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View Full Version : Some findings after finally looking at GW's fiscal H1 2016 release



jozhik
11-05-2016, 03:50
I have got to start posting here more frequently than once a year or so. The wall-of-text drive-by act is starting to become tiresome. On the other hand, I have been busy hatching various plots...

People who fear walls of text like the plague, do skip to the "TLDR" section at the very bottom.

...

Disclaimers.

Recall that GW's fiscal year ends on May 31, and they're a U.K. company and so are on a 2-a-year financial release calendar (November and May, filed 30-45 days after period end date) as opposed to the 4-a-year schedule for U.S. companies. As such, we only have numbers through November of 2015 to play around with; nevertheless, this already captures the initial AoS wave and so is at least partially instructive. Additionally, whenever I say "fiscal year 20XX", I mean year ended May 31, 20XX; similarly, H1 20XX means the first half (six months ended November 30) of fiscal 20XX. Thus, the latest numbers we have are for H1 2016 (period ended November 30, 2016). Plus or minus a couple of days, actually, depending on the specific year.

Also note that GW, as a rule, does not break out its results by product line. Which annoys me immensely, but then so does my neighbours' Newfoundland who is apparently a) afraid of the lifts and b) believes that the only way to deal with this fear is to rhino-charge into the lift at full tilt irrespective of who else might already be in it. For those of you blissfully unaware of what a Newfoundland is, the normal adult weight for one is at around 70 kilos or 150 pounds. This particular Newfoundland is, I would say, not the smallest example of his breed, damn his oversized and incredibly malodorous hide...

...I digress. The point is that we do not have any official numbers as to how an individual product - be it AoS, a specific 40k faction, or GW paints - is doing. The one highly notable exception is Forge World, which comprises the bulk of the "Mail Order" reporting segment and some of the detailed numbers for which are available, but more on that below.

Finally, all these numbers come from GW's financial filings, all figures are in millions GBP, and any calculations like EBITDA are done the way I do them (and so may differ from how someone else would have done them).

Consider yourselves warned.

...

So.

First, let us examine total revenues for H1 going back a few years.

H1 2012 = 62.7
H1 2013 = 67.5 (+7.6%)
H1 2014 = 60.5 (-10.4%)
H1 2015 = 56.5 (-6.6%)
H1 2016 = 55.3 (-2.2%)

It is not easy to infer anything AoS-specific from these unless you are already biased, precisely because we have no product line data. For example - were the 2014 and 2015 declines due to 40k, WFB, or both? Did AoS help slow the bleeding in 2016, or was 40k having a banner year and AoS pretty much derailed it? I have no idea. I know that some people on these very boards have made claims to some effect, but unfortunately I cannot accept these as anything other than "Internet rumours" - sometimes accurate, often not very - without an actual piece of paper with numbers on it to back them up. And, yes, that bit about GW bringing back points values, which probably means something, but I have no definitive evidence to that effect. Feel the difference.

What is evident, however, is that since fiscal 2013 - does anyone remember what GW was releasing that year? - the numbers have not been particularly good. You can see a similar trend in the full-year revenues:

2012 = 131.0
2013 = 134.6 (+2.7%)
2014 = 123.5 (-8.2%)
2015 = 119.1 (-3.5%)
LTM 11/2015 = 117.9 (-1.0%) [LTM == Last Twelve Months == 12 months ended November 30]

Incidentally, more sales have been shifting into the Christmas season, though I wouldn't read too much into that just yet.

The bottom line is - if GW had thought that AoS was going to be its silver bullet for restoring sales growth, well, that has not happened. On the other hand, unless one is prepared to claim truly outstanding growth rates for 40k sales in the past year, it is unlikely that AoS is selling so badly that "the end is nigh". I hope we will know more with the full-year 2016 release (July-ish, most likely), which would incorporate the 2015-2016 Christmas season...

...oh and incidentally, no, video games do not appear to be factoring into this. GW's royalty income has been consistently small (and I don't include it in revenues in any case).

...

But wait, there is more.

