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GW's interim financial results are out and they continue to show the "Gaming Giant" is in poor financial health.

No dividend again, further losses in Europe wipe out gains in US and UK.

Apoc hasn't saved the day.

http://investor.games-workshop.com/news/announcements/2008-01-22_interim_results.doc

Some snippets from the document:

• Revenue at £54.6m (2006: £54.6m)
  
• Pre-exceptional gross margin at 69.9% (2006: 70.9%)
  
• Exceptional items – cost reduction programme £(0.6)m (2006: £nil)
  
• Pre-exceptional operating profit up £0.6m to £1.1m (2006: £0.5m)
  
• Operating profit at £0.5m (2006: £0.5m)
  
• (Loss)/earnings before tax (£0.2)m (2006: £0.1m)
  
• (Loss)/earnings per share of (0.4)p (2006: 0.2p)
  

Tom Kirby, Chairman, and Mark Wells, Chief Executive of Games Workshop, said:

“These half-year results are encouraging; we have re-established constant currency sales growth in the UK, the Americas and Asia Pacific, our gross margins remain strong, and our cost reduction programme is delivering the overhead reductions we expected.
We remain a growth business and are now getting benefits from the efforts our staff have been making. There is still much to do, and we are united in our determination to do it.”

We have opened five Hobby stores and closed 18 during the period, leaving us with 335 at the end of November 2007.

Compared to November 2006, sterling has strengthened by 8.5% against the US dollar and weakened by 1.2% against the euro. We have shown below our sales progression in constant currency terms so that readers can better understand the figures.

We still expect the cost reduction programme to result in annualised cost reductions of £7m.

REVENUE BY GEOGRAPHICAL AREA OF SALES OPERATION IN LOCAL CURRENCY:
<table><tr><td>Six months to2 December 2007</td><td>Six months to26 November 2006</td></tr><tr><td>Continental Europe</td><td>€28.6m</td><td>€32.0m</td></tr><tr><td>United Kingdom</td><td>£18.8m</td><td>£17.0m</td></tr><tr><td>The Americas</td><td>US$24.2m</td><td>US$22.9m</td></tr><tr><td>Asia Pacific</td><td>Aus$9.2m</td><td>Aus$8.9m</td></tr></table>
----
So reductions in gross margins, 300K drop in profit before tax and no increase in revenue, and a recession in the US looms for this year (good luck luxury goods!).

That "Constant Currency" bit is somewhat misleading.

While it gives facts it doesnt give all the facts. For instance, didnt the US dollar depreciate nearly 9% this year?

Though I hope Osbad will chime in with a very concise post anytime now.

I've been reading the report, which is why I haven't chimed in until now.

Some pertinent facts that give food for thought are:

1/ In the US the sales teams have done well and grown revenue by 10%. This hasn't impacted on group turnover though because the when translating that back into £GBP the decline in the dollar (8.5% in the period) means that they are back to square one. Bit of a bummer that! Also of course, US inflation means that "real growth" is somewhat smaller.

On the plus side, as this is the largest segment of growth it indicates that perhaps some of the old US-related issues are being sorted out at last. Also Apoc was popular. Look for more Apoc-related income in the next 6 months' results. How long can they keep it up though? How many Baneblades and Space Marine Companies can the fanbase absorb before sales start dipping again?

{EDIT: I just read on another forum that there is the possibility that a lot of the North America sales are actually cannibalised European sales. Allegedly Neal sells a lot to Europe which is made attractive by the exchange rate (the Euro is even stronger against the $ than the £ is). If this is true to any significant extent, then the whole "US sales are up, Euro sales are down" argument is null and void and indicates that GW's pricing strategy is as rubbish as many believe it to be - the very idea that it is cheaper for Monsieur le Frog to order a Land Raider from a store in the US and have it shipped to him in the Pas de Calais than it is for him to walk into his nearest GW store and buy one off the shelf is just absolute lunacy!}

2/ In the UK and Asia (essentially Oz!) sales have grown impressively over the same period last year. This perhaps is down to Apocalypse as much as anything I'm guessing, although again around 4% of it can be put down to simple price inflation.

