reds8n wrote:

HALF-YEARLY REPORT AND TRADING UPDATE

Games Workshop Group PLC ("Games Workshop" or the "Group") announces its half-yearly results for the six months to 29 November 2015.

Highlights:


Six months to

Six months to

29 November
30 November

2015
2014



Revenue
£55.3m
£56.5m
Revenue at constant currency*
£56.9m
£56.5m
Operating profit pre-royalties receivable
£4.7m
£5.5m
Royalties receivable
£1.5m
£0.7m
Operating profit
£6.2m
£6.2m
Pre-tax profit
£6.3m
£6.3m
Cash generated from operations
£8.6m
£7.8m
Basic earnings per share
14.9p
14.5p
Dividend per share declared in the period
20p
36p

Kevin Rountree, CEO of Games Workshop, said:

"We have made some good progress on our strategic initiatives all focused on delivering long term growth. Whilst we are disappointed with the decline in return on capital reported in the period, we are all confident that we are focused on delivering the necessary changes to address this decline.

In the period we launched some great new products and our new visitor centre has performed well.

December sales were below expectations across the Group. At this stage in the Company's financial year, the Company's internal projections indicate that pre-tax profit for the year to 29 May 2016 is unlikely to exceed £16 million. A further update will be made when appropriate. "

apologies for the awful format when C & P'ed.

http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB0003718474GBGBXSSMM.html?lang=en

We have made some good progress on our strategic initiatives all focused on delivering long term growth. Whilst we are disappointed with the decline in return on capital reported in the period, we are all confident that we are focused on delivering the necessary changes to address this decline.

In the period we launched some great new products and our new visitor centre has performed well.

We are focused on delivering value. Our key measure of our performance is return on capital. During the period our return on capital fell from 38% at November 2014 to 36%. This was driven by both an increase in average capital employed** and a decline in operating profit before royalties receivable.

Trading update
December sales were below expectations across the Group. At this stage in the Company's financial year, the Company's internal projections indicate that pre-tax profit for the year to 29 May 2016 is unlikely to exceed £16 million. A further update will be made when appropriate.

Sales
Reported sales fell by 2.2% to £55.3 million for the period. On a constant currency basis, sales were up by 0.7% from £56.5 million to £56.9 million; split by channel this comprised: retail £23.0 million (2014: £23.4 million), trade £22.3 million (2014: £22.0 million) and mail order £11.6 million (2014: £11.1 million).

Retail
This channel showed growth in non-core retail but was offset by declines in our core retail business. However on a constant currency basis sales were broadly in line with last year. We opened, including relocations, 22 one man store format stores and three multi man format stores in the period. We also started our trial of four multi man format stores in high footfall locations; Sydney, Munich, Paris and Copenhagen. After closing 13 stores, our net total number of stores at the end of the period is 430.

The key priority is store manager recruitment. On 9 November 2015, I appointed an expert in recruitment to my management team. This person will ensure we have a constant supply of retail store managers and trade recruiters and account developers. She will also work with me to review our global people strategy.

Trade
All key territories were broadly in line with last year. In the period, our net number of trade outlets increased by 61 accounts.

To broaden our core trade product reach, in the period, we have designed a small new product range and are at present actively signing up distribution agents to sell this product into North America. We continue to work on other product formats to optimise other opportunities.

Mail order
Sales in our online shops were up 5.3%.

Non-core
This includes licensing, digital, export, the visitor centre, non-strategic trade accounts, book trade, magazine and mass-market opportunities. Non-core sales were down by 2.5% from £7.8 million to £7.6 million due to declines in sales in digital, export and the book trade offset by growth in visitor centre and non-strategic trade sales. In the period, royalties receivable from licensing increased from £0.7 million to £1.5 million.

Operating profit
Core business operating profit (operating profit before royalty income) fell by £0.8 million to £4.7 million (2014: £5.5 million). On a constant currency basis, core business operating profit increased by £0.1 million to £5.6 million. The net impact in the six months to 29 November 2015 of exchange rate fluctuations was a loss of £0.9 million. It is not the Group's policy to hedge against foreign exchange exposure.

Operating expenses increased by £0.3 million due to an investment in sales facing activities relating to new retail store costs. Costs remain a key area of focus.