In 2015, GW had decided to ditch its traditional way of reporting sales and operating profit by region - Europe, North America, etc. - and instead switch to the following three segments: Trade, i.e. independent retailers; Retail, i.e. GW stores; and Mail Order, about 90% of which is labeled "Citadel and Forge World" without breaking out which is which. Separately, Trade and Retail are also broken down along regional lines, though Trade consolidates UK and Europe while Retail counts them as separate regions. Go figure.

The point is, we only have these new segment numbers going back to fiscal 2014, but I found them interesting nevertheless. Behold.

Incidentally, in terms of size - Trade and Retail are about equal and account for roughly 80% of sales. In other words in H1 2016, Trade was 22.4 million, Retail was 21.5 million, and Mail Order was 11.4 million.

Trade:
2015 growth = -6.3% [UK/Europe -11.8%, others positive]
H1 2016 growth = +2.1% [UK/Europe +5.8%]

Maybe it's people stocking up for the AoS release. If so, and if (!) AoS has not been flying off the shelf, then Trade should take a hit for the full year 2016 because people won't be restocking quite as quickly.

Retail:
2015 growth = -4.6% [UK positive - +5.2%, but Europe is -15.2%]
H1 2016 growth = -8.3% [Europe at a ridiculous -25.2%]

I have no idea. I don't think it's store count, since they closed 13 but opened 22+3 (22 one-man and 3 multi-man). I don't think a majority of it is currency because the Euro isn't down 25% versus the Pound, last I checked. My natural inclination is to blame the French, but then I blame the French for pretty much everything anyway. Is Europe sucking wind that much economically? Are people really that worried about the mere possibility of a Brexit? Is it all just a particularly insidious plot hatched by Putin personally to reinstall Tim Kirby as GW's CEO and thus bring down Western civilization? As I said, I have no idea.

All told, Europe is still bigger than NA for GW, but is now significantly smaller than UK. When your second biggest region by revenues is crashing like that, I would like to know why...

Mail Order:
2015 growth = +3.9%
H1 2016 growth = +2.3%

I would like to console myself with the happy thought that most of this is due to the good people of Forge World. While their prices may be of the rip-your-face-off-and-laugh variety, they certainly deserve the love in my opinion. Unfortunately the line item is labeled "Citadel and Forge World", so there is no objective way to determine how Forge World by itself is doing (unless someone tells me they'd eaten Citadel, in which case all is well).

Interestingly, I doubt this is due to their customers switching to Internet vs. retail mode of purchasing (more so than in the past), since FLGS (GW or indie) is one of the primary means of meeting other players and actually playing the game. Or so I would suspect.

...

I would be remiss not to end this screed with a discussion of operating profitability and free cash flows.

I shall not repost my customary two-page rant about how "no-one cares about net income or earnings per share" and "equity analysts are dolts", and you all ought to thank me for that. Rather, I should only mention that the standard measure of a business in the industry - the measure used for valuing companies in acquisitions or in bankruptcy, in evaluating their creditworthiness, in valuing their securities, i.e. in any conceivable and significant way - is called EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization. In other words, take operating income (the money you earn from operating your stores, for example), and add back any non-cash expenses like depreciation (which is an accounting item, not an actual cost). This is how much money you generate before taxes, debt service, dividends, whatever.

GW EBITDA:

2012 = 25.7 (19.6% margin)
2013 = 25.0 (18.6%)
2014 = 19.4 (15.7%)
2015 = 21.5 (18.1%)

H1 2015 = 8.8 (15.6%)
H1 2016 = 8.0 (14.5%)

LTM 11/2016 = 20.8 (17.6%)

In the immortal words of Scooby Doo - ruh-roh.

In other words, not only are revenues sucking wind - but expenses are rising too, at least on a relative basis. I am prepared to give GW a pass for H1 2016, assuming that this is when they've expensed their AoS marketing costs (and I do not know if this is actually the case, but H1 2016 gross margins have actually improved a touch so perhaps I am on the right track) - but ye gods, they are not doing well as far as profitability goes. This is what they really need to turn around, and I'm afraid at some point it will be a matter of growing sales volume, because gross margins - computed as (revenue - cost of sales) / (revenue) - appear to have now sort of kind of stabilized in the 69%-70% range (vs. 77% in 2012). In other words, they now make roughly the same amount of money per box they sell, they just need to sell more boxes to offset their corporate costs (marketing, website, development, whatever).