3/ Very bad news in Continental Europe (i.e. Europe outside of the UK). Independent stores sales have tumbled again. The remaining GW stores are reporting steady sales, but indie stores in Europe are dumping GW at an annual rate of >8%. Add in the effect of inflation and it looks like volume sales are down around 1/8 over last year.

4/ Last year the first 6 months counted for 49.2% of annual sales. Applying that rate to the first six months turnover this year and it predicts an annual turnover of £111,262k. If I discount that for a year's inflation (around 3.5% in the UK, although it feels like GW's inflation rate is around 5% or so) that comes out as a 3% FALL in real terms. WHich isn't good.

5/ Increased efficiency is demonstrated, but without increasing turnover its only buying them time, not solving their long term problems.

Some "worrying" markers in the report:

1/ Debt has grown to £15m from £10m over the 6 months. Witholding the dividend isn't sufficient to finance their redundancy packages, they've had to borrow money to pay for it as well. Not good, but what else could they do? Their gearing ratio has increased from 33% to 50%. Not good news for shareholders, but it looks like they were expecting it and share prices have remained steady on the day. Clearly the share price dropping back before Kirby's resignation as CEO was the existing shareholders baling being "tipped the wink" that he hadn't manage to deliver any "growth" in the half-year!

2/ Bottom line, I remain unconvinced by Kirby's assertion that "growth is just around the corner". Ignoring exceptional items, operating profit for the 6 months to November 06 has indeed doubled from 1% to 2% of turnover. But when you consider that this includes 2 months of Apocalypse hype and although there is another couple of months of pre-Christmas Apoc-hype to come in the results for the next half-year, it isn't exactly looking stunning. Kirby has been peddling the "return to growth is just around the corner" message for 3 years now and has delivered jack-sh*t. No wonder he had to go!

So I see no great cause for optimism in these figures other than in US$ terms there was growth in sales in the US for the first time in ages, but that will mean nothing if the (currently larger) European market disappears! In the US GW faces much greater competition from PP and the like, and has much lower operating margins. The US is an expensive market to service due to its highly competitive ethos.

Maybe GW have "bottomed out" and maybe there will be slow but organic growth in the US to come. But GW are still a ways off from turning the corner, even if the rate of decline has slowed some.

Good summary, Osbad. Thank you.

In my opinion it was the LoTR bubble that made GW look like they were growing for several years, but their costs were growing equally fast so their profit was actually fairly static as a proportion of their turnover.

There is surely a maximum natural market for 40K/WHFB, in which case they cannot grow once they have saturated it.

I advocate GW selling a range of other games not just 40K/WHFB. It would maximise their investment in retail space. Re-introducing Talisman was a move in this direction.

The news is about what I'd expect them to put out in the current situation.

A couple of good skirmish games brought them out of the hole in the late ninties. Space Hulk, Necromunda, and Gorkamorka come to mind right off, but I think it might be high time that GW start looking to other areas, and possibly cutting some of the extended companies and bringing in the fold. Would save them a few on overhead, operations costs, and cut a little of that baby fat.

The future for them is probibly going to be coming up with another product, seeing that LOTR is going down. Possibly something along the lines of that new RPG that they were coming up with, or maybe even a whole new skirmish game, based around the space marines, or something.

LoTR is going to be perked up by the Hobbit films, though they won't arrive for 2-3 years.

Simple answer to me is to turn 'hobby centres' into hobby centres and not doss holes for some of the smely kids you get in them. they could run more 'regional' painting and modelling competitions, especially in the run up to Golden deamon, and more mini campaigns. The Birmingham store have had some great ideas in the past but they seem to come at a slow rate or arn't publicised as well as could be. Activities like this would encourage more of the serious gamers to keep adding to armies (especially for 'most imaginative army' type prizes) and give more 'target' to the younger gamers. Years ago many stores had a rule no unpainted minitures allowed, now it's rare that I see a fully painted amry being used, never mind a well painted one - and this goes for staff too, I've not seen staff using fully painted person armies rather than store ones for ages. Surely doing things like this would encourage players to take it a bit more seriously rather than the classic it's Christmas, well blow a load on it and then discover girls....
I personally am put off playing instore when I've got a fully painted army with some nice conversions when I end up playing someone who can't be bothered to even build the models fully, never mind colour them. It's not that I don't like playing unpainted armies - I do because I enjoy a game but when this is happening so regulalry in stores what are the customers meant to think? 'Oh this is a great game with nice pricy models but painting them and having an impressive looking army to be proud of is not actually important - the painted models in the window are just for show'. GW needs to get a grip and encourage gamers to become ore involved with the hobby. That way they may retain more customers. I think I read somewhere that the majority of customers stick with it for 2 years, and to keep the growth rate up they need to be buying an average of 5 armies in that time. Not going to happen me thinks.

