GW "return to growth"?

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**Osbad**

W'aall, who'd a thunk it?

For the first time in years, GW have seen a "real" increase in revenue for like-on-like periods!

Due largely to price increases in metals sales and currency fluctuations, but still, a profit is a profit!

HALF-YEARLY REPORT

Games Workshop Group PLC ("Games Workshop" or the "Group") announces its half-yearly results for the six months to 30 November 2008.

Highlights: * Revenue at £61.2m (2007: £53.9m)
* Gross margin - pre-exceptional at 71.4% (2007: 70.1%)
* Operating profit - pre-exceptional and pre-royalties receivable at £3.3m

(2007: £0.5m) * Operating profit - pre-exceptional at £3.8m (2007: £1.2m) * Operating profit at £3.8m (2007: £0.6m) * Pre-tax profit/(loss) at £3.1m (2007: £(0.1)m)
* Earnings/(loss) per share of 4.9p (2007: (0.4)p)
Mark Wells, Chief Executive of Games Workshop, said:

"The work needed to establish growth in all channels in all territories goes on with some significant progress being made in this half-year where, with the exception of Continental Europe, we have been able to deliver local currency sales growth in all territories."

6 mths to 11/2008 (6 mths to 11/2007)

Revenue £61.2m (£53.9m)
Operating profit - pre-exceptional and pre-royalties receivable £3.3m (£0.5m)
Royalties receivable £0.5m (£0.7m)
Operating profit - pre-exceptional £3.8m (£1.2m)
Exceptional items - cost reduction programme £nil £(-0.6)m
Operating profit £3.8m (£0.6m)
Pre-tax profit/(loss) £3.1m £(-0.1)m
Basic earnings/(loss) per share 4.9p (-0.4)p

INTERIM MANAGEMENT REPORT

Results

The work needed to establish growth in all channels in all territories goes on with some significant progress being made in this half-year where, with the exception of Continental Europe, we have been able to deliver local currency sales growth in all territories.

As is usual, our three routes to market - independent retailers, direct via telephones and our web store, and our own Hobby centres - have had mixed fortunes. Those people looking for evidence about the health of the Hobby we service will take great comfort from the UK achieving sales growth in all three channels and Forge World's extremely strong showing (29% sales growth).

In a very difficult period for input costs - in particular with the price of commodities such as tin and our utility costs - it is pleasing to report that we have increased our gross margin from 70.1% in the last half-year report to 71.4% in this one. This speaks volumes both about the discipline and attention to detail shown by our supply side staff and the swift action taken in sales businesses to increase metal retail prices.

Following last year's restructuring, overheads remain under control. We have opened 14 Hobby centres during the period and closed eight, taking our total to 340.

Compared to November 2007, sterling has weakened by 12.7% against the US dollar and by 13.6% against the euro. We have shown below our sales progression in local currency terms to permit a more meaningful comparison.

Our net borrowings as at 30 November 2008 stood at £11.0 million, a reduction of £4.2 million from the balance at November 2007. Our banking facilities were renewed in July 2008, as set out in the 2008 annual report (page 11). We have complied with the conditions of all banking covenants during the period.

Prospects

As a niche business we do not usually suffer or benefit from, macro-economic factors. Whilst we are pleased with our half-year results, it would be foolish not to sound a note of caution for the short term as we sell through many independent retailers all over the world most of whom are far less well protected than we are.

The principal risks and uncertainties for the balance of the year remain as described in our 2008 annual report (page 6). These risks lie in the ability of our sales businesses to establish and maintain sales growth and in our manufacturing operation to control input costs. The Hobby is healthy and our challenge is to stay focused on what needs to be done to service it efficiently and cost effectively.

Games Workshop's core fundamentals remain strong. We continue to grow our sales, our gross margins are improving, our costs are under control, our return on capital is increasing and our cash flow is good. The board remains confident in the future growth and profitability of the Group.

**LunaHound**

Maybe they finally figured out a happy customer = a buying customer.

Introduction of Apocalypse i believe really helped.

**Scottywan82**

I still can't believe they "usually do not suffer or benefit from macro-economic factors". Let me tell you, when money gets tight, the hobby goes.