And now, let's shift to free cash flow - so actual cash you generate or burn as a business after interest, taxes, capital spending, whatever - in my version, not counting any asset sales and such but including video game royalties.

2012 = pre-dividend +13.5, post-dividend -1.3 [so paid everything out to shareholders]
2013 = pre-dividend +9.6, post-dividend -8.8
2014 = pre-dividend +5.9, post-dividend +0.8 [again, full payout]
2015 = pre-dividend +5.6, post-dividend -11.0 [again burned some cash to pay a dividend]
H1 2016 only = pre-dividend -0.8, post-dividend -7.2

H1 makes sense since their H1 pre-dividend FCF tends to be flat, with most of the cash generated in H2 (Christmas season). It's the same for many retailers, by the way. But their dividends are certainly on pace with their annual average going back to 2012.

Which is a double-edged sword. If they pay everything out, the shareholders might be happy, but that's an extra 10-15 million pounds a year you could have plowed into development, or stores, or manufacturing or whatever. Or just saved it up for a rainy day. For a 120-ish million annual revenue business, that extra 10-15 million per year could have gone a long, long way. It's not like they rely on frequent equity raises to run their business, either, so at some point shareholders be damned...

...and on the other hand, even if they continue to pay everything out, eroding revenues and EBITDA translate into eroding FCF translate into lower dividends translate into unhappy shareholders. So you gave these guys (usually guys) everything you had, and they are still unhappy with you. Class, what have we learned about appeasement?

On the other other hand, dividends are a discretionary item (common stock dividends, that is - preferreds and hybrids are something else, but that does not apply here to my knowledge). So if you really, really need the money, you can choose to stop at any time. Moreover, and I cannot stress this enough, [B]GW has no debt. None. Zero. They used to have some, back when they were building out their U.S. factory operation, but not for a number of years. You cannot go bankrupt unless there is some liability you cannot pay, and without any debt the only such liability for them are basically their trade creditors - who are highly unlikely to squeeze a business that's still making money (not a lot, but whatever).

So any Internet talk of GW and bankruptcy ought to refer to Mark Twain's famous line about great exaggeration. At least based on the numbers we're seeing today - hell, even if you knock sales another 10%. [Thought experiment. Take 90% of 120 = 108 million. Let's say 100 million flat even. Let's say at that point EBITDA margin is 8%, half of what it is today, thanks to fixed costs. That's 8 million, and pre-dividend FCF is in the -5 million range. Which is tolerable, because at that point you'd assume store closures and lower capital spending on said closed stores. I.e. the business can still - hypothetically speaking - break even, before dividends, if both revenues and margins take very significant hits. The end.]

...

TLDR. Yes, you know who you are.

- We have no product line data. Hence, there is no objective and numbers-based way to draw conclusions about AoS - as of right now. More clues may be provided in the full-year 2016 release a couple of months from now. Until then it's just Internet rumours, conjectures and divinations about the real meaning of points values, and forum "debates" which really ever involve people talking past each other mainly for reasons of personal gratification.

- Nevertheless, sales excluding "Citadel and Forge World" mail order continue to erode. Especially in Continental Europe. AoS has not done anything to reverse this decline - though it is unknown whether it helped slow it or has in fact exacerbated it.

- The business as a whole is weakening, but not sliding towards bankruptcy. Which in any case is difficult to accomplish with a zero debt balance (excluding trade creditors). Can the alarms, for the moment.

- Management's commitment to paying out every last pfenning, centime and kopeika of cash flow to the greedy shareholders continues to both amuse and trouble me. It's a silly way to run a mature business, even from a shareholder value standpoint (investment in tomorrow vs. payout today), and I would infrequently argue that "shareholder value" is the best way to run any business over the long term. But whatever. The point is - when next you hear of any staff cuts or development cuts or whatever cuts at GW, don't blame AoS, blame the stupid and greedy management slash shareholders.

Here endeth the rant for this...date. I need a cup o'tea...

Tarrell
11-05-2016, 05:35
Nicely written, I did not know they had no debt (excluding trade creditors), that is actually very impressive for such a large corporation.

ashc
11-05-2016, 06:57
Good summary. May silence the odd doomsayer. Probably won't silence enough of them. I wonder why Euro-sales are sliding so badly?

