GW Annual Report for 2012-2013

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**Kroothawk**

Preliminary results 2012-2013:
http://investor.games-workshop.com/wp-content/uploads/2013/07/Preliminary-announcement-2013.pdf

PRELIMINARY RESULTS 2013
Games Workshop Group PLC (“Games Workshop” or the “Group”) announces its preliminary results for the year ended 2 June 2013.

Highlights

Revenue
- Revenue at £ 134.6m (2012: £131.0m)
- Revenue at constant currency* at £135.6m (2012:£131.0m)

Profit
- Operating profit pre-royalties receivable at £ 20.2m (2012: £15.6m)
- Operating profit at £21.3m (2012: £19.1m)
- Profit before taxation at £21.4m (2012: £19.5m)

Earnings per share of 51.5p (2012:46.8p)

Cash generated from operations of £31.9m (2012: £28.0m)

Dividends per share declaredin the year of 58p (2012: 63p)

Tom Kirby, chairman and acting CEO of Games Workshop, said:
“Games Workshop has had a mixed year. Sales were stronger in the first half than the second, but cost control and cash management have strengthened throughout the period. We finish the year with the most profit this company has generated since flotation and have returned £18.4 million to our owners.

Annual report: 2012-2013:
http://investor.games-workshop.com/wp-content/uploads/2013/07/Games-Workshop-Group-13-combined-FINAL-without-title-page.pdf

CHAIRMAN’S PREAMBLE

During the year Mark Wells left Games Workshop. After more than ten years, five as chief executive, he has gone to graze in pastures new. His tenure as CEO saw our return on capital increase from around 10% to over 50%. He is a man who truly understands about shareholder value and put that understanding into good practice. Thank you Mark, and good luck.

We have also had a shift in the balance of our owners. For three entirely different reasons each of our largest holders has done some selling. This has allowed those who have wanted to own us for a while the opportunity to buy. The fact that we have been paying a lot of surplus cash out as dividends hasn’t put them off! We’ll see what happens when we have a bad year and stop.

I have written a great deal over the years about the ‘greatest danger’ facing Games Workshop. It has usually been in response to the expression of some fear of imminent doom. When will the world tire of miniatures? (It won’t; these are not fashion items, they are hobby collectibles.) Won’t all your customers move on to computer games instead? (They didn’t; most of our current customers weren’t born when the Atari ST came out.) How about other games like Pokémon or role-playing games? (Who can remember them, now?). The evidence is there for all to see, but when it wasn’t I was seen as complacent in the face of these real dangers. I don’t think that was complacency, it’s just that we here all make a living from serving collectors and we understand them and their needs. These are paper tiger dangers. The real danger is us.

The world will not tire of miniatures, nor fantasy. The world can and does play computer games, online and on phones now, not old-style computers. Other people will produce great games and products.

The dangers lie not in these realities, but whether we keep making fantastic models and providing great services, in our management skills and just as night follows day, in our ability to find the right people to carry the business forward. This is why we put so much energy into our management training programmes and in particular how we recruit.

Put at its bluntest: we recruit for attitude, not for skills.

It makes for a lot of hard work. First every manager in the business has to take personal responsibility for the recruitment process. All of it, from start to finish. No handing it off to Human Resources, outside agencies, or anyone else. Then they have to prepare a job specification. What value does this job bring to the business? Not what is nice about it, but exactly how does it help us sell more or spend less? Then it describes what kind of person is likely to be successful at the job. That’s right. What kind of person. It is centred on their character, on their attitudes and on the behaviour we expect to see. Then it lists the top few things they have to a chieve in order to be successful at it. And that’s it. No qualifications, no degrees, no reference to experience.

This is hard to do, and impossible alone. We spend hours on it, in groups, working at getting to the heart of the issue.

Then we advertise using that job specification as a template. All jobs, always. No ‘appointments’, no patronage. And we ask the applicants to write us a letter saying why they want this job. CV optional (but we won’t look at it if the letter is pants).

The knee-jerk response from outsiders is nearly always either you are doing it wrong or you will fail. Neither is true. Companies who seek out skills at the expense of attitude are destroying culture, continuity and morale and thereby shareholder value. That is wrong. And our way works well.

The effort put in rewards us in knowing who we want and why, knowing how to ask for that person, how to recognise them when we see them, and how to check that they are being successful. Win, win, win, win. Sadly it takes effort, so don’t expect to see our ways being adopted universally any time soon.

Risks. Management succession. Effort. I’ve managed to get all the key words in. Maybe the last of these is the most important.