Capital employed
Average capital employed** increased by £3.3 million to £40.8 million. The book value of tangible and intangible assets increased by £2.6 million, mainly due to the refurbishment of the visitor centre whilst trade and other receivables increased by £1.0 million, inventory increased by £0.6 million, provisions fell by £0.6 million and current liabilities increased by £1.5 million.

Cash generation
During the period, the Group's core operating activities generated £6.6 million of cash after tax payments (2014: £5.5 million). The Group also received cash of £1.1 million in respect of royalties in the year (2014: £1.0 million). After purchases of tangible and intangible assets and product development costs of £6.3 million (2014: £5.1 million) and dividends of £6.4 million (2014: £11.5 million) there were net funds at the end of the period £7.8 million (2014: £8.4 million).

Projects
We have three major projects being implemented currently:

European ERP system replacement (enterprise resource planning) - on track.
Forge World mail order store - this store was launched in August 2015 on time and within cash limits.
Mail order warehouse system replacement - complicated project currently postponed until after the busy December trading period.

Risks and uncertainties
The board has overall responsibility for ensuring risk is appropriately managed across the Group. As discussed in the 2015 annual report, the top five risks to the Group are reviewed at each board meeting. The risks are rated as to their business impact and their likelihood of occurring. In addition, the Group has a disaster recovery plan to ensure ongoing operations are maintained in all circumstances. The principal risks for the balance of the year are the same as those identified in the 2015 annual report and are discussed below:

ERP change. This is a complicated project with the risk of widespread business disruption if it is not implemented well.
Store manager recruitment. This comprises both recruitment of managers for new stores as well as replacing poor performing managers. Retail is our primary method of recruiting new customers and so we need great managers in all our stores.
Supply chain. We are changing our mail order warehouse system. This is part of an ongoing programme of continuous improvement for these warehouse systems. As with any system change there are risks associated with the transition.
Range management. We constantly review our range to ensure that we are exploring all opportunities.
Distractions. Anything else that gets in the way of us delivering our goals.

The greatest risk is the same one that we repeat each year, namely, 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. I will do my utmost to ensure that this does not happen.

Going concern
After making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they have adopted the going concern basis in preparing this condensed consolidated interim financial information.

Statement of directors' responsibilities
The directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely: an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of (i) the principal risks and uncertainties for the remaining six months of the financial year; (ii) material related-party transactions in the first six months and (iii) any material changes in the related-party transactions described in the last annual report.

There have been no other changes to the board since the annual report for the year to 31 May 2015. A list of all current directors is maintained on the investor relations website at investor.games-workshop.com.

By order of the board

K D Rountree
CEO

R F Tongue
Group finance director

 Talys wrote:
The profit numbers matter a lot. But if 4% is actually the number, considering THREE of the 6 reported months are Age of Sigmar, they should be popping the champagne. And it would also justify future investments in AoS.

After all, internet wisdom was that skids of Sigmar plastic were sitting unsold because everybody hates the game.

 warboss wrote:

 Talys wrote:
The profit numbers matter a lot. But if 4% is actually the number, considering THREE of the 6 reported months are Age of Sigmar, they should be popping the champagne. And it would also justify future investments in AoS.

After all, internet wisdom was that skids of Sigmar plastic were sitting unsold because everybody hates the game.

Psst... Betrayal at Calth came in during that period as well. Also, the current marine codex was released either right at the beginning of this current period or in the weeks before it. You, know, the cash cow line that added up to previously more than all of WHFB sales combined that got a double release this period including finally a very very very long awaited 30k plastic push for the first time. But, hey, let's just preemptively assign the potential credit to AOS based on personal preferences instead...

 Talys wrote:


Sure, but just think of all the releases that COULD have come out in those 3 months. The Space Marine codex came out, but there were no new models except Devastator and Assault Marine. It's highly doubtful that ASM made top 10, and we know it hasn't made 11-28. Devastators barely made the top 28. So it's not like a $50 book is going to save a quarter, you know what I mean? Looking at those top 28 models for the year, so far, drop pods are the only fantastic seller for Space Marines, and let's be honest: drop pods have always sold well. Other than the LRC at #25 and Devastators at #22, there isn't even another Space Marine entry on the list so far.