**Kilkrazy**

Scottywan82 wrote:I still can't believe they "usually do not suffer or benefit from macro-economic factors". Let me tell you, when money gets tight, the hobby goes.

That's true for some people, and others trade down and buy more GW stuff instead of going to the opera or something.

GW will have been greatly helped by the collapse of the £ sterling, much of which has happened since the end of the period covered by that report. So I would expect their next quarter to be a good one just because of currency fluctuation.

**Frazzled**

Very good.

**lord_blackfang**

I'm pretty sure they said on either D6G or TWIW that the "geek" industry hasn't seen a decline in sales.

What's surprising is that GW realize that while they're not affected directly, many independent retailers are.

**Mad Doc Grotsnik**

Kilkrazy wrote:
Scottywan82 wrote:I still can't believe they "usually do not suffer or benefit from macro-economic factors". Let me tell you, when money gets tight, the hobby goes.

That's true for some people, and others trade down and buy more GW stuff instead of going to the opera or something.

GW will have been greatly helped by the collapse of the £ sterling, much of which has happened since the end of the period covered by that report. So I would expect their next quarter to be a good one just because of currency fluctuation.

Indeed...People tend to look at value for money rather than cost during times of belt tighetening.

For example, I am considering taking Game up on the offer for an X-Box 360 with Gears of War, Gears of War 2 and Halo 3 for £190.00. Not cheap, but cost effective in the long term. After all, with 3 games, thats a months worth of entertainment at a minimum.

Same for Hobby Games. Initial outlay can be pricey sure, but then thats it for a good 6 months, or even longer. Splitting the cost down over the gap between raising that army and the next (I aim for a year myself) and it is much more reasonable.

**Howard A Treesong**

I see Forgeworld is thriving. Consider also the fact that they are frequently slow on orders because of the backlog and I think there's an obvious place for investment with extra staff and equipment.

**Mad Doc Grotsnik**

Indeed.

IIRC, Forgeworld *were* or *are* looking into a mechanised casting process last year.

What happened beyond that I honestly don't know. The above is about as accurate and informative as I can get on this one.

**George Spiggott**

What were the main releases during this period?

**Kilkrazy**

5th edition
AoBR
New SM codex
A bunch of revised SM kits and figures (I think)
Orks?

Plenty of good stuff.

I don't know about the Fantasy side.

**Mad Doc Grotsnik**

Dark Elves I think. Plus possibly the Daemons release?

Lots and lots of lovely stuff coming out, and in my area at least, a definite resurgence of interst. I reckon it's down to the 'classic' armies getting suitably decent revamps, complete with good rules and lovely models. But this is purely a localised observation. Your experience might be different!

**LunaHound**

Vampire, Dark Elves, Hordes of Chaos for fantasy side

**George Spiggott**

So with '5th edition', 'AoBR', 'SM codex' and SM kits' being released you have four of Games Workshops biggest sellers and a little bit of Christmas all in one six month period.

It'll be interesting to see if GW can sustain this.

**Mad Doc Grotsnik**

I should think so.

It certainly appears, at this moment, their streamlining and cutbacks have made an impact of some kind on their bottomline.

Of course, with the Credit Crunch and Britain being firmly in the grip of recession now, who knows?

**Osbad**

I think the key thing in seeing turnover rise (apart from the value of sterling and also interest rates falling towards the end of the period) was 5th edition was perceived as a vast improvement over 4th. It got me into the game after 20 years of avoiding it, so it must have done something right!

US and UKsales have improved and European sales have continued to slide - which would indicate sales denominated in Euros have reduced. I suspect many Europeans are ordering online from the UK as it is so much cheaper. It would appear many US citizens are happy to still buy in $ though, so they must be doing something right at last over the pond - maybe the strategy to repair their relationships with Indie stores has helped? Maybe reducing the Canadian $ price has also helped? Maybe 40kRadio and DiceLikeThunder are pumping up the interest? Who knows?

**two_heads_talking**

lord_blackfang wrote:I'm pretty sure they said on either D6G or TWIW that the "geek" industry hasn't seen a decline in sales.
.