Hard work. Accept no substitutes
.
Tom Kirby
Chairman and Acting CEO
29 July 2013

That small increase in sales (3% or so) is a mix of strong performance in our more hobby oriented Forge World and Black Library businesses (our ‘Other businesses’) and the North American region and less good performances in Continental Europe and the UK.
(...)
Reported sales increased by 2.7% to £134.6 million for the year. On a constant currency basis, sales were up by 3.5% from £131.0 million to £135.6 million; progress was achieved in North America (+7.8%), Export (+2.3%), Asia (+10%) and in Other sales businesses (+27.2%) while sales in the UK (-1.4%), Continental Europe (-0.3%) and Australia (-4%) were in decline.

**Sigvatr**

So despite all the internet hating, GW managed to do better this year than the year before. Well...

**Koppo**

Hang on..

Earnings per share of 51.5p (2012:46.8p)

Dividends per share declared in the year of 58p (2012: 63p)

Does that not mean that GW went in to debt and borrowed money (at interest) to pay dividends? Or did this come from some cash reserve?

**AlmightyWalrus**

We're all doomed! Games Workshop is going to lose all the money! GW is the antichrist!

Am I doing it right?

**His Master's Voice**

Numbers. Yeah, those are defiantly numbers. I can recognize those...

Someone please call a numeromancer, we have a case of the numbers.

**Sigvatr**

How about other gameslike Pokémon or role-playing games? (Who can remember them, now?)

I...I...I am out of words.

**Kroothawk**

Sigvatr wrote:
How about other gameslike Pokémon or role-playing games? (Who can remember them, now?)

I...I...I am out of words.

Well, at least GW acknowledges that they existed once, even when they don't acknowledge their current existence

BTW greetings to the folks at FFG who make the 40k RPGs

Nearly all our royalty income (88% last year and 82% this) comes from licences sold to computer games companies.
(The balance is from Fantasy Flight Games which makes card games and board games - and very good they are too!)

Yeah, who remembers FFG making 40k RPGs

**His Master's Voice**

Sigvatr wrote:
How about other gameslike Pokémon or role-playing games? (Who can remember them, now?)

I...I...I am out of words.

In his defence, TRPGs are far from their late 90's peak. No commenton the Pokemon remark, haven't seen those in a while outside of DS titles.

**jonolikespie**

I love how they say that there is no competition from Video games or RPGs but completely ignore the fact that there are more *table top* games on the market directly competing against warhammer (and doing pretty dam well for themselves too) than there have ever been. Paper tiger dangers indeed.

**Sigvatr**

http://vgsales.wikia.com/wiki/Pokemon

2009 DS Pokémon HeartGold and SoulSilver 11.90 mio sold

2010 DS Pokémon Black and White 11.51 mio sold

2012 DS Pokémon Black 2 and White 2 6.13 mio sold

Yeah, who even barely remembers those "Pokemon" games?

**Laughing Man**

His Master's Voice wrote:
Sigvatr wrote:
How about other gameslike Pokémon or role-playing games? (Who can remember them, now?)

I...I...I am out of words.

In his defence, TRPGs are far from their late 90's peak. No commenton the Pokemon remark, haven't seen those in a while outside of DS titles.

The card game is actually doing better than it was under WotC, and Nintendo does a bang up job with their tournament scene (their top tournaments award rather hefty scholarships). As for RPGs, I'd argue that they're doing MUCH better than during the 90s, which mostly falls under the Bad Old Days of TSR.

**4oursword**

Sigvatr wrote:
http://vgsales.wikia.com/wiki/Pokemon

2009 DS Pokémon HeartGold and SoulSilver 11.90 mio sold

2010 DS Pokémon Black and White 11.51 mio sold

2012 DS Pokémon Black 2 and White 2 6.13 mio sold

Yeah, who even barely remembers those "Pokemon" games?

At least they remembered the é.

**Rippy**

I knew as soon as I read that line, that everyone would focus on Pokémon.
I am glad GW are doing well, as hopefully that means more releases.
Their hiring strategy very strange though...

**jonolikespie**

So my first impressions going through this would be:

They are paying to be released from some contracts so they can close stores faster in some cases, do we know which stores these are?
If they are ones near FLGS that could paint a pretty picture but they might just be in the cultural wastlands where no one is interested in the Hobby.

Online sales up from 13 mill to 14, that's a whole.. 7.7%. How much did prices rise this year with codexes going to hardback and all the hughe (expensive) kits? Not to mention the rapid release secede. I'm not a CEO and it's a decent increase but that just seems like it should have been more.

GW wrote:"We look at many other things as well: how many staff per store we have (UK: 1.9, Continental Europe: 1.6, North America: 1.7, Australia: 1.5, Asia: 1.0), how many stores we have (UK: 137, Continental Europe: 135, North America: 99, Australia: 37, Asia: 4), how many we think we could open (close) next year (UK: 4 (1), Continental Europe: 10 (4), North America: 38 (28), Australia: 4 (4))."

Nothing too shocking there but interesting none the less.

