included in moulding tools, £327,000 (2013: £nil) is included in plant and equipment and vehicles, £90,000 (2013: £nil) is included in freehold land and buildings, and £26,000 (2013: £nil) is included in fixtures and fittings above.

An impairment reversal of £29,000 (2013: £69,000) relates to fixtures and fittings within loss making retail stores previously written down to estimated value in use for which impairment was no longer required. This has been credited or charged in selling costs in both periods. £175,000 (2013: £nil) relates to the previous write down of the warehouse floor. This has been credited in selling costs in the current period.

The Company held no property, plant and equipment at either period end.

17. Investments in subsidiaries

2014 2013
Company £000 £000
Shares in group undertakings – cost
Beginning of period and end of period 30,584 30,584

Investments in group undertakings are stated at cost less any provision for impairment.

The directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. A list of principal subsidiary undertakings is given below.

Interests in group undertakings

The following information relates to those subsidiary undertakings whose results or financial position, in the opinion of the directors, principally affect the Group:

Proportion of nominal value
of issued shares held by:
Country of
incorporation Description of Subsidiary
Name of undertaking or registration shares held Company Company Principal business activity
Games Workshop Limited England and £1 ordinary 100% Manufacturer, distributor and
Wales retailer of games and miniatures
Games Workshop Retail Inc. United States \$1 common 100% Distributor and retailer of games
of America stock and miniatures
Games Workshop (Queen Street) Canada Can \$1 100% Distributor and retailer of games
Limited 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
Games Workshop International Limited England and £1 ordinary 100% Holding company for overseas
Wales subsidiary companies
Games Workshop US Limited England and £1 ordinary 100% Holding company for US subsidiary
Wales companies
Games Workshop US (Holdings) Limited England and £1 ordinary 100% Intermediary holding company for US
Wales subsidiary companies
Games Workshop Good Hobby China Owners capital 100% Retailer of games and miniatures
(Shanghai) Commercial Co. Ltd

All of the above entities are included in the consolidated accounts for the Group and 100% of the voting rights of all entities is held.

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

The directors consider the value of the investments is supported by the underlying assets of the relevant subsidiary.

NOTES TO THE FINANCIAL STATEMENTS continued

18. Deferred tax

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority. The amounts are as follows:

Group Company
2014 2013 2014 2013
£000 £000 £000 £000
Deferred tax assets:
- deferred tax asset to be recovered after more than 12 months 2,227 2,704 2 2
- deferred tax asset to be recovered within 12 months 2,488 4,517 4 3
4,715 7,221 6 5
The gross movement on the deferred tax account is as follows: Group Company
2014 2013 2014 2013
£000 £000 £000 £000
Beginning of period 7,221 7,335 5 6
Exchange differences (482) 131 - -
Income statement (charge)/credit (1,990) (286) 1 (1)
(Charged)/credited directly to retained earnings (34) 41 - -
End of period 4,715 7,221 6 5

Analysis of the movement in deferred tax assets and liabilities is as follows:

Losses
Accelerated Development available
depreciation costs for offset Other Total
Group £000 £000 £000 £000 £000
At 3 June 2012 and 4 June 2012 2,179 (555) 3,622 2,089 7,335
(Charged)/credited to the income statement (197) (168) (284) 363 (286)
Credited to equity - - - 41 41
Exchange differences 43 - 69 19 131
At 2 June 2013 and 3 June 2013 2,025 (723) 3,407 2,512 7,221
Charged to the income statement (442) (49) (895) (604) (1,990)
Charged to equity - - - (34) (34)
Exchange differences (104) - (285) (93) (482)
At 1 June 2014 1,479 (772) 2,227 1,781 4,715

Other deferred tax assets include deferred tax on adjustments for profit in stock arising from intra-group sales of £921,000 (2013: £1,480,000).

Deferred tax assets are recognised in respect of tax losses and temporary differences to the extent that the realisation of the related tax benefit through future taxable profits is probable. This is based on a review of the track record of profitability in the country concerned. There was no unrecognised deferred tax at 2 June 2013 or 1 June 2014 in either the Group or the Company.

The Group did not obtain a current tax benefit from previously unrecognised tax losses in either of the periods presented.

Accelerated
depreciation Other Total
Company £000 £000 £000
At 3 June 2012 and 4 June 2012 2 4 6
Charged to the income statement - (1) (1)
At 2 June 2013 and 3 June 2013 2 3 5
Credited to the income statement - 1 1
At 1 June 2014 2 4 6

19. Inventories

2014 2013
Group £000 £000
Raw materials 182 534
Work in progress 213 594
Finished goods and goods for resale 7,640 7,042
8,035 8,170

The Group holds no inventories at fair value less costs to sell.

During the period, the Group utilised an inventory provision of £1,175,000 (2013: £935,000) and £711,000 (2013: £1,282,000) has been charged to the income statement.

The Company holds no inventories at either period end.