I disagree, geeks now are so much less geeky than those of the 80's.. It's a dumming down factor. In the 80's a geek wasn't cool and had to work hard to keep it that way. Now, geeks are a dime a dozen, they all think they are cook with their IT jobs and as such, the average geek isn't worth as much as an original geek.

Bring back the Nerds of the 80's and send this new breed of geek replication to the glue factory. Shoot, the new geeks don't even wear the right gear or glasses anymore, they all wear contacts and use ipods..

**Kilkrazy**

George Spiggott wrote:So with '5th edition', 'AoBR', 'SM codex' and SM kits' being released you have four of Games Workshops biggest sellers and a little bit of Christmas all in one six month period.

It'll be interesting to see if GW can sustain this.

Exactly. GW need to publish codexes and new models for the other armies quicker than they do at the moment.

**Shep**

Scottywan82 wrote:I still can't believe they "usually do not suffer or benefit from macro-economic factors". Let me tell you, when money gets tight, the hobby goes.

I have to strongly disagree here as well. I work in the entertainment business. Movies have never been adversely affected by bad economies. Even in the great depression the movie business was largely unaffected.

Paul Blart made $21 million last week. I think I just blarted in my pants. Underworld made $20 million, despite getting the kinda reviews we knew it was going to get.

I equate warhammer as entertainment expenditure, and cost efficient compared to things like vacations, new cars, new clothes, new home furnishings/home electronics.

A guy who is already in the game of 40k, will probably drive his crappy car another year, he won't go to hawaii, he'll wear out last years spring collection rather than go clothes shopping, and he'll watch battlestar galactica on his smaller low res tv.... but he'll be able to get $$ together to buy the new models he wants to work on.

People will spend money to escape, and when you can make a reasonable purchase for $50.00, I think they can look past the costs associated with it.

I also think the streamlining and cost cutting that GW has done has had a hand in this turnaround. I lament the loss of the full bits service. And some of their new boxing policies still vex me (but for the most part I'm on board with their new packaging) But its clearly a lot easier for them to manage. And probably allowed them to release some Trolls into the wilderness to save more money.

**Mad Doc Grotsnik**

Oh, and we had (I think this fits the window under discussion..such things confuse me no end!) The Realm of Battle Board, which I understand sold really quite well.

**lord_blackfang**

two_heads_talking wrote:
Bring back the Nerds of the 80's and send this new breed of geek replication to the glue factory. Shoot, the new geeks don't even wear the right gear or glasses anymore, they all wear contacts and use ipods..

You're wrong there! The "cool" people use iPods. Geeks do their research and find something with equal performance for 1/4 the cost

**Scottywan82**

Shep wrote:
Scottywan82 wrote:I still can't believe they "usually do not suffer or benefit from macro-economic factors". Let me tell you, when money gets tight, the hobby goes.

I have to strongly disagree here as well. I work in the entertainment business. Movies have never been adversely affected by bad economies. Even in the great depression the movie business was largely unaffected.

Paul Blart made $21 million last week. I think I just blarted in my pants. Underworld made $20 million, despite getting the kinda reviews we knew it was going to get.

I equate warhammer as entertainment expenditure, and cost efficient compared to things like vacations, new cars, new clothes, new home furnishings/home electronics.

A guy who is already in the game of 40k, will probably drive his crappy car another year, he won't go to hawaii, he'll wear out last years spring collection rather than go clothes shopping, and he'll watch battlestar galactica on his smaller low res tv.... but he'll be able to get $$ together to buy the new models he wants to work on.

People will spend money to escape, and when you can make a reasonable purchase for $50.00, I think they can look past the costs associated with it.

I also think the streamlining and cost cutting that GW has done has had a hand in this turnaround. I lament the loss of the full bits service. And some of their new boxing policies still vex me (but for the most part I'm on board with their new packaging) But its clearly a lot easier for them to manage. And probably allowed them to release some Trolls into the wilderness to save more money.

While I can almost agree on the premise of what you propose here, if this is all true during a downturn in the economy, why is GW just now making a profit? And why is it so small?

