GW Annual Report 2010-2011 Released

Forum adverts like this one are shown to any user who is not logged in. Join us by filling out a tiny 3 field form and you will get your own, free, dakka user account which gives a good range of benefits to you:

No adverts like this in the forums anymore.
Times and dates in your local timezone.
Full tracking of what you have read so you can skip to your first unread post, easily see what has changed since you last logged in, and easily see what is new at a glance.
Email notifications for threads you want to watch closely.
Being a part of the oldest wargaming community on the net.

If you are already a member then feel free to login now.

**Kilkrazy**

The chairman's remarks while interesting are not the meat of the report.

For example, 97% quality rating is utterly meaningless without an explanation, so I think it’s a waste of time to discuss it.

Looking at the figures, it doesn’t take a GW h8r boi to see bad news.

Revenue down.
Profits down.
Royalties down (sharply)

There are good things too, though.

They are making a profit.
They have plenty of cash on hand, which could be used for some productive project, although actually they plan to use it for a dividend.

Questions that need to be asked are:

What is the plan for reversing the sales volume decline that has been continuing for several years?
Why have all the initiatives of the past five years not been effective? (Staff training, etc. We've heard it all before.)
Why close 70% of Japanese shops after the business grew there?
How much does the company actually earn from Black Library, boardgames, etc? Can those niches survive without a core games business?

**Ouze**

H.B.M.C. wrote:Thereby implying that they currently don't understand their own business.

I daresay, with some of the moves they've made recently, it shows. But, that's the Games Workshop HHHobby!

Kilkrazy wrote:Why close 70% of Japanese shops after the business grew there?
How much does the company actually earn from Black Library, boardgames, etc? Can those niches survive without a core games business?

I also saw, and was perplexed by that. It was the only region this year that had positive growth. Strange to cut back on that.

I also saw they didn't break down specifically which licensee segments generated what; it's all under the licenses header (as far as I can tell, anyway). I'd be curious to see what they specifically generated for the videogames.

**Kroothawk**

Revenue £123.1m (2010: £126.5m)
Revenue at constant currency* £122.8m

Sales

Reported sales decreased by 2.7% to £123.1 million for the year. However, on a constant currency basis, sales were down by 2.9% from
£126.5 million to £122.8 million; progress was achieved in Emerging Markets and Japan (+2.1%) and in the Other business units (+7%) while
sales in Continental Europe (+0.6%) were flat. UK (-6.3%), North America (-4.8%) and Australia (-11.8%) were in decline.

Dividend

During the year we followed our principle of returning truly surplus cash to shareholders and paid dividends of 25 pence per share in
October 2010 and 20 pence per share in May 2011. The board now recommends a further dividend of 18 pence per share which, subject to
shareholder approval, will be paid in October 2011.

CHAIRMAN’S PREAMBLE

We like to think of ourselves as a young company, eagerly entering the world of commerce bristling with ideas and ambition. Our staff
bring the energy and optimism of youth to every problem we face, don't they? It is a salutary reminder for me to remember we will be
making 30-year-service awards at our veteran's night dinner again this year. It won't be long before I get mine. Danielle Gaudry, who
founded and ran our French business for many years and is surely the definition of that youthful vigour, retires this year. Retires.
We are no longer so young, either as a business or the people who run it. Two things flow from this.

Firstly, we now know (more by trial and error than sophisticated analysis - 'the wisdom of years') how this business works. We know what it
takes to run a good Hobby centre, we know how to run a good trade sales department, we know how to recruit people who have great
attitudes, we know how to make the best miniatures in the world and how to surprise and delight our customers over and over again. (Go
take a quick look at Citadel Finecast - awesome!) What we are now learning is how to spread that knowledge around the far flung world of
Games Workshop. We are also learning that we are not doing it fast enough or thoroughly enough.

Secondly, the generation which built Games Workshop is beginning to wonder what a 'pension' is. We wake up in the morning with the
same aches we had yesterday. We wear glasses. We have learned patience (is that always a good thing and does it come from wisdom or
exhaustion?). Some of us have a Senior Railcard. Nonetheless, we remain passionate about the potential for the Hobby and the Group.
So, in addition to the normal running of the business, we will also be turning our gaze upon the problems of succession. We will be rolling
out a programme aimed at getting everyone at Games Workshop to understand how we do business.