20. Trade and other receivables

Group Company
2014 2013 2014 2013
£000 £000 £000 £000
Trade receivables 4,806 6,555 - -
Less provision for impairment of receivables (370) (416) - -
Trade receivables - net 4,436 6,139 - -
Prepayments and accrued income 4,361 4,427 44 35
Other receivables 1,756 1,936 16 -
Receivables from related parties - - 253 1,107
Loans to related parties - - 3,900 3,900
Total trade and other receivables 10,553 12,502 4,213 5,042
Non-current receivables:
Prepayments and accrued income 177 205 - -
Other receivables 1,231 1,433 - -
Loans to related parties - - 3,900 3,900
Non-current portion 1,408 1,638 3,900 3,900
Current portion 9,145 10,864 313 1,142

Trade receivables are recorded at amortised cost, reduced by estimated allowances for doubtful debts. The fair value of trade and other receivables does not differ materially from the book value.

The effective interest rate on non-current loans to related parties is charged at LIBOR plus 1% in both periods.

There is no significant concentration of credit risk with respect to trade receivables as the Group has a large number of customers which are internationally dispersed.

The maximum exposure to credit risk at the balance sheet date is the carrying value of each class of asset above. The Group does not hold any collateral over these balances.

All non-current receivables are due within five years of the balance sheet date.

Trade receivables that are more than three months past due are considered to be impaired unless a payment plan has been agreed with the customer and is being adhered to. Trade receivables that are less than three months past due are not considered impaired unless amounts are specifically identified as irrecoverable. The ageing analysis of the Group's past due trade receivables is as follows:

2014 2013
Not impaired Impaired Total Impaired Total
£000 £000 £000 £000 £000 £000
Up to 3 months past due 264 72 336 350 63 413
3 to 12 months past due 2 152 154 135 255 390
Over 12 months past due 35 30 65 - 62 62
301 254 555 485 380 865

In addition to the above, current debt of £116,000 (2013: £36,000) has been impaired.

NOTES TO THE FINANCIAL STATEMENTS continued

20. Trade and other receivables continued

Provision for impairment of receivables

Movements on the provision for impairment of trade receivables are as follows:

Group £000
At 3 June 2012 and 4 June 2012 684
Charge for the period 362
Unused amounts reversed (24)
Receivables written off during the period as uncollectible (606)
At 2 June 2013 and 3 June 2013 416
Charge for the period 189
Unused amounts reversed (14)
Receivables written off during the period as uncollectible (221)
At 1 June 2014 370

The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:

Total trade and other receivables 10,553 12,502
Other currencies 1,400 1,742
US dollar 1,781 2,418
Euro 2,714 3,507
Sterling 4,658 4,835
£000 £000
2014 2013

21. Cash and cash equivalents

Group Company
2014 2013 2014
£000
2013
£000
£000 £000
Cash at bank and in hand 16,432 13,019 266 5,727
Short-term bank deposits 1,118 912 - -
Cash and cash equivalents 17,550 13,931 266 5,727

The Group's cash and cash equivalents are repayable on demand and include a right of set-off between sterling and other currencies held in the UK. Cash and cash equivalents and short-term deposits are floating rate assets which earn interest at various rates with reference to the prevailing interest rates. Short-term deposits have an average maturity of 7 days (2013: 95 days).

There were no utilised borrowing facilities at 2 June 2013 or 1 June 2014.

22. Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), liquidity risk, capital risk and credit risk. The Group's financial risk management objective is to understand the nature and impact of the financial risks and exposures facing the business.

Foreign currency risk

The majority of the Group's business is transacted in sterling, euros and US dollars. The principal currency of the Group is sterling.

  • The Group is exposed to foreign exchange risk principally via:
  • transactional exposure arising from the future sales and purchases that are denominated in a currency other than the functional currency of the transacting company.
  • translation exposure arising on investments in foreign operations, where the net assets are denominated in a currency other than sterling.
  • loans to non-UK subsidiaries.

The Group does not use foreign currency borrowings or forward foreign currency contracts to hedge foreign currency risk. The level of the Group's exposure to foreign currency risk is regularly reviewed by the Group's chief operating officer and the Group's treasury policies, including hedging policies, are reviewed to ensure they remain appropriate.

Foreign exchange sensitivity

The impact on the Group's financial assets and liabilities from foreign currency volatility is shown in the sensitivity analysis below.

The sensitivity analysis has been prepared based on all material financial assets and liabilities held at the balance sheet date and does not reflect all the changes in revenue or expenses that may result from changing exchange rates. The analysis is prepared for the euro and US dollar given that these represent the major foreign currencies in which financial assets and liabilities are denominated. The sensitivities shown act as a reasonable benchmark considering the movements in currencies over the last two financial periods.

The following assumptions were made in calculating the sensitivity analysis:

  • financial assets and liabilities (including financial instruments) are only considered sensitive to movements in foreign currency exchange rates where they are not in the functional currency of the entity that holds them.
  • translation of results of overseas subsidiaries is excluded.