Herzlos
11-05-2016, 09:16
Very well written piece, I only have one comment though...



On the other other hand, dividends are a discretionary item (common stock dividends, that is - preferreds and hybrids are something else, but that does not apply here to my knowledge). So if you really, really need the money, you can choose to stop at any time. Moreover, and I cannot stress this enough, GW has no debt. None. Zero. They used to have some, back when they were building out their U.S. factory operation, but not for a number of years. You cannot go bankrupt unless there is some liability you cannot pay, and without any debt the only such liability for them are basically their trade creditors - who are highly unlikely to squeeze a business that's still making money (not a lot, but whatever).


Whilst GW has no debt on paper, they will have a lot of lease-style contracts which are essentially debt (I don't know the appropriate term - liabilities?). So if their revenue drops to the point they need to close stores to keep up, that might not actually save them much initially as they may not be able to close all of their sites "for free".
I get the impression GW is moving to cheaper sites as the leases expire though.

Baragash
11-05-2016, 09:55
@Jozhik: in the commentary accompanying the results, what did GW have to say about AoS?

Blutrache
11-05-2016, 11:36
As I remember it, the dividend is (was) considered essential for shareholder percieved value in their last report. As they clearly stated they considered themselves as "past peak" and really had no need (or intention) to reinvest any large sums into r&d. So, if the aim is to function as a cash generator for the shareholders I'm not surprised they're minimizing liabilities and focus on maintaining price level. Ofc balancing the price against volume growth.

/Cheers



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rmeister0
11-05-2016, 22:43
As I remember it, the dividend is (was) considered essential for shareholder percieved value in their last report. As they clearly stated they considered themselves as "past peak" and really had no need (or intention) to reinvest any large sums into r&d. So, if the aim is to function as a cash generator for the shareholders I'm not surprised they're minimizing liabilities and focus on maintaining price level. Ofc balancing the price against volume growth.

Based on one of Kirby's last preambles, they do exactly see themselves as a cash generating business and not a growth business. The payout of earnings as dividends is no surprise considering who many of those shareholders are.

So doomed, no, but expenses going up while revenue and unit sales declining is no the path to sustainability.

dwarfhold13
11-05-2016, 22:54
Based on one of Kirby's last preambles, they do exactly see themselves as a cash generating business and not a growth business. The payout of earnings as dividends is no surprise considering who many of those shareholders are.

So doomed, no, but expenses going up while revenue and unit sales declining is no the path to sustainability.

Milking it for what it's worth and selling what's worth anything at the end of it all? That's certainly the writing on the wall.

Kisanis
12-05-2016, 03:20
Great writeup as always.

Part of me wants you to do it for the company I work for!

I do think Europe is very worrying. I also think that their EBITDA is pitifully low considering they are essentially a luxury good.

I work in industrial distribution - selling wholesale products with average margins of about 30% that translates to almost 10-20% EBITDA. And we're a middleman!

I think GW really needs to realize that the only way to get volume is through distribution, and burning those bridges over the last few years will make it hard.

I also find "post growth" laughable when you see mantic, Warlord, Osprey, Perry, and others in a variety of scales and settings still finding growth and business in the hobby.

GW is not post growth. They are post-innovation.

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Sureshot05
12-05-2016, 10:30
Overall Jovzhik a good summry. One nit pit that the half year reports do not discuss.
GW do have debts of a sort. Check the annual reports. Each year they have "deferred costs." Last year (2015 Annual report) these rose by a few million and if factored in would have meant a loss to the company. It is impossible to tell exactly what was going on with that, but it was highly odd. I'll be interested to see if they reduce their delayed costs this year.
In addition, GW has retail licences, which means they are under contract to pay the rent for Store locations for X years regardless of how well the store does.

Blutrache
12-05-2016, 11:55
Amongst the deferred costs I think any new buildings would end up. Wasn't warhammer world rebuilt back then for instance? But as always the details eludes us...
/Cheers


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Baragash
12-05-2016, 14:45
A deferred cost is something you have already paid for but for whatever reason isn't appropriate to recognise yet, it's not a debt.