The challenges are as real as ever and our full responsibility is as well. Despite the exigencies of the 'real' world our destiny is still in our
own hands. We have to ensure that the best practices we know about are followed everywhere within the Group. We have done much to
improve our profitability and the return on your capital but we still have work to do on re-establishing growth, particularly in our Hobby
centres.

Dividends have returned. I am as pleased as you are. Does this herald in a new era of progressive dividends on an assured yield? Hardly. We
return truly surplus cash to shareholders. 'Truly surplus' means the cash we can not use because we have already spent all we need for the
growth of the business. It would sit in a bank account if we didn't return it. Working this way means the payment of dividends will be fairly
happenstance; I can see us having surplus cash in the future and when we have (assuming it is a sensible sum) it will be returned, not
according to a schedule, but right then and there.

Tom Kirby
Chairman
25 July 2011

My first comment: Sales down again, even with Dark Eldar release and the new Warhammer edition (where everyone has to buy new things in principle). To celebrate this: More dividends and a pay rise for Tom Kirby (£402k to £462k, about 15%). Sales declining in UK, USA and Australia, mission accomplished. Sales slightly up in Japan so we close 5 of 7 stores. Sales up in emerging markets, so we boykott mail order to them, that should teach them. Sales not declining in Central Europe, fire German sales manager immediately (yes, they did). GW celebrates its decline, shuts down further stores and inner critiques and heads straight for the next massive decline.

BTW in the old Dakka thread http://www.dakkadakka.com/dakkaforum/posts/list/180/380739.page 38% (of 246 votes) expected "Positive sales growth, good report", 62% "Negative/flat sales growth, bad report" , so quite a lot of people didn't expect the further decline.

**GBL**

Kroothawk wrote:
BTW in the old Dakka thread http://www.dakkadakka.com/dakkaforum/posts/list/180/380739.page 38% (of 246 votes) expected "Positive sales growth, good report", 62% "Negative/flat sales growth, bad report" , so quite a lot of people didn't expect the further decline.

I expected the decline, i didnt expect the report to be honest.

**Kroothawk**

"We know how to run the business." Yes, into the ground

**reds8n**

This report covers up until the 29th of May 2011.

The last price adjustment and the ~~formation of the southern hemisphere underground plastic crack trail~~ embargoes to various parts of the world happened around then too. So we won't see the effect of them until the next half yearly report.

Be interesting to see what affect these changes have on both the Australian and the UK markets.

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

431.50 -2.50 -0.58% - 434.00 on 25-Jul-2011

I'm guessing market is still mulling over the latest UK economy figures as a whole.

**Backfire**

Osbad wrote:Not a lot to add to what has been said before. To be honest this is pretty close to what I was expecting when they made their preliminary announcements a while back.

For me, it will be no surprise that my main issue is the "Sales decline of 2.9%". Now that is in absolute terms. In "real" terms, (i.e. taking account of an inflation rate last year of around 4% (I''ll check the actual numbers in a minute and put up my usual graphs) that is a decline therefore of nearly 7%. Or taking into account GW's actual price inflation rate which at a wild guess looking at the Space Marine Battle Company box was something like 20% is actually equivalent to a decline in volume of 22.9%! Prices went up last May 2010 by what 20% or so. OK lets be generous and say it was an average of even only 10%, and still revenues declined by 2.9%!

Lets be honest here though, whilst price of some individual items may have risen as much as 20%, most of the range price stayed same, or rose only a bit. (some of those items then had increase year later). Average price over the entire range rose only few %. So whilst lack of growth in inflationary environment isn't good by any means, it isn't quite so bad as you make it to see.

As for the complaints about them paying out dividends, that (or something similar to it) is what is expected from publicly traded company.

**Osbad**

Backfire wrote:Lets be honest here though, whilst price of some individual items may have risen as much as 20%, most of the range price stayed same, or rose only a bit. (some of those items then had increase year later). Average price over the entire range rose only few %. So whilst lack of growth in inflationary environment isn't good by any means, it isn't quite so bad as you make it to see.

