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koppo
22-01-2008, 09:44
GW have relased thier half year earnings report.

Its here:

http://investor.games-workshop.com/l...Interim_07.pdf

Basically I think this is the first time they have actually posted a Loss. Sales are in decline and the cost cutting continues.

I think the inventory management is the lack of Bitz


Pertinant bits include:

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 per share of (0.4)p (2006: 0.2p)


Games Workshop Group PLC 1
● 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 per share of (0.4)p (2006: 0.2p)
FIRST HALF HIGHLIGHTS
Six months to Six months to
2 December 26 November
2007 2006
Revenue 54.6m 54.6m
Pre-exceptional
operating profit 1.1m 0.5m
Exceptional items
- cost reduction
programme (0.6)m nil
Operating profit 0.5m 0.5m
(Loss)/profit
before tax (0.2)m 0.1m
Basic (loss)/
earnings per share (0.4)p 0.2p

Huw_Dawson
22-01-2008, 12:38
Hold on, so because of the share fall they lost money? Or because of another factor?

- Huw

koppo
22-01-2008, 12:49
Nope, the share fall is not the cause of the loss, its flat overall growth and exceptional costs. (Cudely put)

Hashut's Li'l Helper
22-01-2008, 13:40
basically

sales relatively even
profit roughly even as well

Osbad
22-01-2008, 13:55
Duplicate post. There's already a good discussion of the HALF-yearly results at the end of this thread:
http://warseer.com/forums/showthread.php?t=114182&page=26

Alessander
22-01-2008, 14:08
PDF got quickly removed

Osbad
22-01-2008, 14:28
PDF got quickly removed

Interesting! I wonder why?

You can still download the accounts in Word format from the Investor Relations website: http://investor.games-workshop.com/news/default.aspx

Griefbringer
22-01-2008, 14:37
So revenue and operating profit stayed exactly same, but profit before tax went down?

However, it is interesting to notice the regional changes in the revenue (the ones in brackets are for last year equivalent period):

Continental Europe: €28.6m (€32.0m)
United Kingdom: 18.8m (17.0m)
The Americas: US$24.2m (US$22.9m)
Asia Pacific: Aus$9.2m (Aus$8.9m)

Basically, continental Europe has gone down almost 10% while the others have grown.

Osbad
22-01-2008, 14:41
At the risk of repeating myself from other threads:


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?

I just read on another thread 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-. 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.

Templar Ben
22-01-2008, 14:45
Well if we are going to cross over then I will mention that sales in the US does not necessarily mean sales to the US customer base. A weak dollar and lower costs than any other region anyway means that a lot of product from Memphis is going back across the ocean to the UK and Europe. The Canadian sales don't matter in this case since it is all of NA so they are lumped in together but I know a lot of people that send product to customers in Europe.

Griefbringer
22-01-2008, 14:58
Checking more in detail, I found out the growth in the amount of borrowings disturbing - it also means that the net assets of the company have gone significantly down, and the financial costs have increased (which dipped the results into a loss in the end).

Bregalad
22-01-2008, 15:06
On continental Europe, GW's support for independent retailers is basically 3-4 price hikes per year, profit marges going down continuously and, adding insult to injury, strong advertising for "direct only" items, so that people are lured away from the brick-and-mortar stores. The restart of a more capable webstore goes in the same direction and will deal the death blow to many indies.

It is no wonder that more and more indpendent retailers think of dropping the GW range completely. The profit gets less and less.

Osbad
22-01-2008, 15:14
On continental Europe, GW's support for independent retailers is basically 3-4 price hikes per year, profit marges going down continuously and, adding insult to injury, strong advertising for "direct only" items, so that people are lured away from the brick-and-mortar stores. The restart of a more capable webstore goes in the same direction and will deal the death blow to many indies.

It is no wonder that more and more indpendent retailers think of dropping the GW range completely. The profit gets less and less.

Interesting to hear. Over the years I have read lots about the woes of US-retailers on teh internetz, particularly when GW crushed the webstores, but I have read relatively little of the experiences of European-based vendors. And of course UK B&M indie retailers are a very rare breed indeed, with most of the ones I know really struggling to stay alive!

Seems they need to have a rethink of the way they do business in Europe along the lines of the rethink they have had in the US. Nowadays it is a lot harder to find a US retailer who isn't impressed with the way GW now do business with them.