A possible example might be a 5-year insurance policy that you paid for up front, at the end of the first year you would charge 20% of the cost to the Income Statement and hold the other 80% as an asset on the Balance Sheet.

mrtn
12-05-2016, 19:58
I wonder why Euro-sales are sliding so badly?

Doesn't the "collective internet mind" say that Europe is more fantasy-focused? So then I'd chalk that up to AoS. Or, of course, to the rising popularity of SAGA/Frostgrave/Bolt Action/Mantic/Guildball et cetera... It might be someone else doing a good job, not just GW doing a bad job.

The division of UK/Europe is weird though, since the UK (still...) is part of the EU, so anyone on the continent can buy directly from the UK whenever that's favourable. My last purchase from GW (which was the 6th ed 40k starter set, so yeah, a few years back) was from a gaming store in Cardiff. So the EU/UK accounts should be seen as communicating vessels.

f2k
12-05-2016, 20:13
Good summary. May silence the odd doomsayer. Probably won't silence enough of them. I wonder why Euro-sales are sliding so badly?

That slide is exactly why some of us are preaching doom and gloom.

Games Workshop os losing marked shares quite rapidly. And that's what's going to kill them. They simply don't have enough players left to sustain themselves any more.

Why?

I think it's a combination of several things. Games Workshop is perceived as offering low quality games for high prices - so you generally don't get your money's worth. Also, with their relationship with indy-shops being somewhat rocky, there's been plenty of other games showing up in local stores.

So they're being slowly forced out of the marked by younger, mor agile, companies, establishing themselves in the niches that Games Workshop gave up on with the closure of Specialist Games.

Fangschrecken
12-05-2016, 22:24
So if they cut the shareholder dividend they could either use the money to cut prices a bit (or offer deals o boxed sets) and try to grow the customer base. Or they could put the money into actually play testing these games so the folks who want to play a reasonably balanced game won't keep jumping ship. Possibly both.

From what I set at my local games store GW still does put out the best minis. They just need to recognize that they are a hobby/game company and that the game is a highly important part of why people collect and paint these minis. I mean, You see all these video games coming out from GW source material and if there were an abundance of affordable starter kits and army battalions you'd probably see some crossover from videogames to table top. But, even if they are pretty models, it's still expensive and the rules are poorly balanced [insert ex-girlfriend joke].

rmeister0
12-05-2016, 22:38
I also find "post growth" laughable when you see mantic, Warlord, Osprey, Perry, and others in a variety of scales and settings still finding growth and business in the hobby.

I don't think you can make an apples to apples comparison there, though. None of those companies operate on anywhere near the scale that GW does - they don't have the infrastructure, expenses, or market saturation that GW does. Aside from Mantic, the others also play in a different market (historicals).

When your market share is small, there's nowhere to go but up.

I do think that GW is not a growth proposition anymore *unless* they diversify the product range more. And throwing out $150 board games is not what I mean. They should be looking at new ranges in new mediums, new distribution channels, and new marketing efforts. The fact that they think they're "post-growth" is clearly why they don't.

Katastrophe
12-05-2016, 23:48
We should get a better feel for their overall numbers when the final year report comes out and the numbers Nov-May are seen. If I recall there was no big box item that they could push out to stores (FLGS) to boost revenue numbers. In the June-Nov period, HH and AoS were both pushed out in huge numbers through their own channels as well as sales to FLGS (which are end user sales for GW). We don't know how much of HH:BaC and AoS made up for the revenue in that period but I suspect that was significant. Sales by FLGS of AoS to players is irrelevant in determining GWs revenue through the period.

I suspect we will see some revenue leveling of sales of the "starter boxes" and the "last chance". Many of these are now one off sales that will not be repeated (unless they "find" more boxes as they have seemed to be able to do. Aside from those and the upcoming Silver Tower and that boxed Genestealer game, I can't think of anything GW could have flooded FLGS and wholesalers with that could carry as "sales" even if they did not make it into the hands of players. I also can't think of a big 40K release from Nov-May that would substantially raise their revenue.