"Only a few %"? Where do you get the evidence for that from? Unless someone does a line by line product analysis we can only guess at GW's average price rise. And even then without line volume information we won't know the waited average, which is what is really needed. RPI is 5.2%. Individual line items have risen between 0% and 27% and also there have been changes in material costs (switching from metal to plastic) and in contents of line items (20 model boxes becoming 10 model boxes at >half the previous price). My guess was placed at 1/3 the highest price rise. You would estimate lower. You're as likely right as I am. But I clearly indicated it was a guess based on the fact that the number of products which did not get a price rise last year seemed to be lower than those that did, and those that did got a rise of mainly of multiples of RPI.

Backfire wrote:As for the complaints about them paying out dividends, that (or something similar to it) is what is expected from publicly traded company.

Dividends are fine. Discounts are better. What is better for the investor - having your cash returned to you because (as Kirby admits) GW supposedly "can't find a good use for it". Or, just to name two things that would please customers and maybe get them coming back to GW - avoiding price rises that are multiples of the prevailing rate of inflation and exchange rates movements and also investing in better QC of (say) Finecast? Either of the latter options would have at least helped long term growth. Instead GW showers their shareholders in gold because they demand it. Of course its expected. Its one of the reasons a public share listing isn;t necessarily the best thing for the financial health of a company as it encourages investors to put their short term needs over their long term ones. Agreeing with dividend policy simply because "its what is expected from publicly traded company." is just naive. Next you'll be saying Kirby deserves his 15% payrise because GW is clearly a better company now than it was last year... If you've watched the news over the last 3 years you'll realise that CEO's being remunerated excessively and in a way that bears no relation to the financial performance of their company is also "expected"... Doesn't of course make it right though.

And while I'm on, here's a couple of pictures to illustrate what's going on at GW. The first shows GW's long term income and profit trends. Income is worse than it has been in real terms (discounted by RPI rather than GW's internal rate of return, which is uncalculable from the outside) in any year from the last decade. Profit is bouncing along static and hasn't seen any significant growth in years. The best that can be said for it is that at least it isn't a loss.

The second analyses GW sales by geographic region. Again the long term problems in the US and the UK markets are shown as stark. (NB no discounting done here, these are only GBP values - so they still include inflation and exchange rate impacts - therefore overstating GW's real performance by an unknown quantity.

**Kroothawk**

1.) They claim that 2.9% IS the number with inflation considered.
2.) The latest price rise strategically focussed on introductory products like 40k starter box, all codices and army books, most batallion boxes and, with Finecast, the whole former metal range. IIRC starter box, codices and army books went up last year as well, not considering the new price level for the Fantasy rulebook and hardcover army books.

**Osbad**

Kroothawk wrote:1.) They claim that 2.9% IS the number with inflation considered.

Nope. That's the adjustment (by 0.2%) for exchange rate fluctuations.

2.) The latest price rise strategically focussed on introductory products like 40k starter box, all codices and army books, most batallion boxes and, with Finecast, the whole former metal range. IIRC starter box, codices and army books went up last year as well, not considering the new price level for the Fantasy rulebook and hardcover army books.

The price increases that matter for this are those that occurred in May 2010, not 2011. Those will only impact the 2012 results. We'll find out that impact in January 2012.

In any case we re arguing over stuff it is impossible to prove. But seriously. Does anyone believe that GW's weighted average price increase was less than RPI?? Seriously? If you do, I would say the onus is on you to prove it because the obvious answer is that their price rise seems to most folks to be way above it, admittedly by an unquantifiable amount, but that's irrelevant as the RPI discount is doing GW a favour by overstating their performance.

**iproxtaco**

The flames are lit, now watch them burn.

**Kilkrazy**

With the help of other users I got information about the price of Tau and Space Marine models over the period 2002 to 2011.

Here are some rough findings I reported in the thread in Discussions.

Kilkrazy wrote:Tau prices increased an average of 43.45% between 2002 and 2011. The kits looked at were; Devilfish, Hammerhead, Kroot, Fire Warriors, Crisis Suit, Ethereal, Broadside.

The increase varied depending on the model – Devilfish only went up 11.5% while the Hammerhead and Crisis suit went up 52% and the Ethereal doubled. (New Ethereal models were produced in 2006, and a previously “limited edition model” was put into volume production.)

