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http://www.londonstockexchange.com/exchange/prices-and-news/news/market-news/market-news-detail.html?announcementId=10586777

Games Workshop Group PLC ("Games Workshop" or the "Group") announces its preliminary results for the year ended 30 May 2010.



Highlights



· Revenue at £126.5m (2009: £125.7m)

· Revenue at constant currency* at £121.8m (2009: £125.7m)

· Operating profit - pre-royalties receivable at £13.0m (2009: £5.5m)

· Operating profit at £16.1m (2009: £9.0m)

· Pre-tax profit at £16.1m (2009: £7.5m)

· Earnings per share of 48.4p (2009: 17.6p)

· Year end net funds/(borrowings) of £17.1m (2009: £(1.6)m)

· Proposed gross dividend per share of 25.0p (2009: nil)



*Constant currency revenue is calculated by comparing results in the underlying currencies for 2009 and 2010, both converted at the 2009 average exchange rates.



Mark Wells, CEO of Games Workshop, said:



"We have a simple strategy at Games Workshop. We make the best fantasy miniatures and games in the world and sell them globally at a profit. This year we have improved Games Workshop's profitability and cash flow significantly. This has enabled us to repay our borrowings and recommend a dividend to our shareholders.



Games Workshop is now a much leaner business which is preparing itself for many years of steady profitable growth.

GW doubled their profit on flat revenue = no changes to current strategy!

And they felt confident enough to issue a dividend despite the flat revenue.

I wonder how much of the revenue stream changed from sales of gaming materials to licensing. A significant shift to the latter, which is very little cost to the company = significant PT contributions I imagine.

Overall I'm stunned. I'd be concerned though that this type of gain is a 1 period shift. Sooner or later you need to bring revenues up to show growth in the company. I'd be more interested to see how they intend to do that with the games/hobby end of the business given the economy. Their pricing structure moves the games well away from "kids play" to serious hobby expenditure (Like model trains) and I'm not sure how easy additional penetration into the market may be.

At a glance, their revenue looks to actually be not flat, but down, taking inflation into account. Calling profits due to cost cutting "growth" seems a wee bit dubious...

As predicted: Revenue down considerably (in constant currency and in real terms, i.e. after taking into account inflation), yet profits are up and their debt is paid off.

No surprises then (IIRC I said this was probably the case a couple of weeks back. Can't be bothered to find the post now, but it was obvious from the tone of their preliminary profit announcement last month). The shareholders will be happy. Or at least those needing a dividend to swell their cashflow. Those who are truly interested in the long term growth and development of GW will be less impressed and be getting on the backs of Kirby, Wells and co, to "do something". Now, more than ever, a buy-out seems possible. I think the only thing holding one back right now is the lack of availability of speculative finance to potentially interested parties.

Interesting quotes from the schpeel:

Sales are down on last year on a constant currency basis despite strong growth from the new Games Workshop Webstore. We increased the number of Hobby centres by 27 stores during the year, but the growth from these was not able to offset the decline in existing stores.

All is not well in GW retail-land, yet they still persist in developing in this area of operations. Despite acknowledging that they are primarily a manufacturer not a retailer... Ok...

Clearly they think the way forward is to squeeze their (fewer) remaining customers even harder for every penny and cent, and to search the globe for more like-minded addicts that they can squeeze just as hard.

The sales situation in Europe and North America is absolutely dire, while Australia is doing well.

Also there's a lot in the blurb of the full report about importing Australian management style into the rest of the operation. Apparently all the managers are being trained by Ozzies. Which is OK, I've got nothing against Ozzies, but we all know how out of whack Ozzie prices are in comparison to the rest of the world. So guess who's pricing strategy GW are likely to follow? Any excuse for a double-digit price-hike eh?

I've attached a couple of interesting graphs. The first shows turnover and profit over time discounted by inflation. It shows, as you would expect, that all their profits have come from increased efficiency and price rises rather than volume growth. The second shows the break down of turnover by region over time. As I said above, the situation in Europe and North America is dire.

One caveat on this latter graph - this year GW have lumped the UK into a larger "Northern Europe" grouping for sales area, and have therefore recategorised some sales away from the Continental Europe category, so we aren't comparing apples with apples. However if you compare this year's Continental Europe + Northern Europe total sales of £72.7M with last year's Continental Europe + UK sales figures of £81.2M we get a fall of over 10%, which when you consider May's RPI was 5.1%, means a "real" fall of 14.8% in sales.