If revenue continues to fall, even at a slow pace this 1/2 year, There would seem to be nowhere they could start to make up ground and improve their revenue since they would have basically spent their load. Those warehouse clearing "last chance" sales are also good for there bottom line as the cost associated with those boxes has already been reported so these have a higher than normal profit margin (there was still some stocking costs associated but the actual design, production and packaging was already accounted for in prior reports (unless they have some really funky accounting mechanism where they report the cost of the item when it is actually sold - though that would be weird and unusual to say the least)

Replicant253
13-05-2016, 07:46
They should of gone for the Star Wars licence. Done well that would have had as good of chance as anything I can think of to enable them to return to a growth business. This could of then led to the development of multiple games; a fleet based game, squadron fighter based game, land based skirmish and land based mass battles. Basically what FFG are doing apart from the detailed unpainted modelling aspect. Can you imagine how good it would have been for forgeworld to create character series for Star Wars like they have done for the Horus Heresy. Forget the appeal of Fulgrim vs Manus and give me Obi-Wan vs Anakin on Mustafa scenic base in resin. They would have been printing money.

Tokamak
14-05-2016, 18:43
don't blame AoS, blame the stupid and greedy management slash shareholders.

I blame them for AoS

SuperHappyTime
14-05-2016, 19:28
I have no idea. I don't think it's store count, since they closed 13 but opened 22+3 (22 one-man and 3 multi-man). I don't think a majority of it is currency because the Euro isn't down 25% versus the Pound, last I checked. My natural inclination is to blame the French, but then I blame the French for pretty much everything anyway. Is Europe sucking wind that much economically? Are people really that worried about the mere possibility of a Brexit? Is it all just a particularly insidious plot hatched by Putin personally to reinstall Tim Kirby as GW's CEO and thus bring down Western civilization? As I said, I have no idea.

I'm economically illiterate (or smart enough to know that I'm illiterate), so take this with salt. I was told in my Company's meeting that the only reason our US region wasn't underwater, despite earning less than we did last year, is in part because the Euro went cold turkey and the US Dollar looks better against it.

And yea, I'm also a TL;DRer. Basically instead of taking on debt and growing the brand like how most companies operate, GW has been sacrificing growth to maintain no debts? Sounds like a terrible business practice, but a fantastic personal accounting practice. It's like they've been expecting/preparing for a wave of Repo Trucks to come and collect everybody's debt, but not theirs, since they have no debts.

Kisanis
15-05-2016, 03:54
I don't think you can make an apples to apples comparison there, though. None of those companies operate on anywhere near the scale that GW does - they don't have the infrastructure, expenses, or market saturation that GW does. Aside from Mantic, the others also play in a different market (historicals).

When your market share is small, there's nowhere to go but up.

I do think that GW is not a growth proposition anymore *unless* they diversify the product range more. And throwing out $150 board games is not what I mean. They should be looking at new ranges in new mediums, new distribution channels, and new marketing efforts. The fact that they think they're "post-growth" is clearly why they don't.
That was kind of my point though.

GW has failed to be innovative.

Warlord, Perry, Corvus Belli, and Mantic are all very small in comparison, but they have still managed to carve out a business that GW did not see.

GW is lazy when it comes to business strategy. 5 years ago warlord games was a bunch of guys sitting around Paul Sawyers Kitchen table, now they've driven historicals mainstream and created a solid sci-fi game to start chipping at 40k. Meanwhile, GW axes lines that are not *as* profitable as 40k (but still profitable), while everyone else manages to grow the niche segments out.

GW is not post-growth, they are post innovation. The miniature wargames industry is bigger than GW. GW are not the only company. For the first time in years, they have to actually work to get sales, and they are being beaten by a host of smaller companies.

GW has one thing left: 40k.
Everyone else in the market seems to be growing, but GW seems to be barely holding it together.


GW is not going to disappear overnight, but I think they are in a completely avoidable downwards trend.



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smaxx
15-05-2016, 07:19
GW is lazy when it comes to business strategy. 5 years ago warlord games was a bunch of guys sitting around Paul Sawyers Kitchen table, now they've driven historicals mainstream and created a solid sci-fi game to start chipping at 40k. Meanwhile, GW axes lines that are not *as* profitable as 40k (but still profitable), while everyone else manages to grow the niche segments out.