Space Marines went up an average 67% between 2002 and 2011.

This is based on the following products; Rhino, Predator, Land Raider, LR Crusader, Combat Squad, Tactical Squad, Terminator Squad, Assault Squad, Dreadnought. The Crusader went up only 17% while the Combat Squad went up 158%.

Bear in mind this is not the whole range for either army.

Also understand that I don’t have the UK inflation figure for 2011 yet, or the GW annual report for 2011. Thus, I can only compare the price inflation of 2002 to 2011 with the average of UK price inflation from 2001 to 2010. This was 29%.

TL;DR -- GW prices have gone up 43--67% in the past decade, while UK inflation has been 29%.

**ceorron**

reds8n wrote:

This year a new programme will be introduced for all managers: ‘Understanding the Games Workshop
Business’. Tom Kirby will lead this programme with the objective of educating the future leaders of
Games Workshop on the critical success factors for running our niche business model. The first
modules will focus on how to identify people who ‘fit’ Games Workshop’s unique and demanding
culture. The politically correct need not apply

... STFU or GTFO.

Oh I know exactly where GW are coming from on this, it is the old business culture of fear. It makes me chuckle with the excitement of the inevitable management heckle. Maybe thats just me laughing at the back of someones head.

I'd love to see the GW management jumping to my words.

Heheeee

**Trooper**

Finances aside don't the comments of the CEO boil your blood, I know that is how they like to word things and they wont say anything negative but its a group of well written lies.

"The scale of this task is not to be underestimated, as making finely detailed resin
miniatures in these sorts of quantities has never been attempted before. The initial production run
achieved a 97% quality level, far exceeding previous levels achieved in the development phase."

Its comments like this that is find insulting.

**WarOne**

Games Workshop wrote:The reaction of customers and staff to Citadel Finecast has been overwhelmingly positive.

So what, did they interview every single employee who is most certainly not going to say it sucks and get fired?

And then they probably grabbed some ten year olds who have only begun to delve into the hobby, and aksed them to comment about the new Finecrap.

It's amazing.

Oo...it bends!

And then GW poked its fingers in its ears and went la-la-la as some poor internet guy had to thank his lucky stars there was no GW forum and only a facebook page to moderate because of the amount of gak GW took a few months ago.

Games Workshop wrote:Another initiative that has proven to be successful in growing our customer base has been the introduction of Facebook across our Hobby centres.

And the subsequent denial that anything was wrong.

Games Workshop wrote:With Facebook becoming the new ‘word of mouth’ among many of our customers, individual Facebook accounts are being rolled out to all 392 Games Workshop Hobby centres across the world. This allows eachmanager to keep local hobbyists informed of activities and events, such as new product launches.

Really? Do you think it is a good idea to give nearly 400 people the ability to speak for GW simultaneously unless there is a mechanism in place for these accounts to simply be puppets and used by the GW HQ rather than individual GW store managers?

So GW better be careful they don't piss all over a manager in case he decides to go rouge, as GW just handed the keys to a runaway drama train to any renegade employee about to be fired because he's not up to GW standards?

Games Workshop wrote:We have learned from experience that an enthusiastic and hard working manager who lives close tohis or her Games Workshop Hobby centre is the most effective way for us to build a happy and loyal customer base. He or she gets to know local schools, clubs and gaming groups and provides a focal point for Hobby activity in that town, even more so when using Facebook to keep everyone in touch with what is going on locally. Over time this should lead to a larger customer base and stronger like for like growth. This growth is recognised in the manager’s performance related pay, ensuring that he or she can earn a good living in that town without the need to move on to another role.

So how much do they actually pay their managers? The NYC manager must be high fives or a low six figure, since without that kind of income, living there is very difficult.

Games Workshop wrote:Good progress has been made here. Across the world, every Games Workshop Hobby centre manager now attends a Hobby skills camp once a quarter, where they are trained on Games Workshop's Ten Commandments of customer service.

Religious indoctrination. I knew it!

Well, good thing they didn't say 5 Pillars of customer service.

Games Workshop wrote:The number of new customer registrations on the Games Workshop webstore grew by over 150,000 across all territories. We achieved this not by offering discounts but by providing access to the full range, with good product information and a fast and reliable delivery service.