22. Financial risk factors continued

Using the above assumptions, the following table shows the sensitivity of the Group's income statement to movements in foreign exchange rates on US dollar and euro financial assets and liabilities:

2014 2013
Income Income
gain gain/(loss)
Group £000 £000
10% appreciation of the US dollar (2013: 10%) 500 887
10% appreciation of the euro (2013: 10%) 116 (374)

A depreciation of the stated currencies would have an equal and opposite effect.

There is no impact on equity gains or losses.

Interest rate risk

The Group no longer has a significant exposure to interest rate risk following repayment of its borrowings and hence no interest rate sensitivity has been shown.

Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions as well as credit exposures to independent retailers. The Group controls credit risk from a treasury perspective by only entering into transactions involving financial instruments with authorised counter-parties with a credit rating of at least 'A', and by ensuring that such positions are monitored regularly. Credit risk on cash and short-term deposits is limited because the counter-parties are banks with high credit ratings assigned by international credit rating agencies.

There is no significant concentration of credit risk with respect to trade receivables, as the Group has a large number of customers that are internationally dispersed. Policies are also in place to ensure the wholesale sales of products are made to customers with an appropriate credit history and credit limits are periodically reviewed. Amounts recoverable from customers are reviewed on an ongoing basis and appropriate provision made for bad and doubtful debts (note 20). Provision requirements are determined with reference to ageing of invoices, credit history and other available information.

Sales made through our own Hobby centres or via mail order are made in cash or with major credit cards.

Capital risk

The capital structure of the Group consists of net funds (see note 30) and owners' equity (see note 28). The Group manages its capital to safeguard the ability to operate as a going concern and to optimise returns to shareholders. The Group's objective is not to use long-term debt to finance the business. Overdraft facilities will be used to finance the working capital cycle if required.

The Group manages its capital structure and makes adjustments to it in light of changes to economic conditions and its strategic objectives. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, buy back shares and cancel them or issue new shares. The Group uses return on capital employed to assess capital asset performance.

Liquidity risk

Liquidity is managed by maintaining sufficient cash balances to meet working capital needs.

Cash flow requirements are monitored by short and long-term rolling forecasts both within the local operating units and for the overall Group. In addition, the Group's liquidity management policy involves projecting cash flows in the major currencies and considers the level of liquid assets necessary to meet these, monitoring working capital levels and liquidity ratios.

The undiscounted contractual cash flows of the Group's financial liabilities, including interest charges where applicable, are shown below. All trade payables are contractually due within 12 months and therefore the fair values do not differ from their carrying values.

2014 2013
Within Between
1 and 2
Between
2 and 5
More
than
Within Between
1 and 2
Between
2 and 5
More
than
Group 1 year
£000
years
£000
years
£000
5 years
£000
1 year
£000
years
£000
years
£000
5 years
£000
Trade and other payables 9,521 - - - 16,728 - - -
Provisions for redundancies and property 303 173 4 - 633 147 142 -
Exceptional provisions 2,470 - - - - - - -
12,294 173 4 - 17,361 147 142 -
2014
Within
1 year
2013
Within
1 year
Company £000 £000
Trade and other payables 548 5,782
548 5,782

NOTES TO THE FINANCIAL STATEMENTS continued

22. Financial risk factors continued

Financial instruments by category

Group Company
Loans and receivables Loans and receivables
2014 2013 2014 2013
£000 £000 £000 £000
Financial assets as per balance sheet
Trade receivables 4,436 6,139 - -
Accrued income 139 166 - -
Other receivables 1,756 1,936 16 -
Receivables from related parties - - 253 1,107
Loans to related parties - - 3,900 3,900
Cash and cash equivalents 17,550 13,931 266 5,727
Total 23,881 22,172 4,435 10,734

Within the Group net cash and cash equivalents are overdrafts of £2,810,000 (2013: £8,969,000) which are subject to a master netting arrangement.

Prepayments have been excluded from the above as they are not financial assets.

Group Company
Financial liabilities at Financial liabilities at
amortised cost amortised cost
2014 2013 2014 2013
£000 £000 £000 £000
Financial liabilities as per balance sheet
Trade payables 5,136 4,899 13 154
Other payables 2,286 3,945 13 18
Accruals 2,099 2,807 189 155
Payables to related parties - - 333 378
Dividends payable to Company shareholders - 5,077 - 5,077
Total 9,521 16,728 548 5,782

Deferred income balances and other taxes and social security payables have been excluded from the above as they are not financial liabilities.

23. Trade and other payables

Group Company
2014 2013 2014 2013
Current £000 £000 £000 £000
Trade payables 5,136 4,899 13 154
Other taxes and social security 1,008 872 35 19
Other payables 2,286 3,945 13 18
Accruals 2,798 3,556 189 155
Deferred income 1,537 1,288 - -
Payables to related parties - - 333 378
Dividends payable to Company shareholders - 5,077 - 5,077
12,765 19,637 583 5,801

The fair value of trade and other payables does not materially differ from the book value.

24. Other non-current liabilities

Company
2014 2013 2014 2013
£000 £000 £000 £000
360 360 - -
360 360 - -
Group

The fair value of other non-current liabilities does not materially differ from the book value.