GW wrote:"Our miniatures are of extraordinary detail and have very high costs associated with their production. We do the tooling and manufacturing here in Nottingham to ensure that quality. As it happens, even if we wanted to tool or manufacture elsewhere, we have never found anyone who can deliver the quality we need at the price we pay. In order to be able to duplicate that quality requires a level of capital investment that no one has, as yet, even tried to emulate."

Someone hasn't heard about kickstarters...

They touch on IP protection but mention nothing of Chapterhouse, just that "nearly all single individuals or small businesses ‘cease and desist’ as soon as they get the letter."

All in all it looks fine on paper but I don't think it in any way address any of the long term concerns many of us vats/'haters' have.

**His Master's Voice**

Laughing Man wrote:
As for RPGs, I'd argue that they're doing MUCH better than during the 90s, which mostly falls under the Bad Old Days of TSR.

In terms of variety? Maybe. Popularity? I don't think so.

Edit: Welp, auto correct was having some fun...

**Left Hand of the Pheonix**

Thank god I'm a trained accountant who can understand all those numbers. From my viewpoint GW is in an good place, but there are some areas to be adressed.

1. Large reduction in total cashflow: As any accountant will tell you, profit no matter, cashflow better. If a company has large profit, it can still have negative cashflow. GW has a good profit, but has made a reduction in cashflow. This means that they are spending more money on intangible assets like amoritisation, (depreciation on intangible assets), and they have purchased more intangibles, but this may only be a short-term measure.

2. Reduction in royalties: As can be noticed they have reduced income from royalties from their licensed properties, which might be because of the new software as Kirby mentions in the statement.

3. EPS vs Divs: EPS is how much the company earns per share bought by an investor. It shows a shareholder how well the company is using the money invested, which as it has increased and is continuing to increase shows that there is good management of investment. Also to be noticed is that the Diluted EPS or DEPS is very close to the normal EPS which shows not many preference shares have been released. The dividend issue is good as they still get a decent amount per share, and you only get dividends from a company who can afford to pay it.

4: Finance Cost: They have had a reduction in their financial income and in their finance costs, The reduction in income is because they have leased less of the licensed properties out and so are recieved less income from there. The reduced finance costs is GOOD! This means that they have less loans and leases to pay off which is a major reason for increased profit.

5: Operating Proft: Profit is good, as Mr Kirby says, but look deeper and it gets better. While there is a reduction in US profit, it is made up for from the increased profit from the other areas, while in the UK, even with all the slagging of GW here about some of the stuff, it is still bought in a HUGE amount by everybody. Also to be noticed is they have less expenses from Asia and Austrialia, which was probably due to first year extra expenses, (but i'm not sure, will need to see 2011/12 figures to be sure)

There are more points to be made but it is pretty complicated but I hope i've cut through some of the jargon and explained the more important areas, but i will add this with increased sales it may be probable that they may NOT increase prices, but they still could, but I don't give a crap I'll still buy their stuff after all who doesn't want a Carnasaur called Grymlock!

I'll post more if i discover more information that is pertinent.

**Kroothawk**

BTW can someone explain, why £ 134.6m in constant currency at 2.7% inflation is £135.6m and not £130.9m?

Oh, and the increase of mail order sales is not surprising, with most finecast and more and more plastic kits and rulebooks going mail order only (even if sold by FLGS).

**Left Hand of the Pheonix**

It's not inflation, it's their sales increase of 2.7% on the previous year. Constant currency would be done if all the sales were done in the same place as the same average foreign exchange rate, and if you look at those figures they have increased by 3.5% on the previous year which shows we are buying more and more minatures.

**loki old fart**

For three entirely different reasons each of our largest holders has done some selling.
Interesting

Royalties are down.
Not surprising - Relic went into receivership.

we recruit for attitude, not for skills.
Is he talking about the legal team ?

**Kroothawk**

No, UK inflation was 2.7% June 2012 to June 2013, even in Nottingham I presume. All prices are converted into GBP, so why does the report claim negative inflation since 2012? Because using correct inflation, the report would have to explain another revenue decrease?

Another thing: First half outsold second half of financial year. Seems the Hobbit bubble / Xmas sales / new a-Codex-a-month schedule didn't pay off?

we recruit for attitude, not for skills.

Not only legal team, but everyone from sales person to higher management: If you are a yes-man, your qualifications don't matter

**Surtur**

Kroothawk wrote:
BTW can someone explain, why £ 134.6m in constant currency at 2.7% inflation is £135.6m and not £130.9m?

Because I think someone forgot which number to multiply. But yeah, my math of using 2.7% inflation (British inflation) makes the revenue to be flat. I think a keen investor should be scratching their head on that one because according to GW "Fine"ancial report, they experience .7% DEflation.

**Wolfstan**

There appears to of been a major influx of Kickstarter projects this year, so I wonder if they will show an impact on the next set of figures?