My opinion anyways. When i started a hobby centre was that, now they seem more like shops with a little bit extra there.

Osbad wrote:
1/ In the US the sales teams have done well and grown revenue by 10%. This hasn't impacted on group turnover though because the when translating that back into £GBP the decline in the dollar (8.5% in the period) means that they are back to square one. Bit of a bummer that! Also of course, US inflation means that "real growth" is somewhat smaller.

Which much of GW's manufacturing for the US located in the US, the fall of the dollar is only going to impact GW in the net profit that is "transferred" back to the UK. Its possible that GW kept most if not all of the US revenues in dollars to hold off on currency conversion costs, which makes the US more of a win for GW.

would equalizing prices across the board help to balance out the dollar vs sterling vs euro thing? In otherwords, make it the same to purchase at a the brick and mortar of your local shop vs buying across the pond with shipping? It's all good for Neil as he sees his sales go up and GW makes the same from him whether he marks it up or down. but as was mentioned when someone can have it purchased, shipped and all that for cheaper than walking a block, somehting is terribly out of balance.

Kilkrazy wrote:LoTR is going to be perked up by the Hobbit films, though they won't arrive for 2-3 years.

I dont think so. The Saul Zaentz company will have seen how GW run with this and will push the licence price up.

Good points covenant84. They do need to push the painting and hobby aspect a bit more.

I don't think 5th edition will do much to help 40K beyond a momentary spurt of rulebook sales.

BI will be releasing Dark Heresy soon, so that's a new market for them. (They have WFRP, but there's always been a glut of Fantasy RPGs on the market.) It probably won't be more than a drop in the bucket.

Orlanth wrote:

Kilkrazy wrote:LoTR is going to be perked up by the Hobbit films, though they won't arrive for 2-3 years.

I dont think so. The Saul Zaentz company will have seen how GW run with this and will push the licence price up.

There will be a negotiation. If GW are sensible they will not pay more for the licence than it is worth.

Is it just me or does it seem like both the quality and quantity of support from GW has gone down in the last couple years? I remember when they used to have sneak peeks for new models almost every week and now you're lucky to see something once a month. Also the content of White Dwarf has dwindled as well. An article on each Fantasy, 40k and LOTR; a battle report and then just tons of pictures of painted models. There just doesn't seem to be much meat to it anymore. The website is also slow with new content and we'll not even go into the FAQ issues. If you want your product to grow you have to support it non-stop and it just seems like they've lost a lot of steam. Apoc had some good hype and support, but just because it's launched doesn't mean it's time to sit back and expect your sales to boom. Also, a lot of the Apoc stuff you can't get anymore or at least Alliance doesn't seem to be able to get it.

Stormtrooper X wrote:Is it just me or does it seem like both the quality and quantity of support from GW has gone down in the last couple years?

No its not just you.

That's the impact of misusing the revenue from the "LotR bubble", if, instead of p*ssing it away on a badly managed first attempt at Warhammer Online and some new racking for the mould-making department they had invested it in revamping and re-energising their other core games by employing new, fresh exciting talent with an interesting vision they might have really taken off into the stratosphere.

However, they didn't and now we have a corporation with no leadership running around like a headless chicken trying to persuade its increasingly disenfranchised customer base that the lacklustre rehashes and hackneyed cliches which is all it can afford to come up with are still a viable and interesting form of entertainment...