GW is not post-growth, they are post innovation. The miniature wargames industry is bigger than GW. GW are not the only company. For the first time in years, they have to actually work to get sales, and they are being beaten by a host of smaller companies.

GW has one thing left: 40k.
Everyone else in the market seems to be growing, but GW seems to be barely holding it together.
I agree completely :) Warlord Games is growing fast now, and it's all thanks to great games and willingness to grow. Bolt Action and Gates of Antares are just excellent games, supported by rapidly growing miniature releases. Bolt Action minis are without competition in their scale and theme, and Gates of Antares minis are OK in scifi field. Actually I really, really like my Boromites... Hail Caesar and Black Powder are also good games, and WGs support for those systems are good also.

Mantic has at least Kings of War, great game, but not so great miniatures unfortunately... But there are gazillion fantasy miniature and human army manufactures out there, so no problem.

GW is just 40k now, and I prefer Gates of Antares as a scifi game. It's a clear and good mechanics for playing Scifi games, where 40k is just bloated and impossible mess right now with pay-to-win formations. A non competetive 40k with armies perhaps selected together with Your mate, that I can understand to be fun, but a pick-up, points based game or tournament play is just not possible.

Malagor
15-05-2016, 17:03
And yea, I'm also a TL;DRer. Basically instead of taking on debt and growing the brand like how most companies operate, GW has been sacrificing growth to maintain no debts? Sounds like a terrible business practice, but a fantastic personal accounting practice. It's like they've been expecting/preparing for a wave of Repo Trucks to come and collect everybody's debt, but not theirs, since they have no debts.
Well as was stated before, they think GW is a revenue-generator so they seem perfectly happy with just sitting on their asses and just let it roll in.
While this plan is working at the moment, their revenue has been shrinking year after year and this is despite various cutbacks and salary freezing.
The shareholders doesn't complain of course since few of them are gamers if any of them and GW pays out a nice dividend to them.
Once they go into the red, I can only guess that they think they can just take out a loan and start to get things moving again without considering that it might be too late to turn it around at that point.
Will be interesting to see if the new games and focus on AoS at the expense of 40k will pay off for them.

Gorsameth
16-05-2016, 21:34
That was kind of my point though.

GW has failed to be innovative.

Warlord, Perry, Corvus Belli, and Mantic are all very small in comparison, but they have still managed to carve out a business that GW did not see.

GW is lazy when it comes to business strategy. 5 years ago warlord games was a bunch of guys sitting around Paul Sawyers Kitchen table, now they've driven historicals mainstream and created a solid sci-fi game to start chipping at 40k. Meanwhile, GW axes lines that are not *as* profitable as 40k (but still profitable), while everyone else manages to grow the niche segments out.

GW is not post-growth, they are post innovation. The miniature wargames industry is bigger than GW. GW are not the only company. For the first time in years, they have to actually work to get sales, and they are being beaten by a host of smaller companies.

GW has one thing left: 40k.
Everyone else in the market seems to be growing, but GW seems to be barely holding it together.


GW is not going to disappear overnight, but I think they are in a completely avoidable downwards trend.

I think it is important to ask yourself where these Warlods, Perry, Corvus Belli, Mantic ect new players are coming from.
Now ofcourse we do not know the facts on this but assume for the moment that they are all ex-GW customers. In that case GW is certainly post-growth.
Everyone in the market will have been a GW customer at some point and they have now moved on to other companies, there is no new customers for GW to try and attract.

Now ofcourse this is a hyperbole and new players are entering the hobby but to point to the growth of small competitors and say they are all new customers that GW could have attracted is wrong.

de Selby
17-05-2016, 00:10
Once they go into the red, I can only guess that they think they can just take out a loan and start to get things moving again without considering that it might be too late to turn it around at that point.


They have borrowed to pay a dividend before.

I think GW have recently started behaving more like a normal business, I presume that will start to help them this year. AoS release seemed like a low point in terms of headscratcher decision making.

jbeil
17-05-2016, 10:17
They have borrowed to pay a dividend before.


I'll freely admit to only being an armchair economist and I've never run a business myself before, but this seems like a cactus-hugging level of stupid. If your business can't generate enough profit to make it's dividend commitments, how does loading up more debt help? If anyone who knows their way around a five pound note can explain this one I'd love to hear it!