Templar Ben
22-01-2008, 15:18
What was the basis of the tax credit given to GW in the interim report?

Osbad
22-01-2008, 15:25
Its a good few years since I last looked at corporation tax legislation, but IIRC, if a company makes losses it can offset them against profits earned in previous and future years and offset its longer term tax liability. I believe they can also claim tax refunds under certain circumstances, but I may be wrong there. Certainly they pay no tax for the years they make no "taxable profits" in.

However, tax is computed on a calculation of "profits" based on different assumptions than the accounting profit, and so there is always an accounting adjustment in a profit and loss account to bring into the current year's P&L account credits and debits that actually relate to previous or subsequent tax years.

So, in all likelihood, this credit relates to a reduction in a tax liability that had been accrued for in past years, or had been estimated on bases that have now changed, given that they are into their second year of accounting losses.

As at 2/12/07 they owed 218k in tax liabilities, which may well only relate to payroll taxes for the last month or so that are falling due shortly.

And believe me the reality of the detail of corporation tax is even more horrendous than that sounds!

(Which explains why I choose to work for a charity... W00T No corporation tax or VAT to worry about! Yippee!!!)

Templar Ben
22-01-2008, 15:33
I was thinking it seemed a bit high though. They use 40% for taxation which is right in the UK as I understand it but the amount that they wrote back (77K) seems high. Perhaps I am just sensitive to it being in the States and used to seeing companies do "just enough" to change the result.

An old professor of mine recently published a journal article on CFOs doing that very thing.

Osbad
22-01-2008, 16:01
Oh, I've no doubt that GW will have done everything possible to manipulate the results to give as positive a spin as they can manage. Every PLC under the sun will do that.

That fact is one of the reasons I am so skeptical about GW's chances - even with all of the tricks at their disposal, (and there are many that can manipulate things in your favour by a few k, which is all that is really necessary to turn results that are "just unfavourable" to ones that are "just favourable") their progress is shown as fairly unimpressive!

One of the major areas they have available to manipulate is their provision for redundancy costs. I mentioned back when last year's results were published that I believed they would accrue for as much of those costs into last year's accounts as possible, in order to make the redundancy costs they occur this year look lower and thereby make this year's headline figures look more acceptable and give the impression of real growth. Look at Note 11: This shows that at 29th May 2006 they accrued for 1.6M of redundancy costs that they hadn't actually incurred yet. Now I'm not saying that it is incorrect practice, far from it, but that there will be the inevitable temptation where "grey areas" exist of judgement to make that 29th May 2006 figure as large as possible, so that if costs come in lower in reality they have a credit to release back into the accounts. And what do we see: a 1.7M credit released into the accounts this year with only 415k of the 1.6m provision they raised last year having proved to be "necessary"!! So of last year's costs, 1.2m was actually incurred this year.

In other words, if last year they had accrued "accurately" for estimated redundancy costs, then the Loss Before Tax for the y/e 3/6/07 would have been only 1.7m and the Loss Before Tax for this 6 month period would have been nearer 1.4M!

Now, in a company wishing to demonstrate to shareholders a programme of "restoration to growth" isn't that an amazing coincidence?!

"Lies, damned lies, statistics and annual reports" to coin a phrase!

Nothing illegal or unfair practice, just normal accounting practice which is designed to keep "difficult" facts hidden away in the bowels of the accounts where only professional will find them!

And that is why I believe that when it comes to judging GW's ongoing health, the MAIN number of importance is the Turnover figure. Even that can be manipulated a bit with exchange rate gains and losses, but other than that it is a darned hard number to "fix" year on year.

Templar Ben
22-01-2008, 16:35
On this side of the pond that is called "cookie jar" accounting as it puts money in the cookie jar that you can get when you need it. I don't know what happened to the thread from last year but I recall saying that I expected GW to take a big bath and get it over with to eliminate the true multiyear pain.

I only with GW had quarterly statements (10-Q over here). Waiting to see what is going on every six months is too long.

I could never play DE. ;)

Wintermute
22-01-2008, 19:43
As some of the posters have already mentioned, this topic being discussed in this thread here (http://warseer.com/forums/showthread.php?t=114182).

Therefore I'm closing this thread.

Wintermute
The WarSeer Inquisition