In the US, sales have fallen by 6.3% in cash terms. I haven't got access to US RPI figures off hand, but again, proxying the UK RPI, this means a real decrease in sales revenue of about 10%.

Neither of those facts speak well for GW's core

Something else to throw into the pot is the £2.5M of licence income GW received in 2010. Down from the £3M they received in 2009, but still better than a smack in the face. Given this accounts for around 1/5 of their profits this yeear, yet has cost them absolutely nothing, I think we will see the GW brands being pimped all over the place in future.

So, yet again, GW avert crisis. As we expected. But they continue to haemhorrage customers at an alarming rate.

That was my thought Laughing Man, though the reduction is relatively slight.

However, recommending dividend on this performance is a tad questionable from a hobby point of view. (would prefer to see them reinvesting at this point imho)

Chibi Bodge-Battle wrote:That was my thought Laughing Man, though the reduction is relatively slight.

However, recommending dividend on this performance is a tad questionable from a hobby point of view. (would prefer to see them reinvesting at this point imho)

GW have long since stopped making decisions based on the hobby side of things. With the current crop of management, it is all about the bottom line; nothing more, nothing less.

I just forwarded this result page to our finance director and strategic liaison manager, both of whom are geeks and have a passing interest in GW.

Both of whom are staggered at the commentary from Mark Wells, whos constant reference to IP and defending against others and building fortress walls they both described as 'paranoid', 'insular' and aggressive, they also commented on the woeful lack of mention of the customer and what the customer is getting and how the customer is being treated, priority given over far too much to profit for the shareholder, something that astute investors would be highly wary about.

They also highlighted the actual reduction in sales and the increase in shops when GW should be reducing it's stores further and looking to strengthen ties and relations with indy shops.

Also the schism between slagging off 'playing games on a screen' on one paragraph whilst emphasising the profit generated by computer games using GW IP on others. This alludes to a fundamental disconnect between what GW sees as an 'evil' and what can actually make it money.

Both of them were taken back by the arrogance of the summary.

JohnHwangDD wrote:GW doubled their profit on flat revenue = no changes to current strategy!

No, they paid down debt last year. Without that debt they had more money left as profit.

"We no longer spend money on things we don't need, like expensive offices or prime rent shopping locations or advertising that speaks to the mass market rather than our small band of loyal followers. " Mark Wells, CEO


The rest of the world refers to them as 'customers', no followers... This isn't a cult, we are not beholden to you Mr Wells. This is a picture perfect example of what's wrong at the top of this company. The above comment reeks of the low perception the management have of it's consumer base.

aka_mythos wrote:

JohnHwangDD wrote:GW doubled their profit on flat revenue = no changes to current strategy!

No, they paid down debt last year. Without that debt they had more money left as profit.

Hmmm, as far as I am aware, their cost cutting measures have extended into this year as well. They certainly aren't done with it yet; at least not here in the UK (and possibly EU too). They have been steadily reducing store staffing levels for some time now. I agree; they are working on reducing debt but it comes at a price - they are 'fudging' the figures, for want of a better word, by cutting costs and hiking prices, making their profit look better than their sales figures would suggest. They have been doing this for a couple of years now but it isn't a viable long-term business strategy for survivability. I am surprised they haven't been called on it yet.

filbert wrote:Hmmm, as far as I am aware, their cost cutting measures have extended into this year as well. They certainly aren't done with it yet; at least not here in the UK (and possibly EU too).

They have made a provision for £1.5M in the accounts for forseeable redundancy costs in 2010/11.

@Osbad: In your graphs, what is 'Turnover'? Not sure if I'm missing something in general, or if it's just a different term used in the UK vs the US.

I'm not sure whether the US uses a different term, but here it is total sales revenue for the year. I.e all the cash they receive from selling toy soldiers and related items (from customers via shops, and from retailers via trade accounts), net of VAT and other sales taxes. Note that licence revenue is excluded from turnover and is included lower down the P&L account as other income.

MeanGreenStompa wrote:"We no longer spend money on things we don't need, like expensive offices or prime rent shopping locations or advertising that speaks to the mass market rather than our small band of loyal followers. " Mark Wells, CEO


The rest of the world refers to them as 'customers', no followers... This isn't a cult, we are not beholden to you Mr Wells. This is a picture perfect example of what's wrong at the top of this company. The above comment reeks of the low perception the management have of it's consumer base.

What? when did they avertised to the mass market? Or used publicity in any diferent ways than the ussual client "word of mouth" or net of stores? Maybe I missed this but I cannot recall any advertising campaign.