The carrying amounts of the Group's trade and other payables and other non-current liabilities are denominated in the following currencies:

2014 2013
£000 £000
Sterling 8,205 12,841
Euro 1,963 3,604
US dollar 1,896 2,201
Other currencies 1,061 1,351
Total trade and other payables and other non-current liabilities 13,125 19,997

25. Provisions

Analysis of total provisions:

2014 Group
2013
Company
2014 2013
£000 £000 £000 £000
Current 3,009 946 10 9
Non-current 517 758 - -
3,526 1,704 10 9
Exceptional Employee
items benefits Property Total
Group £000 £000 £000 £000
At 2 June 2013 - 751 953 1,704
Charged/(credited) to the income statement:
-
Additional provisions
2,470 33 274 2,777
-
Unused amounts reversed
- (95) (165) (260)
Exchange differences - (46) (44) (90)
Discount unwinding (note 8) - - 3 3
Utilised - (75) (533) (608)
At 1 June 2014 2,470 568 488 3,526
At 1 June 2014
10
10
-
Additional provisions
1
1
Charged to the income statement:
At 2 June 2013
9
9
Company
£000
£000
benefits Total

The fair value of provisions does not differ from the book value.

Employee benefits

The Group operates a long service incentive scheme under which employees receive a one off additional holiday entitlement of two weeks when they reach 10 years of employment (10 Year Veterans). The cost of this benefit is accrued over the period of employment based on expected staff retention rates and the anticipated employment costs and are utilised once an employee reaches 10 years of employment.

Property provisions

Property provisions relate to property dilapidations and to committed costs outstanding under onerous or vacant lease commitments and will diminish over the lives of the underlying leases. The above provision is expected to be utilised by 2016. The estimated liability is discounted to its present value using a discount rate of 4.0% (2013: 3.0%).

Exceptional provisions

Exceptional provisions relate to committed costs associated with the continental european reorganisation announced in January 2014. The provision is expected to be utilised by 2015.

26. Share capital

At 1 June 2014 31,860 1,593 9,490 11,083
Shares issued under employee sharesave scheme 127 7 431 438
At 2 June 2013 31,733 1,586 9,059 10,645
Shares issued under employee sharesave scheme 144 7 322 329
At 3 June 2012 31,589 1,579 8,737 10,316
Group and Company (thousands) £000 £000 £000
shares shares account Total
Number of Ordinary premium
Share

During the period 127,385 ordinary shares were issued (2013: 143,805). The total authorised number of shares is 42,000,000 shares (2013: 42,000,000 shares) with a par value of 5p per share (2013: 5p per share). All issued shares are fully paid.

NOTES TO THE FINANCIAL STATEMENTS continued

27. Other reserves

2014 2013
Capital Capital
redemption Translation Other redemption Translation Other
reserve reserve reserve Total reserve reserve reserve Total
Group £000 £000 £000 £000 £000 £000 £000 £000
Beginning of period 101 3,837 (1,050) 2,888 101 3,392 (1,050) 2,443
Exchange differences on
translation of foreign operations - (1,233) - (1,233) - 445 - 445
End of period 101 2,604 (1,050) 1,655 101 3,837 (1,050) 2,888

The other reserve was created on flotation following a payment to the previous holders of the Company's ordinary shares.

As at 1 June 2014, the Company's capital redemption reserve was £101,000 (2013: £101,000). The Company had no other reserves in addition to the capital redemption reserve at either period end.

28. Retained earnings

Group £000
At 3 June 2012 and 4 June 2012 35,848
Profit attributable to owners of the parent 16,318
Deferred tax on share options 41
Current tax on share options 232
Share-based payments 286
Dividends to Company shareholders (18,404)
At 2 June 2013 and 3 June 2013 34,321
Profit attributable to owners of the parent 8,007
Deferred tax on share options (34)
Current tax on share options 74
Share-based payments 288
At 1 June 2014 42,656

29. Reconciliation of profit/(loss) to net cash from operating activities

Group Company
2014 2013 2014 2013
£000 £000 £000 £000
Operating profit/(loss) 12,297 21,254 (2,408) (2,766)
Depreciation of property, plant and equipment 4,907 5,099 - -
Net impairment reversal on property, plant and equipment (204) (69) - -
Loss/(profit) on disposal of property, plant and equipment (see below) 370 (7) - -
Loss on disposal of intangible assets (see below) 333 403 - -
Amortisation of capitalised development costs 4,121 2,700 - -
Amortisation of other intangibles 849 1,178 - -
Share-based payments 288 286 - -
Dividend income from investments in subsidiary undertakings - - 14 19,101
Changes in working capital:
- (Increase)/decrease in inventories (468) 1,422 - -
- Decrease in trade and other receivables 1,545 315 1,056 975
- (Decrease)/increase in trade and other payables (952) 17 450 440
- Increase/(decrease) in provisions 1,911 (690) 1 -
Net cash from operating activities 24,997 31,908 (887) 17,750

In the cash flow statement, proceeds from the sale of property, plant and equipment comprise:

2014 2013
£000 £000
Net book amount 424 106
(Loss)/profit on sale of property, plant and equipment (370) 7
Proceeds from sale of property, plant and equipment 54 113

The Company sold no property, plant and equipment during either period.