Calth is a fantastic box release. But guess what? Last year they had Space Hulk in the same period, which they sold every copy they produced. Also, Deathstorm was a fantastic box set that sold very well. I mean, do we really think that AoS did as well as Deathstorm *OR* Space Hulk? It certainly didn't sell out. And Calth only got 3 weeeks, if that (since it cuts off Nov. 29). So, comparing apples to apples (this year to last), if they can keep revenue about the same, I think they did well.

 Talys wrote:
The profit numbers matter a lot. But if 4% is actually the number, considering THREE of the 6 reported months are Age of Sigmar, they should be popping the champagne. And it would also justify future investments in AoS.

After all, internet wisdom was that skids of Sigmar plastic were sitting unsold because everybody hates the game.

By the way, the wildly fluctuating currencies wreaking havoc is a real thing. It impacts us in Canada in ways that we couldn't have even imagined. A few years ago, CAD and USD were at parity. Now, one USD is worth $1.32 CAD. It does crazy things for our import and export businesses, which is to say, constant currency comparatives is something that more and more companies that are impacted are doing.

To put it another way, if my business' revenue (which is very much paid in USD), increases by 20%, that could actually be a bad thing, because it actually means our sales dropped 12%, lol.

 warboss wrote:

I only see up to #10 currently and don't have the app. Is there any AOS specific release on the list so far? Not units previously for WHFB or End Times that can incidentally be used for AOS but specifically new AOS only units. I don't see any but I'm not familiar with all their releases. If you're judging Space Marines based partially on the list so far, wouldn't it be fair to judge AOS the same way?

As for the boxed sets, the Space Hulk rerelease might have sold out (no idea, I'll take your word on it) but it wasn't greeted with the fanfare it was the last time that's for sure (and that's coming from a big fan who picked up 2.5 boxes and made an entire Deathwing army out of them). Deathstorm was a meh release as well (again, I am/was a BA player so got half of that as well and followed it closely). BaC though got metric tons of praise and deservedly so. We don't know the individual print runs of any of the above but I'm guessing that BaC was much larger than Deathstorm or Spulk 1.1 as well. In the end, we'll never know unless GW tells us the unofuscated truth which is unlikely since they generally don't break down sales on a line by line basis.

 Kilkrazy wrote:


Currency exchange variations are a fact of life for international companies like GW. What they win on the swings they will lose on the roundabouts (a British expression). A few years ago the GBP was very weak, thus making GW's results look a lot better than they were in some respects.

The company is UK based, it reports in GBP, its shares are priced in GBP and its dividends are paid in GBP, and if the final result is a loss in GBP, it's a loss.

That said, they are of course still very profitable and if sales in Europe are going up that is an encouraging sign.

 Torga_DW wrote:
So sales have been fantastic. So fantastic, that they're reporting *another* decline? Even if i were to believe their constant currency line, and they tayed relatively flat - is that really good news for them? I can't speak for AoS, but BaC is what i'd call 'firing the big guns' and the end result is flat/declining revenue?

Let's not also forget the panic buying that will have taken place when AoS was released. This might be a sign that they're stabilizing income, or it might simply be a prelude to a another migration of customers away from them.

 Talys wrote:

 Torga_DW wrote:
So sales have been fantastic. So fantastic, that they're reporting *another* decline? Even if i were to believe their constant currency line, and they tayed relatively flat - is that really good news for them? I can't speak for AoS, but BaC is what i'd call 'firing the big guns' and the end result is flat/declining revenue?

Let's not also forget the panic buying that will have taken place when AoS was released. This might be a sign that they're stabilizing income, or it might simply be a prelude to a another migration of customers away from them.

Well, if you believe their constant currency line, sales are up a little. Otherwise, sales are down a little. But one product and 3 weeks to sell it can't carry the entire half-year, man.

What I'm saying is that, if true, AoS (starter) probably didn't do as horribly as a lot of people on the interwebs think it did, which is certainly better for GW than AoS Starter doing as badly as the people on the interwebs think, or even if AoS Starter sold comparably to Isle of Blood in the few half-years before that. It would mean that AoS Starter and the three months of Stormcast Eternal releases actually did not perform absolutely horribly in sales (which we guess that WHFB did for at least a few years). Remember, conventional wisdom is that AoS is so horrible and dead that nobody bought the stuff, it's just piling up, and nobody plays it. But they must have sold some AoS stuff after Starter, if the sales are only a slight decline (or slight increase).