"Small band o loyal followers" so vets are on the boat again?

filbert wrote:

aka_mythos wrote:

JohnHwangDD wrote:GW doubled their profit on flat revenue = no changes to current strategy!

No, they paid down debt last year. Without that debt they had more money left as profit.

Hmmm, as far as I am aware, their cost cutting measures have extended into this year as well. They certainly aren't done with it yet; at least not here in the UK (and possibly EU too). They have been steadily reducing store staffing levels for some time now. I agree; they are working on reducing debt but it comes at a price - they are 'fudging' the figures, for want of a better word, by cutting costs and hiking prices, making their profit look better than their sales figures would suggest. They have been doing this for a couple of years now but it isn't a viable long-term business strategy for survivability. I am surprised they haven't been called on it yet.

Thats been a part of their pay down efforts, but its also a long term strategy restructuring to optimize profitability. They had scheduled repayment for Q1 this year, so if they've increased their profit/revenue ratio, it can only be because that debt has been paid down. According to the above they are down to £1.6M, which is only short term operation loans, down from £12M, long terms loans, this time last year. This year they have £16.1M profit up from about £10M. As there profitability grows their ability to take risks on new products will as well.

I'm no money man but none of that sounds particularly good.

As a niche business, GW is actually doing fine.

Look towards what GW versus other larger corporations such as Hasbro, which is not a niche business but a full blown diversified company with many product portfolios has done.

http://online.wsj.com/article/BT-CO-20100719-709615.html

Hasbro reported a profit of $43.6 million, or 29 cents a share, up from $39.3 million, or 26 cents a share, a year earlier. Revenue decreased 7% to $737.8 million.

Analysts polled by Thomson Reuters most recently estimated earnings of 24 cents and $748 million in revenue.

A company that made almost 750 million dollars has only about 43.6 million in profits to boast about.

I just read the 'our strategy' section. I feel like I need to be decontaminated.

we will recruit lots of customers into our hobby and they will enjoy spending their money on the products we make - Only if you're holding a gun to my head nowadays after the umpteen price rises.

people who are interested in collecting fantasy miniatures will choose the best quality and be prepared to pay what they are worth - Wow. Arrogant prigs.

Our continual investment in product quality, using our defendable intellectual property, provides us with a considerable barrier to entry for potential competitors: it is our Fortress Wall.

That's a bit hyper aggressive. Most smaller companies cooperate and complement each other, GW not only want to be the biggest fish, but the only fish in the pond.

And yes, we got a taste of you wanting to tightly control your IP earlier this year. Although it's a bit rich to complain about "imitation" when your products are largely based upon generic fantasy races and concepts laid down in things like 'Lord of the Rings'. Perhaps this approach to aggressively attacking fansites over IP, which seems to be led from the top, should be reviewed in light of your very reliance upon your 'small band of loyal followers'.

NAVARRO wrote:
"Small band o loyal followers" so vets are on the boat again?

Yes and no, I'd imagine.

GW still really doesn't care about the veterans - not nearly as much as the 'new entrants' market.

And I still think advertising and finding ways to truly expand their customer base would be a good thing...

Just found the bit where Kirby agrees with me:

That is where we are today; a leaner, more efficient business, but still not showing good growth.

He usually gets around to it eventually!

Why pay for advertising when the small band of followers will pay for it for you.
Of course I am referring to WD

It's official! I'm a numpty!

I used the wrong Geographical split of information from the wrong note.

The corrected graph is below:

Not a vast difference, but you can see that most of the pain is still coming from plummeting sales in Europe, and the US is dead in the water. And expansion in the Far East and South America is all very well, but its proving expensive - they may have increased turnover there, but they also increased their losses.

Honestly people who are complaining about cost cutting measures are odd to me. When they cut a cost and revenue stays the same, that's a good thing. On the whole, when you get rid of costs, that doesn't automatically mean you're in for the short haul. Those costs are still streamlined the year after, it's not like those costs will now reappear and since revenue has stayed the same, that means it hasn't noticeably affected their ability to generate sales.

Thus, one can easily conclude that the business has been streamlined (which anyone in business can tell you GW's old model was getting unsustainable) their business and achieved a higher profit-cost ratio. One thing they should still focus on is dominating the NA market because it has perhaps the greatest potential.

Osbad wrote:I'm not sure whether the US uses a different term, but here it is total sales revenue for the year.

Ah, okay. I think we would call that revenue, or something like that.

tallshortguy wrote:Honestly people who are complaining about cost cutting measures are odd to me. When they cut a cost and revenue stays the same, that's a good thing. On the whole, when you get rid of costs, that doesn't automatically mean you're in for the short haul. Those costs are still streamlined the year after, it's not like those costs will now reappear and since revenue has stayed the same, that means it hasn't noticeably affected their ability to generate sales.