The Group disposed of intangible assets with a net book amount of £333,000 during the period (2013: £403,000). There were no proceeds on disposal in either period and hence a loss on disposal equivalent to the net book value was recorded.

The Company sold no other intangibles during either period.

30. Analysis of net funds

As at Cash Exchange As at
2 June 2013 flow movement 1 June 2014
£000 £000 £000 £000
13,931 3,948 (329) 17,550
13,931 3,948 (329) 17,550
As at
2 June 2013 flow movement 1 June 2014
£000 £000 £000 £000
5,727 (5,447) (14) 266
5,727 (5,447) (14) 266
As at Cash Exchange

31. Reconciliation of net cash flow to movement in net funds

Group Company
2014 2013 2014 2013
£000 £000 £000 £000
Increase/(decrease) in cash and cash equivalents in the period resulting from cash flows 3,948 (3,425) (5,447) (212)
Change in net funds resulting from cash flows 3,948 (3,425) (5,447) (212)
Exchange movement (329) (2) (14) 7
Net funds at start of period 13,931 17,358 5,727 5,932
Net funds at end of period 17,550 13,931 266 5,727

32. Commitments

Capital commitments

Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

2014 2013
Group £000 £000
Property, plant and equipment 478 484

The Company had no capital commitments at either period end.

Operating lease commitments

The future aggregate minimum lease payments under non-cancellable operating leases are payable as follows:

2014 2013
Hobby Other Hobby Other
centres property Other centres property Other
Group £000 £000 £000 £000 £000 £000
Within 1 year 6,519 548 183 6,161 673 228
Between 2 and 5 years inclusive 9,890 1,051 198 14,289 1,269 299
In over 5 years 503 - - 2,028 52 -
16,912 1,599 381 22,478 1,994 527

The Company had no operating lease commitments at either period end.

Inventory purchase commitments

2014 2013
Group £000 £000
Raw materials 365 214

The Company had no inventory purchase commitments at either period end.

Pension arrangements

The Group and Company operate defined contribution schemes. Commitments in respect of pensions are included within prepayments and accruals.

NOTES TO THE FINANCIAL STATEMENTS continued

33. Contingencies

The Group and Company had no contingent liabilities that are expected to give rise to material liabilities at either period end.

The Group has contingent liabilities in respect of the potential reversionary interest in sub-let leasehold properties amounting to £139,000 (2013: £189,000).

The Company provides indemnities to third parties in respect of contracts regarding their use of the Group's intellectual property, under commercial terms in the normal course of business.

The Company has also guaranteed the bank overdrafts of certain Group undertakings for which the aggregate amount outstanding under these arrangements at the balance sheet date was £1,586,000 (2013: £1,585,000).

For the year ended 1 June 2014, the subsidiary companies listed below are exempt from the requirements of the Companies Act 2006 relating to the audit of individual statutory accounts by virtue of section 479A. As a result, the Company guarantees all outstanding liabilities to which the subsidiary companies are subject.

Country of
incorporation Company
Name of undertaking or registration Registration No.
Games Workshop Limited England and Wales 1467092
Games Workshop International Limited England and Wales 2924330
Games Workshop US Limited England and Wales 7462905
Games Workshop US (Holdings) Limited England and Wales 4428814

34. Related-party transactions

During the period the Company provided management and similar services to Games Workshop Limited, a subsidiary undertaking.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation for the Group.

The Group had no related-party transactions in the current or prior period.

Transactions between the Company and its subsidiaries are shown below:

2014 2013
Subsidiary Nature of transaction £000 £000
Games Workshop International Limited Dividends receivable 16 1,000
Games Workshop Limited Recharges 407 405
Dividends receivable - 14,500
Games Workshop Retail Inc. Dividends receivable - 3,601

Receivables/(payables) outstanding between the Company and its subsidiaries are shown below:

Amounts owed by
subsidiaries
Amounts owed to
subsidiaries
2014 2013 2014 2013
Subsidiary £000 £000 £000 £000
Games Workshop Group PLC Employee Share Trust 50 48 - -
Games Workshop Limited 172 897 - -
Games Workshop Retail Inc. 13 - - (87)
EURL Games Workshop - 4 (2) -
Games Workshop SL 8 13 - -
Games Workshop Oz Pty Limited - 3 (10) -
Games Workshop Deutschland GmbH 4 11 - -
Games Workshop International Limited - - (319) (291)
Games Workshop (Queen Street) Limited - 5 (2) -
Games Workshop Italia SRL 4 120 - -
Games Workshop Stockholm AB 1 5 - -
Games Workshop Limited (New Zealand) 1 1 - -
253 1,107 (333) (378)

Non-current loans outstanding between the Company and its subsidiaries are shown below:

Amounts owed by
subsidiaries
2014 2013
Subsidiary £000 £000
Games Workshop Interactive Limited 6,779 6,779
Less provision for impairment (6,779) (6,779)
Games Workshop Limited 3,900 3,900
3,900 3,900

Mrs K Kirby (Lathbury) received £117,461 (2013: £73,620) during the year from the Group for her work as interim head of IT.

