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TRADING STATEMENT



For immediate release 5 May 2010



Games Workshop announces that pre-tax profits in respect of the year ending 30 May 2010 are likely to be ahead of current expectations.

The Group's performance in the second half of the year to date has been somewhat better than the Board's expectations, with regard in particular to the gross margin and the continuing firm control of costs.

The Board expects to announce the Group's final results for the year ending 30 May 2010 in late July 2010.

linky and also in about 12 or so Google Alerts so far today.

http://www.londonstockexchange.com/exchange/prices-and-news/stocks/summary/company-summary.html?fourWayKey=GB0003718474GBGBXSSQ3

Lucky GW, I suppose this will presage the next wave of price rises then? Wonder what excuse they will come up with this time; maybe the Louisiana oil spill is driving up the cost of plastic or something....

I will not get sucked back in to that particular stock; no thank you. I made a profit off of it but I despise their investor relations (or lack there of). They treat investors little better than they treat customers.

Ah, they're still selling stuff then. This means that they can probably charge a bit more and get away with it.

Now's probably a good time to get on board with GW. They're expcted to pay off the debt they took on to buy their production facility in Tennessee (I think it is) and expanding their operations into China, this year. So they'll go from being a £120M company generating a >£10M profit to a £130M company taking in £40M profit.

From a customer stand point where this is most to our benefit, is that it means they can be less harsh with prices, like with Black Reach and the Apocalypse Super Heavies which didn't carry as much margin for them. The extra money they bring in also means they'll be able to invest into other propeties they've neglected such Necromunda or Battlefleet Gothic.

All GW's annoying changes, getting rid of bits and cutting personnel have been to reduce overhead to speed up paying down their debt, so now that its practicaly done they'll have that much more money to reinvest in their business. That means more models for us.

@aka_mythos - I would LOVE to believe that that will be the case. GW's track record hasn't been exactly great on that, though.

I don't like going long on stock that doesn't make money for me through dividends.

I don't like going long on stock that doesn't make money for me through dividends.

I agree. I've always felt like stocks that don't pay dividends are like trading baseball cards. It's just not a real stock unless you're getting a cut of profits. No cut means you're not actually an owner.

Yey - maybe my 44 shares will go above the £4 level!!

Considering all the icons in your signature, I'd say you're a pretty good owner.

Phryxis wrote:

I don't like going long on stock that doesn't make money for me through dividends.

I agree. I've always felt like stocks that don't pay dividends are like trading baseball cards. It's just not a real stock unless you're getting a cut of profits. No cut means you're not actually an owner.

That’s silly. By not paying a dividend the company is hanging on to equity/assets of which you own a certain percentage through your stock. Dividends are a double edged sword. Yes it is cash now but it is also money that is not being reinvested in the business and increasing the portion of the assets you own. Lots of companies don’t ever pay dividends anymore. If you want a physical cash flow either sell the stock or hope the company gets liquidated.

Well, 2 ways of thought on that....most of the shares are currently held by large investment groups (Polar, Shroder, Phoenix, Investec, and Nomad I believe...and while they are not the California Employee Pension Fund, I think several of those are long-term institutional investors groups/pension type things....I am sure they WANT dividends, as well as Mr Kirby and the board....So they could reinstate dividends to make them happier right now....

Or they can re-invest more money and make the share price go higher if they can continue low costs, with sales gains...then the return comes later....considering those big groups own about 68% of the company (and the board probably another 8-9% (?)) it will probably come down to what THEY want....

Also another reason why any other investors from the past may have felt they had little "relations" they could ask or request things, but they were gonna be drowned out by the large investors....

It will be interesting to see which they chose...long term though I'd think they would hold off for another year before reinstating the dividend. They could get a cash reserve built up, and then not be so dependent on the future credit of banks...but those institutional investors may want more return NOW.

I'm not going to stay away from a good small cap opportunity simply because of a lack of dividends, however. Smaller, growing companies should be reinvesting in their business and not throwing away money handing out sweeteners to their investors.

Dividends aren't the reason I'm staying away from GW stock. I'm staying away because I'm a long-term investor and I'm not confident in GW's ability to actually *grow* sales.