Not that I dislike their current product range or anything...

Anyone who thought Apocalpyse would save the company wasn't paying attention tot he remainder of the releases in the last half of last year.

Fantasy
Mostly re-releases (5 man boxes) during the summer event. (No new units or armies)
High Elves (Very limited range released, dragon and characters IRC) No units
That's about it.

LotR
Gondor (new stuff was all metal blisters and one plastics box) in August and then nothing till the new year

40K
Chaos (Possessed, Terminators, and a plastic character box, some metal characters)
Apocolypse (enough releases for two codex releases, which is good since the chaos one was not well received as far as I've heard)

So two codex releases in a six month zone (Chaos and High elves) and a largely inconsequential LotR release (much as I love the game)

I'm frankly impressed that they managed to hold on to where they were. No wonder they are trying to get a new version of 40K before summer. I'll be quite suprised if 40K5 isn't released in April, to try to get the game sales going before the annual report.

The bottom line for me to explain the falling sales in the UK, which any simpleton can understand, except the business idiots at GW, is the products are overpriced. I never buy anything from GW, I buy it all on ebay and save 20% on the cost. I now have more disposable income now, than I did 10 years ago, but now spend significantly less on their products. Not because I don't want their products, but I pick a box of marines up, and I just can't justify to myself the worth of them. I have painted an entire Space Marine Company of Legion of the Damned when the box sets were £12 for a Tactical Squad (all metal). That same squad would now cost me £65 ! If you look at any other model kits, GW are at a minimum of x4 the price and people just can't justify anymore to themselves paying £20 for 10 plastic models.

If they reduced their prices (which they never will) people may actually spend more money, cause they'll feel they are getting value for money. I've been in this hobby now for 20 years, and the inflation busting price increases are going to drive the hobby out of existance.

Osbad wrote:
So I see no great cause for optimism in these figures other than in US$ terms there was growth in sales in the US for the first time in ages, but that will mean nothing if the (currently larger) European market disappears! In the US GW faces much greater competition from PP and the like, and has much lower operating margins. The US is an expensive market to service due to its highly competitive ethos.

.

In my area there are a few Warmachine and Hordes players. Not enough for me to consider that as competition for GW. Are there really that many other players out there for you to do so? Do you have numbers to back up that assertion?

TheSecretSquig wrote:The bottom line for me to explain the falling sales in the UK, which any simpleton can understand, except the business idiots at GW, is the products are overpriced..

You do realize that compared to Warmachine, Confrontation, Reaper etc, GW's figures and kits are cheaper for the most part. They get you with character models, but not with the basic troops. If thats the case, then how can one claim they are overpriced, if thats the market. I don't deny they are expensive, but when you throw out words like overpriced, you have to back it up.

General Hobbs wrote:how can one claim they are overpriced, if thats the market. I don't deny they are expensive, but when you throw out words like overpriced, you have to back it up.

1) Live in Oz, Europe, Canada, or any other country
2) Purchase from GW U.S. (full retail)
3) Have it shipped internationally
4) Save a significant amount of $$ by not buying from your homeland

What more do you need to show that GW's products are overpriced?

General Hobbs wrote:

TheSecretSquig wrote:The bottom line for me to explain the falling sales in the UK, which any simpleton can understand, except the business idiots at GW, is the products are overpriced..

You do realize that compared to Warmachine, Confrontation, Reaper etc, GW's figures and kits are cheaper for the most part. They get you with character models, but not with the basic troops. If thats the case, then how can one claim they are overpriced, if thats the market. I don't deny they are expensive, but when you throw out words like overpriced, you have to back it up.

Well, overpriced varies from person to person.

GW's products do have a high buy-in cost. You're looking at $400-1500 to build a 2000 point army. A force for Warmachine or Infinity doesn't cost much more than $150. You get a lot more stuff with the GW product, but it's still a bigger investment of time and money.

Many people can't afford to blow a month's rent on an army. Teenagers are likely to buy a 360 or PS3 for the same cost instead. The result is that GW priced itself out of a large part of the market. Battle for Skull Pass was a good solution to this - $75 for two playable armies with decent variety. Battlefleet Gothic used this approach too. If 40K comes out with a BfSP equivalent, that will hopefully quell some of the problems that the pricing is causing.