Die-hard fans WILL always buy, no matter the macro-economic factors. But that isn't what puts you over the top. It's moms and dads and 10year old kids. These are the people who are affected by macro-economic factors and are the people GW should be concerned about losing as customers. Saying they aren't affected is nonsense. To steal your example, how much would Mall Cop have made during the summer instead of at tax time? Or if the economy was booming instead of declining. 21million is great. It's not great for Hollywood. Not even in the top 100. Or 300.

Also, when he made this statement how many other people thought less of the declining economy than of other macro-economic factors like the price and availability of substitutes, or complementary goods? The economy IS affecting the wargaming industry, yes? GW is part of that industry. Therefore they are affected. If other, comparable products are cheaper, they may take some of GW's market share. If complimentary goods (glue, paints) go up in price people may buy less because paying $4 for a can of paint is a bit much. Or they may buy Vallejo paint for less, and GW's profits will decrease. It's a matter of scale. GW will always have fans. So does GM.

And particularly considering how much debt GW has, and how they love to borrow to pay dividends, they are doubly affected by changes in interest rates and the willingness of banks to lend money. At least now that will be cheaper. If they can get the cash.

**skkipper**

my sandisk player and bag full of sd cards does my musc well. and it takes a "AAA" battery. I can use my rechargeables or pick up some batteries from any store if it goes flat.
buying the tank for your army will not change. College and high school students never have money but they have enough for their hobbies. you will see attendance at events that you need to travel to dip, but if you hold back on getting the new car you suddenly have $300 dollars a month to spend.

entertainment sales will be the last to go down

**Necros**

I'm doing pretty crappy in this economy right now. Job cut my hours to part time, I collect unemployment for the 3 days a week I'm not working and spending a lot of time hunting for a new full time job. I can still keep my bills paid and set aside some cash, so that aside cash of course gets spent on army men

I think it's great that GW is starting to see some improvements. I think Apocalypse was great for them and I really look forward to the new kits they'll be making for it in the future. Kinda makes me hesitant to buy forge world stuff now though other than simple things like tank doors or alternate turret designs and stuff like that.

**Mad Doc Grotsnik**

Scottywan82....

£11million in debt for a Company the size of GW is actually surprisingly small. Add in that they *own* their production facilties (nothing Leased) and they are actually in rather good shape, all things considered.

Plus, as they said, it's £4.2million down on 2007...thats pretty good going as well. GW have a lot of Capital on which to secure loans.

In Britain, although we have had a *lot* of companies go under, most notably Woolworths (nothing to do with the US Woolworth) had substantial Debts and had been performing very badly for years. I mean, Woolies died with £300million of debt on it's books...

As to people going for cheaper paints like Vellejo. Perhaps. If they know about them. And can get hold of them relatively easily. My mate swears by them, but in order for me to get some I have to go to London (£18 return on the Choochoopuff) which neatly negates and all savings I might have made on them. Same with Interwebs shipping. I'd have to order sufficient Quantities to make a saving once that is taken into account. Or I can nip to GW on my Lunchbreak and grab what I need, at no extra cost.

Macroeconomics...GW have considered this I'm sure. And offering all you'll need in a single store, with an instore, FREE Mail Order service (provided it's sent to Store of course, otherwise it's a few quid more) means it's hard to say no, especially when Indies in the UK (still far and away their biggest market) are few and far between.

Add in the majority of people buying are simply not that clued up about the wider world of wargaming (GW are actually very clever right here!) and they may not even be aware of the alternatives.

**two_heads_talking**

lord_blackfang wrote:
two_heads_talking wrote:
Bring back the Nerds of the 80's and send this new breed of geek replication to the glue factory. Shoot, the new geeks don't even wear the right gear or glasses anymore, they all wear contacts and use ipods..

You're wrong there! The "cool" people use iPods. Geeks do their research and find something with equal performance for 1/4 the cost

you are right.. no ipods on nerds.. check.

**winterman**

My economics-fu is weak but wouldn't the low price of a barrel of oil (and possibly other materials, services etc) eventually lower production costs and thus the current economy does have an impact on their bottom line?

**Scottywan82**

All of which I can agree with, but it seems that people are arguing both ways.