Edit: Ninja'd by ArtfcllyFlvrd

Edit #2: @Tethyr -- It'll be interesting to see what GW does. I tend to think that the big investors would be understanding if GW chose to reinvest and/or build up cash reserves, given the business/economic environment during the past two years.

Tethyr13 wrote: I think several of those are long-term institutional investors groups/pension type things....I am sure they WANT dividends, as well as Mr Kirby and the board....So they could reinstate dividends to make them happier right now....

Or they can re-invest more money and make the share price go higher if they can continue low costs, with sales gains...then the return comes later...

They may not want dividends for precisely the reason you just mentioned. If you really believe GW is turning things around, leave your money in the company and let it compound over the next couple of years as their business does better and better. It’s like a bank account; you can’t earn interest if you take money out. Why would you take money out if you’re expecting your interest rate to jump over the next five years? Now if you don’t think GW has turned a corner or you think business is heading south that’s a different thing entirely. But the moral of the story is Dividends =/= Good.

Let's wait for the details. My guess: Again less sales than last year, counterbalanced again by firing staff.
And we don't know the profit they expected that was surpassed, maybe they expected none after the massive anti-marketing (rumour control, Space Hulk, still no ads)

ArtfcllyFlvrd wrote:
That’s silly. By not paying a dividend the company is hanging on to equity/assets of which you own a certain percentage through your stock. Dividends are a double edged sword. Yes it is cash now but it is also money that is not being reinvested in the business and increasing the portion of the assets you own. Lots of companies don’t ever pay dividends anymore. If you want a physical cash flow either sell the stock or hope the company gets liquidated.

I prefer stocks that do both; grow AND pay dividends. A Taiwanese stock I bought into years ago, Himax (HIMX) paid me .20 something-cents per share last year (in the middle of the economic meltdown) and more than that in previous years while growing their share price over the long term (dipping lately due to some maneuvering as they are now double listed in the US and Taiwan). Banks normally do both as well; I used to receive quarterly dividends from Citibank while the stock price kept rising. Recession aside, there's no reason you can't have your cake and eat it too.

agnosto wrote:

ArtfcllyFlvrd wrote:
That’s silly. By not paying a dividend the company is hanging on to equity/assets of which you own a certain percentage through your stock. Dividends are a double edged sword. Yes it is cash now but it is also money that is not being reinvested in the business and increasing the portion of the assets you own. Lots of companies don’t ever pay dividends anymore. If you want a physical cash flow either sell the stock or hope the company gets liquidated.

I prefer stocks that do both; grow AND pay dividends. A Taiwanese stock I bought into years ago, Himax (HIMX) paid me .20 something-cents per share last year (in the middle of the economic meltdown) and more than that in previous years while growing their share price over the long term (dipping lately due to some maneuvering as they are now double listed in the US and Taiwan). Banks normally do both as well; I used to receive quarterly dividends from Citibank while the stock price kept rising. Recession aside, there's no reason you can't have your cake and eat it too.

I’m not referring to the stock price growing. Dividends by themselves can potentially make that grow because investors will pay for those expected dividends. But so can asset ownership. If those companies had skipped their dividend your stock would have ownership of X% of $100 million in assets instead of $98 million making it that much more valuable. Now which situation is better, X of 100 with no dividend or X of 98 with a dividend? It all depends on the company, the market, and what you expect for the future. But the fact remains that just issuing a dividend is not necessarily a good thing, it depends greatly on surrounding circumstances. And issuing a dividend by definition means that company has less money available to grow itself (not the same as the stock price) in the future.

For me, I don’t really think GW is over the hump, so I probably wouldn’t invest without regular dividends. Now on the other hand if I thought they were going to go bonkers and grow 50% by 2015, then screw the dividend. Keep the money in the company and compound on the growth. That compounding growth would be worth far more than a cash payment.

I'm trying to read between the lines a little bit, and I won't know for sure until I see the actual document.

GW uses the words, "pretax profit." Profit is defined as your gross sales minus your costs.