FIVE YEAR SUMMARY

2014 2013 2012 2011 2010
£000 £000 £000 £000 £000
Revenue 123,501 134,597 131,009 123,052 126,511
Operating profit – pre-exceptional items and royalties receivable 15,355 20,229 15,603 12,789 12,989
Exceptional items (4,500) - - - -
Royalties receivable 1,442 1,025 3,537 2,455 3,991
Operating profit 12,297 21,254 19,140 15,244 16,980
Finance income 106 176 434 132 442
Finance costs (7) (35) (100) (89) (367)
Profit before taxation 12,396 21,395 19,474 15,287 17,055
Income tax expense (4,389) (5,077) (4,760) (4,047) (1,302)
Profit attributable to owners of the parent 8,007 16,318 14,714 11,240 15,753
Basic earnings per ordinary share 25.2p 51.5p 46.8p 36.0p 50.6p
Pre-exceptional earnings per ordinary share 36.1p 51.5p 46.8p 36.0p 50.6p

FINANCIAL CALENDAR

Annual general meeting 17 September 2014 Announcement of half year results January 2015 Financial year end 31 May 2015 Announcement of final results July 2015

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the annual general meeting of Games Workshop Group PLC (the 'Company') will be held at the Company's registered office, Willow Road, Lenton, Nottingham, NG7 2WS at 10.00am on 17 September 2014 for the following purposes:

Ordinary business

As ordinary business to consider and, if thought fit, to pass the following resolutions 1 to 8 as ordinary resolutions:

Resolution 1

To receive the Company's annual accounts for the year ended 1 June 2014 together with the directors' report, the remuneration report and the auditor's report on those accounts, the auditable part of the remuneration report and the directors' report.

Resolution 2

To re-elect K D Rountree as a director.

Resolution 3

To elect E O'Donnell as a director.

Resolution 4

To re-elect C J Myatt as a director.

Resolution 5

To re-elect N J Donaldson as a director.

Resolution 6

To re-appoint PricewaterhouseCoopers LLP as auditors to hold office until the conclusion of the next general meeting at which accounts are laid by the Company and to authorise the directors to fix their remuneration.

Resolution 7

To approve the remuneration report (excluding the directors' remuneration policy set out on pages 19 to 22) for the year ended 1 June 2014.

Resolution 8

To approve the directors' remuneration policy set out on pages 19 to 22, such remuneration policy to take effect from the date on which the resolution is passed.

Special business

To consider and, if thought fit, pass the following resolutions, of which resolution 9 will be proposed as an ordinary resolution and resolutions 10 and 11 will be proposed as special resolutions.

Resolution 9

That the directors of the Company be generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 (the 'Act') to exercise all the powers of the Company to allot Relevant Securities (as defined below) up to an aggregate nominal amount of £525,704 provided that this authority shall, unless renewed, varied or revoked by the Company, expire on 16 December 2015 or, if earlier, the date of the next annual general meeting of the Company save that the Company may, before such expiry, make offers or agreements which would or might require Relevant Securities to be allotted and the directors may allot Relevant Securities in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired. This resolution revokes and replaces all unexercised authorities previously granted to the directors to allot Relevant Securities but without prejudice to any allotment of shares or grant of rights already made, offered or agreed to be made pursuant to such authorities. Relevant Securities means: (i) shares in the Company other than shares allotted pursuant to an employee share scheme (as defined by section 1166 of the Act), a right to subscribe for shares in the Company where the grant of the right itself constituted a Relevant Security or a right to convert securities into shares in the Company where the grant of the right itself constituted a Relevant Security; (ii) any right to subscribe for or to convert any security into shares in the Company other than rights to subscribe for or convert any security into shares allotted pursuant to an employee share scheme (as defined by section 1166 of the Act). References to the allotment of Relevant Securities in this resolution include the grant of such rights.

Resolution 10

That subject to the passing of resolution 9 above, the directors of the Company be given the general power pursuant to sections 570 to 573 of the Companies Act 2006 (the 'Act') to allot or make offers or agreements to allot equity securities for cash, either pursuant to the authority conferred by resolution 9 above or by way of a sale of treasury shares, as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to:

  • (a) the allotment of equity securities in connection with a rights issue so that for this purpose 'rights issue' means an offer of equity securities open for acceptance for a period fixed by the directors to holders of equity securities on the register on a fixed record date in proportion (as nearly as may be) to their respective holdings of such securities or in accordance with rights attached thereto but subject to such exclusions or other arrangements as the directors consider necessary or expedient in relation to treasury shares, fractional entitlements or any legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in any territory; and
  • (b) the allotment of equity securities up to an aggregate nominal amount of £79,652.