On the "experienced gamer" end of their customer base, you have people who DO know about cheaper alternatives and possibly have competition for their sales dollar. But the argument is that they will continue to a.) support GW as loyal customers, and b.) will sacrifice the urchase of other luxury goods in order to keep supporting GW.

On the "new moms and dads" end, they may not have any brand loyalty, and certainly aren't doling out $15 for a single pewter miniature for their middle-high school aged child every week. But there, the argument is, that somehow those buyers will a.) continue to have enough money to purchase their new miniatures, and b.) they may not know about cheaper alternatives and will therefore continue to purchase things at GW.

All that tells me is that some people are not affected by the economy right now, and will continue to buy GW. It offers no economic reason besides the economies of scale advantages that GW has, and that gW is relatively well known compared to other wargame companies. Polling people who post on these forums isn't really a good sample. Peopel like us don't make up 90% of the revenue for GW. I imagine it's more like 65%. The other 35% is casual gamers, people talked into buying stuff by their more enthusiastic friends, and parents of children who play.

And then there is the FLGS stores (a much larger concern in the US than in the UK, I know - used to work at the Brent Cross GW store) that are not seeing the same level of business. More people are turning to places like the Warstore for their discount prices in order to keep up with their own demand while the supply of cash dwindles. This doesn't bode well for FLGS's which in turn hurts GW, and ALL wargame manufacturers.

Point is, GW is affected by the economy. And my comment sounded irritated because when they plug their ears and shout lalalalala, it is indicative of behavior we've seen in the past like rampant price-hikes, and ignoring the wants of their customers.

**Mad Doc Grotsnik**

I'm not affected by the downturn at all right now.

I have a fixed Rent, a steady secure job (trust me, we're doing ok!) and no debts.

The same largely goes for the younger demograph, such as Secondary School kids with Part Time jobs. They will still have their Paper Round, they will still spend said money on their models.

Mums and Dads are liable to spend on it as it's cheaper than getting the little sod an X-Box and needing to buy a new Game every month. Parents are surprisingly ok with the prices. Despite what you hear on the Internet, I can assure you that I have never had a parent 'walk out in disgust' at the prices. Ever. Either when I worked for GW or in my years as a customer.

You are right about the FLGs. IF enough people go Online Shopping for their Plastic Crack, lots will go under. But then, thats why GW ceased trading some years ago with Web *Only* Stores. They heard complaints about unfair competition from their FLG Customers, and acted accordingly. It is very much in GW's interest to keep the FLGs about, especially as in the current climate they might well slow down expansion plans (unless of course Unit Lease prices are dropping in which case they might speed it up)

**JohnHwangDD**

Osbad wrote:W'aall, who'd a thunk it?

Me, along with the rest of the non-Tournament crowd.

GW wrote:* Revenue at £61.2m (2007: £53.9m)
* Operating profit at £3.8m (2007: £0.6m) * Pre-tax profit/(loss) at £3.1m (2007: £(0.1)m)

So they made about 5% profit? Not bad!

GW wrote:Forge World's extremely strong showing (29% sales growth).

Selling Warhound Titans and such is a solid business in the Apocalypse-era of 40k. As expected. Tho note that FW didn't sell any Baneblades during this period, so there's a big chunk of money going toward Bio-Titans and other cool stuff. This bodes very well for the future, as it means that more and more Apocalypse-focused model design work is being paid for at FW.

This is entirely consistent with Jervis' Standard Bearer article in the current WD, in which he lauds collecting based on Apocalypse Datasheets over Tournament Army Lists. It's increasingly clear to GW that Apocalypse is their real growth engine, not Tournaments. This is why GW drastically cut Tournament support for 2009 (e.g. no GT LA), while pushing out another wave of Apocalypse. If Apoc and the Guard lanuch go well, as I would expect, I think we can expect further even consolidation of GW Tournament events in 2010, perhaps down to just GT Baltimore and maybe GT Vegas, with the rest of things being focused on Games Days and megabattles. This would allow GW to invest more into Apocalypse for things like, say plastic Warhound Titans or Eldar Scorpion Grav-Tanks. Or even, perhaps, a Thunderhawk Gunship.

I'm really glad that the Apocalypse experiment continues to pay dividends.