Sales is precisely what ain't happening...

"Our results for 2009/10
Sales are down on last year on a constant currency basis despite strong growth from the new Games Workshop Webstore. We increased the number of Hobby centres by 27 stores during the year, but the growth from these was not able to offset the decline in existing stores."

Again, what is principally being criticised is not cost cutting exercises but that the reductions in staff payment and shop fronts, along with the lease of IP, is being touted as profit, when the figures and the report clearly state actual sales are down.

Long term, this is not sustainable.

MeanGreenStompa wrote:

tallshortguy wrote:Honestly people who are complaining about cost cutting measures are odd to me. When they cut a cost and revenue stays the same, that's a good thing. On the whole, when you get rid of costs, that doesn't automatically mean you're in for the short haul. Those costs are still streamlined the year after, it's not like those costs will now reappear and since revenue has stayed the same, that means it hasn't noticeably affected their ability to generate sales.

Sales is precisely what ain't happening...

"Our results for 2009/10
Sales are down on last year on a constant currency basis despite strong growth from the new Games Workshop Webstore. We increased the number of Hobby centres by 27 stores during the year, but the growth from these was not able to offset the decline in existing stores."

Again, what is principally being criticised is not cost cutting exercises but that the reductions in staff payment and shop fronts, along with the lease of IP, is being touted as profit, when the figures and the report clearly state actual sales are down.

Long term, this is not sustainable.

It's down by 4 mil, which is small enough that it can just be considered a slightly down year and direct correlation to cost cutting measures simply cannot be definitively proven. Also, the closing of shops is largely a good thing because their profitability is heavily waning as most people purchase either online or through a different retailer outside of the UK. IP lease revenue was actually down some so the further development of games would increase that.

We're in a recession. A company that sells luxury goods (economically speaking, not like Ferraris and yachts) is going to sell less during a recession. That they were able to remain profitable means they're making intelligent management decisions for the economic environment they're operating in.

Does anyone realistically expect a luxury good company to grow during a recession where unemployment is at 10% (or higher) and people are struggling just to get by?

Redbeard wrote:We're in a recession. A company that sells luxury goods (economically speaking, not like Ferraris and yachts) is going to sell less during a recession. That they were able to remain profitable means they're making intelligent management decisions for the economic environment they're operating in.

Does anyone realistically expect a luxury good company to grow during a recession where unemployment is at 10% (or higher) and people are struggling just to get by?

http://uk.reuters.com/article/idUKTRE66K5M020100721

(Reuters) - Spending on luxury goods by affluent Americans is forecast to grow by $28 billion in 2010, experts said on Wednesday, and the wealthy are happy despite most believing the United States is still in recession.

The "Survey of Affluence and Wealth in America" found luxury spending would rebound for the first time in three years, led by purchases of automobiles, services, travel and children's clothing.

But the online poll of 1,900 households with an average annual income of more than $235,000 by American Express Publishing and Harrison Group showed 94 percent still believe the United States is in recession.

The households surveyed between January and April represent 10 percent of Americans and 50 percent of all retail sales.

"Interest in luxury is trending up, but this interest is qualitatively different from the unbridled enthusiasm that characterized ... the mid-2000s," said Jim Taylor, Harrison Group's vice chairman. "People take pride in the way they have managed their finances and family through the recession."

"We think it's going to be a pretty good Christmas (for retailers)," he said.

And this pride had led to happiness among the rich, with 71 percent saying they are happy, up from 40 percent in 2007.

"It's because they didn't know they could survive something this bad," Taylor told the Luxury Marketing Council of New York on Wednesday. "They have got competent, they have gotten close to their family, they have self-esteem from their ability to handle a crisis."

"Happiness is now the abiding object of affluent American life, not success," he said. "They're really happy with their ability to operate under pressure."

More than 80 percent of families are now eating at least four meals a week together, compared with 16 percent five years ago, Taylor said.

The survey also found the recession has resulted in more people measuring their success by their personal lives, not their careers. Only 45 percent said they were successful in 2007, while this year 76 percent consider themselves successful in their personal life and 67 percent in their career.

"In (2007) people were really measuring themselves about the bigger house they were going to buy ... the better vacation, the next promotion," said Cara David of American Express Publishing.

"Few people are judging their success that way anymore," she said. "It's about the lives that they're living rather than the living that they're making."