The power granted by this resolution will expire on 16 December 2015 or, if earlier, the conclusion of the Company's next annual general meeting (unless renewed, varied or revoked by the Company prior to or on such date) save that the Company may, before such expiry make offers or agreements which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred by this resolution has expired. This resolution revokes and replaces all unexercised powers previously granted to the directors to allot equity securities as if either section 89(1) of the Companies Act 1985 or section 561(1) of the Act did not apply but without prejudice to any allotment of equity securities already made or agreed to be made pursuant to such authorities. For the purposes of this resolution the expression 'equity securities' and references to 'allotment of equity securities' respectively have the meanings given to them in section 560 of the Act.

Resolution 11

That the Company be and is hereby granted general and unconditional authority for the purposes of section 701 of the Companies Act 2006 (the 'Act') to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 5p each in the capital of the Company ('ordinary shares') on such terms and in such manner as the directors may from time to time determine provided that:

  • (a) the authority hereby conferred shall expire at the conclusion of the next annual general meeting of the Company or on 16 December 2015 whichever is the earlier;
  • (b) the maximum aggregate number of ordinary shares that may be purchased is 4,747,273;
  • (c) the minimum price (excluding expenses) which may be paid for an ordinary share is 5p;
  • (d) the maximum price (excluding expenses) which may be paid for an ordinary share is the higher of: (i) an amount equal to 105 per cent of the average market value of an ordinary share in the Company for the five business days prior to the day on which the purchase is made; and (ii) the value of an ordinary share calculated on the basis of the higher of the price quoted for: (a) the last independent trade of; and (b) the highest current independent bid for, any number of the Company's ordinary shares on the trading venue where the purchase is carried out;
  • (e) the Company may make a contract to purchase ordinary shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority, and may make a purchase of ordinary shares in pursuance of any such contract.

By order of the board

R F Tongue

Company secretary 28 July 2014 Registered office: Willow Road, Lenton Nottingham NG7 2WS Registered in England and Wales under number 2670969

NOTICE OF ANNUAL GENERAL MEETING continued

Notes

    1. Only those members registered on the Company's register of members at 6.00 pm on 15 September 2014 or, if this meeting is adjourned, at 6.00pm on the day two days prior to the adjourned meeting, shall be entitled to attend and vote at the meeting.
    1. If you are a member of the Company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the meeting and you should have received a proxy form with this document. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form.
    1. A proxy does not need to be a member of the Company but must attend the meeting to represent you. Details of how to appoint the chairman of the meeting or another person as your proxy using the proxy form are set out in the notes to the proxy form. If you wish your proxy to speak on your behalf at the meeting you will need to appoint your own choice of proxy (not the chairman) and give your instructions directly to them.
    1. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. Details of how to appoint more than one proxy are set out in the notes to the proxy form.
    1. The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting.
    1. To appoint a proxy using the proxy form, the form must be completed and signed and sent or delivered to the Company's registrars, Equiniti Limited, at Aspect House, Spencer Road, Lancing, BN99 6DA so as to be received no later than 48 hours before the time fixed for holding the meeting. Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form. In the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the Company or an attorney for the Company.
    1. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company's register of members in respect of the joint holding (the first-named being the most senior).
    1. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. The cut-off time for receipt of proxy appointments (see above) also applies in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence.
    1. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to the Company's registrars, Equiniti Limited, at Aspect House, Spencer Road, Lancing, BN99 6DA. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the Company or an attorney for the Company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. The revocation notice must be received by the Company's registrars, Equiniti Limited, at Aspect House, Spencer Road, Lancing, BN99 6DA no later than the time fixed for holding the meeting. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your proxy appointment will remain valid.
    1. Appointment of a proxy does not preclude you from attending the meeting and voting in person.
    1. A corporation which is a member can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a member provided that no more than one corporate representative exercises powers over the same share.
    1. As at 28 July 2014 (being the last practical date prior to the publication of this notice), the Company's issued share capital comprised 31,860,894 ordinary shares of 5 pence each. Each ordinary share carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at 28 July 2014 is 31,860,894. The website referred to in note 21 will include information on the number of shares and voting rights.
    1. If you are a person who has been nominated under section 146 of the Companies Act 2006 to enjoy information rights (a 'Nominated Person') you may have a right under an agreement between you and the member of the Company who has nominated you (a 'Relevant Member') to have information rights to be appointed or to have someone else appointed as a proxy for the meeting. If you either do not have such a right or if you have such a right but do not wish to exercise it, you may have a right under an agreement between you and the Relevant Member to give instructions to the Relevant Member as to the exercise of voting rights. Your main point of contact in terms of your investment in the Company remains the Relevant Member (or, perhaps, your custodian or broker) and you should continue to contact them (and not the Company) regarding any changes or queries relating to your personal details and your interest in the Company (including any administrative matters). The only exception to this is where the Company expressly requests a response from you.
    1. You may not use any electronic address provided either in this notice of annual general meeting or any related documents (including the proxy form), to communicate with the Company for any purposes other than those expressly stated.
    1. Under section 338 of the Companies Act 2006, a member or members meeting the qualification criteria set out at note 18 below, may, subject to conditions, require the Company to give to members notice of a resolution which may properly be moved and is intended to be moved at that meeting. The conditions are that: (a) the resolution must not, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company's constitution or otherwise); (b) the resolution must not be defamatory of any person, frivolous or vexatious; (c) the request may be in hard copy form or in electronic form (see note 19 below), must identify the resolution of which notice is to be given by either setting out the resolution in full or, if supporting a resolution sent by another member, clearly identifying the resolution which is being supported, must be authenticated by the person or persons making it (see note 19 below); and must be received by the Company not later than 6 weeks before the meeting to which the request relates.
    1. Under section 338A of the Companies Act 2006, a member or members meeting the qualification criteria set out at note 18 below, may, subject to conditions, require the Company to include in the business to be dealt with at the meeting a matter (other than a proposed resolution) which may properly be included in the business (a matter of business). The conditions are that: (a) the matter of business must not be defamatory of any person, frivolous or vexatious, (b) the request may be in hard copy form or in electronic form (see note 19 below), must identify the matter of business by setting it out in full or, if supporting a statement sent by another member, clearly identify the matter of business which is being supported, must be accompanied by a statement setting out the grounds for the request, must be authenticated by the persons or person making it (see note 19 below) and must be received by the Company not later than 6 weeks before the meeting to which the request relates.