And then this line: "The Group's performance in the second half of the year to date has been somewhat better than the Board's expectations, with regard in particular to the gross margin and the continuing firm control of costs."

Translation: We made somewhat more money that we thought we would make because of firm control of costs.

What they're NOT telling you is that sales worldwide are probably down. Or by how much. They're just saying they made more money because they have lower costs. But that's what I said years ago when I worked for them; I expect their market share to continue to decrease.

@ Gorgon: Yes, very interesting (especially as a middling investor). I think the push will be for reinvest right now and no dividend announced until later next year, which would actually be 2 fiscal years from now before they pay out...

@ artfclly Flvrd: precisely. though of course I don't mind getting dividends, especially if I can reinvest it...

@ Kroothawk: I believe they have to give some notice in the UK due to tax laws. they had to announce this before (and a few years ago announce they were going to miss badly. I can't remember the UK law, but I think they have to prepare the taxman for their "meeting or exceeding of expectations". Though if they really have exceeded it is more likely (given they announced that costs were kept in check) that they have had an increase in sales AND profit. And I'd think the increase would be even bigger if you took out the extra R&D they seemed to have invested in the last year.....

Note that there are few companies the size of Citibank that DON'T pay a dividend. Even Microsoft caved several years back and started paying one. Those companies -- which are slow growers -- are in a very different place than a rapidly growing small- or mid-cap.

There are legitimate reasons to question why a company in a major expansion phase would be paying a dividend. The important point here is that every cent being paid to you isn't going into their business or balance sheet. It's sugar water being fed to you to keep you a fat happy investor -- and occasionally it happens that they're doing that to try to keep you from noticing fundamental issues with the company and/or keep their stock afloat.

@ ArtfcllyFlvrd. I understand your reasoning but as a relatively inexperienced investor, I vote with bank account rather than with an extreme long-view.


@ Scuddman. That and the closing of stores and offices has helped the bottom line on paper.

@ Scuddman – True, but a profitable $30 million/year firm is better than a non profitable $40 million/year. It’s not great and they still have big challenges ahead, but it is an improvement.

That is true. I did say once that GW sold more miniatures than any other company, so why don't they make any money? Because they spend too much...

That being said though, there is still an issue with decreasing market share and loss of customers. The way things are going, they won't always be the company that sells more minis than other companies. There are two sides to a business. Gross profit and costs. They've fixed one thing but haven't fixed the other.

By not paying a dividend the company is hanging on to equity/assets of which you own a certain percentage through your stock.

I'm not saying that companies should pay dividends, or that it's the smartest thing for their bottom line. I'm just saying that without dividends, it's just a popularity contest. What value does a stock have, if owning it doesn't pay you anything? The only value it has is the perceived value other people attach to it.

Like a baseball card.

A little piece of cardboard doesn't have any real value, but people will pay a lot for a card if it's rare and the player on it is "good."

And don't get me wrong, I like money as much as (or more than) the next guy. If I knew a stock was going to go up 100% over the next year, I'd happily buy it, dividend or not.

Ultimately business is about companies making a profit. Dividends (nominally) reflect the sharing of this profit with the company's ownership. There's a direct tie to actual economic processes. When you remove that reality, and just make it about a speculative popularity contest, it stops being about what the company is doing, and more about what random people THINK the company is doing. You're no longer investing in actual business, now you're investing in popular opinion.

To me, that's a damaging phenomenon, and it leads to the sorts of speculative BS that brought on the dotcom bust, etc.

Actually, I don't think we ever recovered from that mentality. Stock trading is still something of a flighty, faddy, get-rich-quick scam, rather than actual thoughtful investment in real, profitable companies.

Phryxis wrote:

I don't like going long on stock that doesn't make money for me through dividends.

I agree. I've always felt like stocks that don't pay dividends are like trading baseball cards. It's just not a real stock unless you're getting a cut of profits. No cut means you're not actually an owner.