Pricing maybe one of much problems GW is facing. I think that maybe this kind of hobby is losing ground against instant pleasuring activities like consoles. That does not only lessens their revenue but decreases the customer to hobbist convert rate whitch is the main income to them. ( I have a job now and I can tell you I do spend 100 EUR in warhammer stuff in a month gladly. That's about the amount of money I spent on GW in a whole year when I was 14).

So, there maybe some smart people there at Nottingham who are analysing this way deeper than we do!!

General Hobbs wrote:You do realize that compared to Warmachine, Confrontation, Reaper etc, GW's figures and kits are cheaper for the most part. They get you with character models, but not with the basic troops. If thats the case, then how can one claim they are overpriced, if thats the market. I don't deny they are expensive, but when you throw out words like overpriced, you have to back it up.

Comparing model to model, Privateer is usually fractionally more expensive on a per model basis when comparing metal figs, and significantly more expensive when considering GW plastics. The trouble is that GW is targetting casual and new gamers - where the startup cost between the two system is an important deciding factor in starting up.

40k startup cost:

$90 Battleforce (if not playing Tyranids or Space Marines)
$15 Commander Model (to make a legal list)
$60 Battle for McCragge or rulebook for the rules
$22 Codex
-----
$187

Warmachine/Hordes startup cost:
$50 Starter box
$00 Rules: Quickstart included
$00 Army rules: Stat cards included
-----
$50 (even adding in the cost of the main rulebook Prime: Remix, the startup is still less than 1/2 the cost of 40k)

Edit: Even going by the best case scenario: 2 buddies buy Battle for McCragge and want to play actual 40k games with the contents, you're still looking at $104 startup since they'll need the SM codex and the Tyranid codex - and neither will have a legal army - going by the main ruleset.

The second factor is the add-on cost to make the army battle worthy. The disparity increases when you consider building up to standard sized armies for play (I'm going by tournament size but discounting tournament worthiness). I was in a FLGS two years ago with my 1/2 built IW army (1250 points at the time), and I had already spent $500Cdn on it, and it wasn't even close to being completed, even though most of it was plastic - basic troopers, bike models, tanks etc - the only metal bitz were converted oblits, vindicator and some techmarine models. A battleforce usually weighs in around 20-25% of your 1850. In Warmachine/Hordes, the starter box gets you 70% of the way to 500 which is basic play size, and roughly 50% to get to epic size games.

But what you are forgetting is that the kiddies see is

$50 Warmachine's 3 figures in a start up box with a piece of paper
Vs.
$60 Battle for Mcragges 92-page Warhammer 40,000 rulebook, twelve (12) Termagants, six (6) Genestealers, ten (10) Space Marines, one (1) Imperial Pilot. eight (8) Spore Mines, detailed scenery, dice, twelve (12) paints, and a paintbrush.

Osbad wrote:

{EDIT: I just read on another forum that there is the possibility that a lot of the North America sales are actually cannibalised European sales. Allegedly Neal sells a lot to Europe which is made attractive by the exchange rate (the Euro is even stronger against the $ than the £ is). If this is true to any significant extent, then the whole "US sales are up, Euro sales are down" argument is null and void and indicates that GW's pricing strategy is as rubbish as many believe it to be - the very idea that it is cheaper for Monsieur le Frog to order a Land Raider from a store in the US and have it shipped to him in the Pas de Calais than it is for him to walk into his nearest GW store and buy one off the shelf is just absolute lunacy!}

Having lived here in Romania for the past 18 months, I can tell you, that I wouldn't buy a GW product from Europe if I could help it. Because of the devaluation of the dollar against the Euro, buying a 15 Euro model (if it were equally priced $15 in the US), I'm automatically adding $6 to my price.

But wait, there's more! European nations tax the hell out of things. The lovely "VALUE ADDED TAX" permeates many (if not all) of Europe. In Romania, for example, the VAT is 19% Imagine adding 19% on all your products in the US. Oh, and at least in Romania, everything is imported, which means you get his with the import tax.