Notes continued

    1. Pursuant to Chapter 5 of Part 16 of the Companies Act 2006 (sections 527 to 531), where requested by a member or members meeting the qualification criteria set out at note 18 below, the Company must publish on its website, a statement setting out any matter that such members propose to raise at the meeting relating to the audit of the Company's accounts (including the auditor's report and the conduct of the audit) that are to be laid before the meeting. Where the Company is required to publish such a statement on its website, it may not require the members making the request to pay any expenses incurred by the Company in complying with the request, it must forward the statement to the Company's auditors no later than the time the statement is made available on the Company's website, and the statement may be dealt with as part of the business of the meeting. The request may be in hard copy form or in electronic form (see note 19 below), either set out the statement in full, or if supporting a statement sent by another member, clearly identify the statement which is being supported, must be authenticated by the person or persons making it (see note 19 below), and be received by the Company at least one week before the meeting.
    1. In order to be able to exercise the members' right to require circulation of a resolution to be proposed at the meeting (see note 15); a matter of business to be dealt with at the meeting (see note 16) or the Company to publish audit concerns (see note 17), the relevant request must be made by a member or members having a right to vote at the meeting and holding at least 5% of total voting rights of the Company, or at least 100 members having a right to vote at the meeting and holding, on average, at least £100 of paid up share capital. For information on voting rights, including the total number of voting rights, see note 12 above and the website referred to in note 21.
    1. Where a member or members wishes to request the Company to circulate a resolution to be proposed at the meeting (see note 15), include a matter of business to be dealt with at the meeting (see note 16) or publish audit concerns (see note 17) such request must be made in accordance with one of the following ways: (a) a hard copy request which is signed by you, which states your full name and address and is sent to Rachel Tongue, Games Workshop Group PLC, Willow Road, Lenton, Nottingham NG7 2WS; or (b) a request which states your full name and address, and is sent to [email protected]. Please state 'AGM' in the subject line of the e-mail.
    1. Under section 319A of the Companies Act 2006 the Company must answer any question you ask relating to the business being dealt with at the meeting unless answering the question would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, the answer has already been given on a website in the form of an answer to a question or it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
    1. Information regarding the meeting, including the information required by section 311A of the Companies Act 2006, is available from http://investor.games-workshop.com.
    1. The following documents will be available for inspection for at least 15 minutes prior to the meeting and during the meeting: (a) copies of the service contracts of executive directors of the Company and (b) copies of the service agreements of the independent directors of the Company.
    1. CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so by utilising the procedures described in the CREST Manual on the Euroclear website (www.euroclear.com). CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a 'CREST Proxy Instruction') must be properly authenticated in accordance with Euroclear UK & Ireland Limited's ('EUI') specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must (in order to be valid) be transmitted so as to be received by the issuer's agent (ID RA19) by the latest time(s) for receipt of proxy appointments specified in the notice of meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
    1. As an alternative to completing a hard copy proxy form, a shareholder can appoint a proxy or proxies electronically by visiting www.sharevote.co.uk. Shareholders will need their voting ID, task ID and shareholder reference number (this is the series of numbers printed under their name on the proxy form). Alternatively, if a shareholder has already registered with Equiniti Limited's online portfolio service, Shareview, they can submit a proxy form at www.shareview.co.uk. Full instructions are given on both websites. To be valid, your proxy appointment(s) and instructions should reach Equiniti Limited no later than 48 hours before the time fixed to hold the meeting. Any electronic communication sent by a shareholder to the Company or the registrar that is found to contain a computer virus will not be accepted.

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