 Talys wrote:

I think that Age of Sigmar starter set will have done very well. It will almost certainly make the top 10. But so far, in 10-28, the ONLY box that released in the second half of the year, is the Space Marine Devastator Squad, at #22. Literally every other set was made before this half-year. That means, if the revenue numbers are only a slight dip, either a lot of people bought a lot of product that wasn't new releases (which is exceedingly good news for GW), and/or that Age of Sigmar and Betrayal at Calth did really well.

I can't imagine that GW sold $100 million worth of copies of Calth in 3 weeks to make up for the rest of the sales of the half-year

 Talys wrote:
@warboss - I think that AoS has to be compared to Warhammer Fantasy Battle in its latter years to determine whether it's a dud or not. Does it move product for GW and independents, should be the metric of success. I don't think it really matters (and more importantly, it can't be measured) whether people play it, because if people are buying celestant primes and archaons because shrink wrapped boxes look good in their attic, what does GW or the hobby shop care?

If it's selling a lot better than WHFB, I think it's safe to say it's successful; if not, I think that GW needs to make adjustments. I think GW is playing the long game, so a little success that builds will make people there (and AoS fans, obviously) happy. On the other hand, if, over several quarters, it declines and become irrelevant, then it would most certainly be a dud.

Incidentally, I'm not characterizing AoS as a success; only that it probably isn't a horrible failure, if the half-year isn't a disaster, because I don't think it's possible to have a decent half year, no matter how good Calth is, to make up for 3+ months of releases for a disastrous product. But not being a disaster doesn't mean that it's a success, by any stretch. I don't think it's possible to gauge this (except an epic disaster that requires a "stop the presses" change) without giving the game a couple of years to see if people stick with it, continue to buy books and new models, etc.

just my 2 cents

Joyboozer wrote:
Actually, to clear the investment GW put into its creation and production, AoS would have to be selling a lot more than WFB, or it's definitely dud. I'm not sure where you're coming from Talys.

 Kilkrazy wrote:

 Talys wrote:
The profit numbers matter a lot. But if 4% is actually the number, considering THREE of the 6 reported months are Age of Sigmar, they should be popping the champagne. And it would also justify future investments in AoS.

After all, internet wisdom was that skids of Sigmar plastic were sitting unsold because everybody hates the game.

By the way, the wildly fluctuating currencies wreaking havoc is a real thing. It impacts us in Canada in ways that we couldn't have even imagined. A few years ago, CAD and USD were at parity. Now, one USD is worth $1.32 CAD. It does crazy things for our import and export businesses, which is to say, constant currency comparatives is something that more and more companies that are impacted are doing.

To put it another way, if my business' revenue (which is very much paid in USD), increases by 20%, that could actually be a bad thing, because it actually means our sales dropped 12%, lol.

Currency exchange variations are a fact of life for international companies like GW. What they win on the swings they will lose on the roundabouts (a British expression). A few years ago the GBP was very weak, thus making GW's results look a lot better than they were in some respects.

The company is UK based, it reports in GBP, its shares are priced in GBP and its dividends are paid in GBP, and if the final result is a loss in GBP, it's a loss.

That said, they are of course still very profitable and if sales in Europe are going up that is an encouraging sign.

 Torga_DW wrote:
Well, once they're committed to it they have to follow through. Even if the initial AoS sales tanked horribly (not saying they did), they still have the followup stuff in the pipeline that they need to push out regardless. We'll get a better idea in january when we see the actual numbers. I'm always wary of 'broadly in line with expectations' and this whole constant currency seems to be relatively new (or else i just haven't noticed it before) - currency is always fluctuating, but short of a global financial upheaval it looks to me like a way of saying the numbers don't look good but here's an excuse for that.

 Kilkrazy wrote:

Constant currency is a pretty standard reporting format for international companies. Obviously such companies take in and spend money in all the different countries where they operate. For example, most of GW's European operations make sales in Euros and need to spend Euros to pay their operating costs. The problem arises when they have to buy stock in GBP, and make profits that are returned to the parent company as GBP.

OTOH, when the GBP was low a few years ago, the European part of the company was laughing, because their stock was very cheap. The boot was on the other foot.