Funny because there are many Companies that don't pay dividends. A Company should only pay dividends if they do not have any other capital projects that will not earn the Company a larger return. As an owner of the Company, you want the Company to succeed as once they get to the point where they are maximizing their projects and there are no other projects they need to do to increase their profit potential, then they should start paying back investors. Like all stock its all related to risk and reward - if the Company is struggling or has to payoff their debt, why would they want to pay a dividend out if you have some sort of balloon payment or something to that effect? Ownership encompasses more than just getting a share of the earnings and theoretically, the stock price reflects unpaid dividends.

@Scuddman - they use pretax profit as an indicator because they are required to file their tax return and things like expenses can affect your tax expense. There are a lot of things that investors want to look at as well - things like Gross Profit (GP - the Company's raw profit from operations), Earnings before interest, taxes, depreciation, and amortization (the mighty EBITDA that lenders look at to make sure you have the ability to pay your debt/interest), and if you invest in US Companies - the most important statement - the Cash Flow Statement (shows how the Company obtained and spent their money). Next, as far as production efforts go - they need to be more on a Just In Time basis. I see no problem moving slow moving minis to the Direct Only category. They should do that to all of their slow moving minis as these areas are one place they could start saving money. Make the models once a month and in smaller quantities than say Space Marines or Empire Infantry. You avoid the carrying and holding costs related to large batches.

@agnosto - I usually look for that as well. They are just harder to find. With banks, you run into another risk such as the bank being taken over by the Federal Reserve. If you're willing to take the risk, invest in a small local bank. When Citigroup or BofA decide to buy the bank, they usually buy all the shares at a substantial premium.


@tethyr13 - the Company is listed on the London Exchange and is require to file with the exchange on a periodic basis (in the US its whenever a significant event happens and quarterly) and there is a time limit after the Fiscal Year End (in the US its 75 days - for calendar YE's its the dreaded March 15 - which is when just about everyone has an earnings announcement). If for whatever reason they miss the filing deadline, all trading is frozen.

Thats my two cents.

Improved profit isn't bad of course, but they say nothing about improved turnover, which if it ever happens is when they are really starting to improve. I'm waiting for the final accounts to see whether they have improved their volume of sales at all, or whether they are simply being more efficient at squeezing more money out of less people, and are pissing less of it away in excess costs...

Osbad wrote:Improved profit isn't bad of course, but they say nothing about improved turnover, which if it ever happens is when they are really starting to improve. I'm waiting for the final accounts to see whether they have improved their volume of sales at all, or whether they are simply being more efficient at squeezing more money out of less people, and are pissing less of it away in excess costs...

Same here!

I hope there is some increase in volume, or we'll probably see another silly price hike, and soon!

Ah, who am I kidding? We'll be seeing that anyway!

I don't know why it does, but some of the prices STILL manage to shock and disgust me!

I'd love to pick up the new Lemartes model, but $17?!? Ouch!

Jin wrote:@aka_mythos - I would LOVE to believe that that will be the case. GW's track record hasn't been exactly great on that, though.

I said they'd be less harsh. Not that they wouldn't still try to stick it to the gamer. It'll cost you an arm and a foot instead of an arm and a leg. Look at this way, even though they've come out with some re-vamped kits and some new ones the prices have stayed fairly level, with a few acceptions. That is less harsh. Many of those kits lost stuff, I'm looking right at the IG tank accesory sprue, but that was to maintain the current price point. This shows GW has given at least some thought to price sensitivity. While I believe GW will be a kinder gentler drug dealer, it won't be an across the board thing. We'll just see a larger portion of new releases at "fairer" prices.

Since 'fair' is a relative term, I'm inclined to agree with you!

@aka_mythos - I agree to a certain extent. There certainly have been some great kits of late that are decently priced (the Dark Elf Cold One Knights is so far the best example, imo). Then there've been some absurdly priced kits (Empire Greatswords). Can't vouch for 40k stuff since I don't follow it as closely anymore, though I'm sure things are similar.

Still, their products have had a slight trend in "more options/less units" per box for the same price which effectively accounts to stealth price increases. While quality (for the most part) has certainly improved, bottom line, we still keep paying more per model with time. If we get some more of the "fairly" priced kits, I certainly won't complain, but I'm also not going to hold my breath for it.