I wonder how many more customers could be had if they actually gave some sort of discount or loyalty program to entice people to buy more from the intrawebs???

**Osbad**

Kilkrazy wrote:TL;DR -- GW prices have gone up 43--67% in the past decade, while UK inflation has been 29%.

That's useful to know KK. Thanks for the info. It shows that my "gut feeling" of GW average inflation being up to twice (i.e. 10% c.f. 5.2% currently) that of the economy at large.

If you plug a discount rate of 50% compared to the 29% I used over the last 10 years, the graphs look even worse for GW! You have to go back to a period before their floatation to find a period where sales volumes appear as bad as they do this year in real terms.

So why would anyone believe GW management when they claim to be able to deliver sales growth, when consistently ever since floatation, LOTR-bubblt aside, they have delivered the exact opposite?

**Backfire**

Osbad wrote:
Backfire wrote:Lets be honest here though, whilst price of some individual items may have risen as much as 20%, most of the range price stayed same, or rose only a bit. (some of those items then had increase year later). Average price over the entire range rose only few %. So whilst lack of growth in inflationary environment isn't good by any means, it isn't quite so bad as you make it to see.

"Only a few %"? Where do you get the evidence for that from? Unless someone does a line by line product analysis we can only guess at GW's average price rise. And even then without line volume information we won't know the waited average, which is what is really needed. RPI is 5.2%. Individual line items have risen between 0% and 27% and also there have been changes in material costs (switching from metal to plastic) and in contents of line items (20 model boxes becoming 10 model boxes at >half the previous price). My guess was placed at 1/3 the highest price rise. You would estimate lower. You're as likely right as I am. But I clearly indicated it was a guess based on the fact that the number of products which did not get a price rise last year seemed to be lower than those that did, and those that did got a rise of mainly of multiples of RPI.

Made a comparison of the range of my own army, Tau. Tau prices had fairly signifant hike in 2009 (don't remember the details), no or very little rise in 2010 price increase, and some in 2011 increase. In the latest increase, of the 28 items on sale, there were around five which had noticeable price increse: Hammerhead, Sky Ray, XV-8, Battleforce and Sniper Drone Team, and one where price was lowered (Codex). I may have missed increase in some minor items, but even then, it seems obvious that even with 10% (or 15%) increase in some items, overall pricing of the range increased by 5% or less. (of course for full comparison you would need to know sales volumes too, but I don't know that. Battleforce, XV-8 and Hammerhead are probably amongst the best sellers though). Marines seemed fairly similar, from what I checked. As I recall, 2010 price increase was less extensive than 2011. Not sure about that tho. But it's obvious that talk about 10% overall increase is incorrect.

Osbad wrote:
Dividends are fine. Discounts are better. What is better for the investor - having your cash returned to you because (as Kirby admits) GW supposedly "can't find a good use for it". Or, just to name two things that would please customers and maybe get them coming back to GW - avoiding price rises that are multiples of the prevailing rate of inflation and exchange rates movements and also investing in better QC of (say) Finecast? Either of the latter options would have at least helped long term growth. Instead GW showers their shareholders in gold because they demand it. Of course its expected. Its one of the reasons a public share listing isn;t necessarily the best thing for the financial health of a company as it encourages investors to put their short term needs over their long term ones.

This has nothing to do with the debate though. GW is public, no way to put that cat in the back anymore, and that's what we have to deal with. And public companies are expected to act in the interests of their shareholders, who financed the company. Dividend is not something which they can decide year in advance, the company does what it can, and then sees if it has surplus cash to pay dividends, or rebuy stock, or whatever to profit the investors. In past years, GW has sometimes not paid out dividends (after the LOTR bubble burst, and anticipated growth turned negative), and this angered the shareholders quite a bit.

**Holdenstein**

Kilkrazy wrote:
What is the plan for reversing the sales volume decline that has been continuing for several years?
Why have all the initiatives of the past five years not been effective? (Staff training, etc. We've heard it all before.)
Why close 70% of Japanese shops after the business grew there?
How much does the company actually earn from Black Library, boardgames, etc? Can those niches survive without a core games business?

Good questions. As the profit remains very proportional to sales, the question is "is some of that dividend better spent recruiting new hobbyists and driving sales upwards?". Maybe the truth is more depressing and we partake in a hobby that is slowly shrinking.

