Some Thoughts on the GW Financials
Games Workshop’s financials have certainly been the talk of the town this week, but I wanted to throw in a few more nuggets…
Games Workshop Investor Relations
Key Excerpts:
Revenue £60.5m (2013) £67.5m (2012)
Pre-tax profit £7.7m (2013) £11.1m (2012)
INTERIM MANAGEMENT REPORT
First half performance
Sales in the first half of the year were down against the comparable period in the prior year, continuing the trend that developed in the second half of 2012/13. During the first half, the rapid transition from multi-man stores to one-man stores and the reduction of trading hours across the Group caused disruption in our retail chain. We also experienced some decline in sales through independent stockists.
We view these as short-term issues and expect to see growth return in bothchannels. We continue with our store opening programme (27 stores opened, 20 closed in the period) secure in the knowledge that our one man model allows us to ensure new openings are profitable. In the future we expect to benefit from the more focussed selling operation across all channels against the background of a materially lower cost base.
Changes to operating structure
We have just announced a major re-organisation of our sales businesses to allow management by channel: retail, trade and direct. Our retail businesses will be consolidated under a single Retail Sales Manager for each of our key geographic areas – UK, Europe and North America. Trade sales will be consolidated into a global business, operating from Lenton, Nottingham.
Prospects
Our costs are well under control and margins remain strong. Cash management is good and our capital expenditure continues as planned. The principal risks and uncertainties for the rest of the financial year relate to sales and the implementation of the structural changes we have just announced. Whilst profit will remain under pressure during the implementation of the structural changes mentioned above, the board remains confident in the future growth and profitability of the Group.
Going concern
After making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they have adopted the going concern basis in preparing this condensed consolidated interim financial information.
Context and More Thoughts
Here is why I think the news might actually be worse, not better than expected. For me the real question isn’t just the raw drop of 12% in sales. Such a number could come from any number of justifible things, such a poor environment, supply issues, etc. But if you look at the comparisons from the interim report from 2012 to 2013, you notice that GW had all of these things going for it in 2013:
-Revenue from licenses/royalites was up (it doubled from 2012)
-Internal costs were stable (no major spikes in costs as a whole across the company)
-2013 was well in the middle of the “high speed release” program that was throwing out products at a pace that far exceeded 2012’s rate.
-There were price increases for their products in effect as of 2013
-Space Marines was released in this 6-month period (their biggest seller by far)
In a situation like that the only explanation is that the loss was down to decreased unit sales. And probably well more than a 12% decline due to price increases. People are just buying less of those boxes with GW labels on them.
Now a Thought Experiment for You
You tell us what you think would happen…
a) Imagine if a large publicly traded industry leader in its niche company (Coke, Nike, McDonalds, Ford, etc…) had a CEO with a proven record for increasing the stock price under his term of office – leave the company after many years.
b) The individual stockholder with the most personal shares steps in and tells the board he will act as “acting CEO” in the meantime and run the company while he leads the search for a replacement CEO.
c) A FULL YEAR passes and no CEO has been announced and the individual stockholder is still working as “acting CEO”.
d) The financials are released and expectations are not met, resulting in a decline in stock value for the company of 25% in a 24-hour period.
e) The individual stockholder tells the public everything is under control and not to worry.
What do you think the board would do?
What would YOU do if you were sitting on that board (at Coke, Nike, McDonalds, Ford, etc…) and responsible for millions of hard earned cash invested in that company?
Now ask yourself – what will Games Workshop’s board do?
~Talk among yourselves about GW’s performance and the road ahead. More conversation in the Lounge here.