Now, why is it cheaper to buy through the mail? Simple, cheaper dollar and no taxes. Mailing to Western Europe may be pricey, but if you buy in bulk (or split shipments with friends) the overall cost will be less.

I'm not agreeing or disagreeing with anything your saying, just pointing out these beautiful little facts.

Think of it like this too. US exports are on the rise... why? Because of the cheaper dollar. Its really no different in this case (yes, I know this parallel is flawed). If GW tried to price their US stocks at EU prices, they'd have to shut down their US stores, because a 40-50% price increase would be needed.

-Jmz

Slight tangent, but this thread over at The Miniatures Page on "Gaming and Recession" is interesting and somewhat pertinent to this discussion.

keezus wrote:

Edit: Even going by the best case scenario: 2 buddies buy Battle for McCragge and want to play actual 40k games with the contents, you're still looking at $104 startup since they'll need the SM codex and the Tyranid codex - and neither will have a legal army - going by the main ruleset.

Actually, the Battle for McCragge box has all the stats and rules for the models it contains, so no codexes are necessary (though, to be fair, the Tyranid rules are going off of the old 3rd ed codex.) And this is technically enough for two players to start playing, whereas in Warmachine you'll need two starter boxes for two players, so the bare minimum cost is actually higher in Warmachine.

Realistically though, each starting path is good in different ways. GW's starter boxes win out for truly new hobbyists - easy to build/paint plastic models, more helpful beginner guides on how the game works (not the rulebook, but the Read Me First book each box contains,) two armies, and usually some decent terrain (BFSP excluded.)

Privateer boxes are better for experienced hobbyists - their starters have better detailed models, more or less full rulesets for all the contents (quick start rules and stat cards,) and models that you could realistically build a competitive army out of. Assembling the figures isn't beginner friendly, though, since the large metal models can require pinning and green stuff use. To this day the arms on my Skorne Cyclops still fall off.

I agree that 40k and WHFB require more money to complete tournament sized armies, but who really stops building their Privateer Press armies at 500pts? I feel the bottom line for each game is that if you enjoy it, you're going to spend more money into it.

After my Stryker list I'm going to try a Siege list. I'll buy different 'jacks and units to go better with him.
After my first 500pts of Eldar, I'm going to add on some units that will make up for my weaknesses or emphasize my strengths.

Good gaming!
Zoned

Pimping out their IP's to be turned into mmo's was a step in the right direction. If warhammer online is half as popular as world of warcraft was, thats just printing money for them. And 40k is being brainstormed for the mmo project as we speak. Also what is their real problem with turning 40k into a cg movie. Anyone that saw beowulf knows the technology is there now to do it justice, are they afraid of money?

[quote=Asmodai
GW's products do have a high buy-in cost. You're looking at $400-1500 to build a 2000 point army. A force for Warmachine or Infinity doesn't cost much more than $150. You get a lot more stuff with the GW product, but it's still a bigger investment of time and money.

Many people can't afford to blow a month's rent on an army. Teenagers are likely to buy a 360 or PS3 for the same cost instead. The result is that GW priced itself out of a large part of the market. Battle for Skull Pass was a good solution to this - $75 for two playable armies with decent variety. Battlefleet Gothic used this approach too. If 40K comes out with a BfSP equivalent, that will hopefully quell some of the problems that the pricing is causing.

Well, the other thing for me when it comes to the amount of money spent on 1700-2000pts of GW armies is that, by and large, you get tons of models for your armies.

I mean, sure, it's nice that I only have to spend ~$150 canadian for a tournament worthy WM army. I probably have to spend 2-4 times that amount on my GW armies. But I also got at least 2-4 as many models, and realistically more like 3-5 times as many (due to the plastics.)

I like having that many models to paint and play with. Building and painting is not a drag for me. When I set up my 1700pt 40k army and my 500pt WM army at the FLGS, I know which one turns more heads and gets people more excited. When I laid out my entire 8000pt Apocalypse force, I know it made people want to build an army as stupidly huge as that too.

You spend more, but you also get more.

Zoned