Roughly £10 Million sales, £3 Million profit from BL, FW and Warhammer World combined which is surprisingly small (to me anyway). Note also that the web sales (overall) were down from last year due to the effects of Space Hulk in 2009-2010, which suggests that miniature based boardgames are a viable source of revenue.

**Kilkrazy**

I've been saying for years that GW made a mistake by cutting back to the three core games.

In my view, they should leverage the very large amount of money they spend on retail locations by putting more things in shops for people to buy.

Given the tie-in with Fantasy Flight Games, you would think it would be easy to carry a range of related board games.

**carmachu**

Rampage wrote:I like how Mark Wells states that the reason for the increase in the price for finecast miniatures is because more quality control is required,

'to ensure that quality standards are maintained',

when talking about avoiding miscasts.

Might need to raise it again to pay real people instead of trained monkies in quality control....because its not working out that well.

**Just Dave**

Lots of post to exalt here.

Thanks for the concise analysis for the less financially minded people here guys, particularly KK, Red, Kroot, Osbad and Trasvi.

**WarOne**

Kilkrazy wrote:Given the tie-in with Fantasy Flight Games, you would think it would be easy to carry a range of related board games.

Too bad they don't have a division like Hasbro has with Avalon Hill that could make the board games for them...

**lord_blackfang**

carmachu wrote:Might need to raise it again to pay real people instead of trained monkies in quality control....because its not working out that well.

I don't think the monkeys were trained.

**WarOne**

lord_blackfang wrote:
carmachu wrote:Might need to raise it again to pay real people instead of trained monkies in quality control....because its not working out that well.

I don't think the monkeys were trained.

Or that they were real.

Imaginary quality control monkeys work just as well...right?

**RiTides**

Kilkrazy wrote:I've been saying for years that GW made a mistake by cutting back to the three core games.

In my view, they should leverage the very large amount of money they spend on retail locations by putting more things in shops for people to buy.

Given the tie-in with Fantasy Flight Games, you would think it would be easy to carry a range of related board games.

I think it would work... if all 3 games were performing well. However, from what I've seen, only 40k is not "on the rocks" at the moment in terms of popularity in one way or another... I say this as a fantasy player.

For example, I love the look of the new storm of magic book for fantasy- but it's the exact opposite of what players were asking for. The customer is always... what, GW?

Thanks for the detailed breakdowns of the reports so far, guys... I like reading the more knowledgeable analysis from our nerd-users

**ironicsilence**

SilverMK2 wrote:Talking about fincast: "The initial production run achieved a
97% quality level, far exceeding previous levels achieved in the development phase"

Where did they pull 97% from?

That 97% quality level means that they caught the 3% during there QA checks...which means all the flawed models people bought from stores were considered good enough to sell

**obsidianaura**

With the release of Space Marine and Dark Millennium coming in the next year or two I'd say it's a safe bet that royalties will be larger come next report.

There's also the hobbit coming out eventually and that may have a positive effect.

So probably shares are as cheap to buy now as they're going to be for investors for the next few years.

One thing that I puzzled by... In regards to Independent stockists they said "and are rewarded for offering value added services to our customers."

What rewards are these? My independent LGS is constantly doing these kind of things by organising tournaments and holding classes weekly. I've never heard of them being rewarded for it though?

**Kilkrazy**

Mikhaila will tell you about the free racking he gets.

**Vetric**

I'm amazed at the Facebook idea. Many big retailers have developed "new media" policies for their staff that very clearly spell out saying anything negative, even on a personal webpage/blog/whatever, can get an employee in hot water. All those tweets, status updates and things are being centralized at head offices. Suddenly having 392 "official" pages is almost a guarantee for comedy gold, and a huge headache for store staff.

**Kilkrazy**

WarOne wrote:
Kilkrazy wrote:Given the tie-in with Fantasy Flight Games, you would think it would be easy to carry a range of related board games.

Too bad they don't have a division like Hasbro has with Avalon Hill that could make the board games for them...

I'm assuming that as a start GW would stock FFG boxed sets in their shops. They have several Warhammer/40K/GW titles already, and the RPGs.

Then they could move to co-productions.