**Osbad**

On the basis of the fact that a picture is worth a 1000 words (and goodness only knows how many numbers) I submit a couple of charts that I have kept running for a few years now (yes I'm an Accountancy geek ... we do exist!)

Firstly looking at Global Turnover and Global Profit after Tax both discounted for UK RPI. From it we can see that profits are holding steady, and so Mark Wells has earned his keep as far as the shareholders are concerned, but Turnover is really not doing very well either, which for gamers is of much greater concern. Using discounted Turnover as a proxy for volume sales (and it's the closest we will get from published numbers) it looks like yet again, GW have failed to sell any more volume than they did in 2001. No growth now for the how many'th year in a row? Of course RPI is only a proxy - countries other than the UK have had different inflation rates, and even within the UK, GW's price rises on average over their entire range every year will never likely reflect RPI exactly, nor should they. But it's the best we can do with the information we have, and lets' say that what it seems to be saying is that their slice of the pie is probably not growing, although they are squeezing more gravy from it yet again. (Sorry!! Horrible metaphor!!)

Breaking down the Global Turnover into its constituent regions, we get a little more granularity and can see that US sales have overtaken the UK for the 2nd year running. UK and EU sales have flatlined in cash terms and ROW has increased. I don't have RPI figures to hand for outside of the UK, so I cant' make much comment on relevant discounting there, but discounting the UK figures alone, we can see that sales in real terms in the UK (which to be honest is all I am really interested in, being a UK resident, and interested on the impact in the UK scene as a gamer) are steadily declining.

If anyone has access to historic non-UK inflation figures, particularly the US (trying to get them for the EU and ROW is likely impossible, although Australia probably forms most of RoW world sales I guess) then the raw data is as follows:

**ph34r**

Wolfstan wrote:
There appears to of been a major influx of Kickstarter projects this year, so I wonder if they will show an impact on the next set of figures?

There was also a fairly large amount last year so I would not imagine that anything particularly drastic will change in that regard.

**Wolfstan**

So in layman's terms (basically so us thickos can understand) are GW only making money due to price increases and cost cutting? If so what happens when they can't make any more cost cuts? will they just keep upping the price to make up for the shortfall in sales?

**Osbad**

Yup, Kickstarter is only relevant in that it demonstrates the overall "pie" of wargaming sales is likely growing year on year, while GW's volume sales flatline - therefore they represent year on year a smaller proportion of the total wargaming market. Probably.

And yes, GW's profit improvement post-2008 are solely due to what they would term "increased efficiency". I.e. they retain a greater part of every £ they earn, while simultaneously collecting fewer £s to begin with.

GW noticeably shy away from any mention of "real" (i.e. inflation-adjusted) figures in their annual reports, precisely I suspect because it paints such a negative picture of their performance, which isn't what management will want to tell shareholders. Although of course I am sure most of them will have the sophistication to to the maths themselves. Or should do. Still as long as they manage to keep squeezing out a profit, I can't see the shareholders abandoning ship. The point at which GW cease to have a functional fan base to ream has been deferred for a further year it would seem.

**Fezman**

Kroothawk wrote:

Not only legal team, but everyone from sales person to higher management: If you are a yes-man, your qualifications don't matter

Exactly what I was thinking!

Now maybe I'm just stuck in the past but surely attitude is only going to get you so far if you don't have the skills to do your actual job? I was of the opinion that fi you apply for a job and spend a chunk of your covering letter raving about how much you love the company and their products and culture it's unprofessional, it looks desperate and that's time that you're not spending describing your skills, experience and qualifications - all concrete things that Mr Kirby is outright throwing out the window here.

**Surtur**

Osbad wrote:
*snip*

If anyone has access to historic non-UK inflation figures, particularly the US (trying to get them for the EU and ROW is likely impossible, although Australia probably forms most of RoW world sales I guess) then the raw data is as follows:

Using that collection of numbers and http://www.usinflationcalculator.com/ we find out that GW post collapse at 2008 made $119.7 million by today's inflation. Meaning they're a whopping $14.8 mil better than they were 5 years ago. Consider that in '09 when they recovered with a boom they effectively made $136.9 mil adjusted for inflation. That means they're $2.4 mil in the hole from 4 years ago.

**Hulksmash**

Oh good, it's that time of year again. I look forward to pages and pages of awesome.

On topic:

It's good to see they manage to mitigate the bomb that was the Hobbit. Hopefully knowing the next one is likely to bomb they keep up the release schedule like they have been.

**Sigvatr**

Actually, I'm split. On the one hand, I highly appreciate Games Workshop for what they do: they are a successful company in a niche business.

On the other hand, this result means that everything they did in the past, which was mostly alienating vets and raising prices to obscene levels, was fully justified and will be kept up in the future.