Yowzo
17-05-2016, 10:49
Good summary. May silence the odd doomsayer. Probably won't silence enough of them. I wonder why Euro-sales are sliding so badly?

Because WHF has always been bigger in Europe. In countries like Spain and Italy WHF has always been bigger than 40K.

So yes, it's very likely AoS effect. In the UK it's mitigated by the higher presence of GW stores who still push out AoS and keep 40K healthy, in the continent GW strongarmed their accounts to initially push it, but ultimately lost faith.

Gorsameth
17-05-2016, 10:49
I'll freely admit to only being an armchair economist and I've never run a business myself before, but this seems like a cactus-hugging level of stupid. If your business can't generate enough profit to make it's dividend commitments, how does loading up more debt help? If anyone who knows their way around a five pound note can explain this one I'd love to hear it!
When you realize that the board of directors holds the majority of GW shares and therefor the payed dividend went directly into their pockets you realize it makes a lot of sense.

For years GW has run a 'churn and burn' strategy where short term success is more important then long term sustainability. There is a reason why some people believe that Kirby and Co were trying to fill their pockets as much as possible before retiring and letting the company burn down. The dividend is one, the company that designed the new (worse) online store for 4 million belonging to Kirby's wife being another and many more.

rmeister0
17-05-2016, 22:29
I'll freely admit to only being an armchair economist and I've never run a business myself before, but this seems like a cactus-hugging level of stupid. If your business can't generate enough profit to make it's dividend commitments, how does loading up more debt help? If anyone who knows their way around a five pound note can explain this one I'd love to hear it!

From a strictly cash flow perspective, it can look like a stupid move.

However...if they traditionally paid out a dividend for years and suddenly didn't, they could see a sell off that would drive the stock price down. If the borrow was necessary because they had a short term hit that they knew cash flow would recover from shortly, it would not be hard to justify.

That is probably why it didn't throw up red flags with investors at the time, assuming they new about it.

Satisfying shareholders does not always translate into the long term health of the company. More specifically, being concerned with the short term stock *price* usually does more harm than good.

All that said, Gorsameth's explanation is the most likely one.

jtrowell
18-05-2016, 08:20
Funny thing is : why should they care that the share price drop if they have no debt and are not expanding and in need of capital ? Going public was somewhat justified due to needing the capital to expand at the time, but now ? What is it bringing to the company except leeching profits years after years ?

Of course when you realise that Kirby and probably other members of the board are shareholders and that those dividends go into their pockets (plus the share value assuring them of a nice retirement when they sold them), it suddenly make more sense.

If someone with more knowledge in how those kind of things work find something that I missed please feel free to correct me.

Yowzo
18-05-2016, 08:38
Funny thing is : why should they care that the share price drop if they have no debt and are not expanding and in need of capital ? Going public was somewhat justified due to needing the capital to expand at the time, but now ? What is it bringing to the company except leeching profits years after years ?

It's a way out for investors. Publicly traded companies are interesting to investors such as funds because the day they want out they can just plonk the shares out in the market and someone will buy them at some price.

Going back from public usually implies buying back all or most shares out of non-core shareholders, and I doubt GW has the cash to do it.

It's also perceived as a step backwards (even though at times it's the best course of action)

The_Real_Chris
18-05-2016, 14:05
If they allow the share price to drop they are not working for their shareholders/investors. So while the company couldn't care less the owners might.

Kisanis
19-05-2016, 21:30
Also regarding dividend payout vs. Not paying out,

As the largest shareholders, the board gets the dividend as income, except most countries tax this differently, or sometimes not at all... get paid in dividends, and don't pay income taxes!

Sent from my Z30 using Tapatalk

Reinholt
23-05-2016, 04:53
Very well written, this aligns (unfortunately) with my view.

One technical note: depending on how GW has structured their retail operation (from a legal entity perspective) and their lease obligations (from a contract perspective), they may have more "debt" (though not traditional corporate debt) than is apparent from a quick glance at the balance sheet.

Or, put differently, if they wanted to stop paying the rent and just cut the stores loose, could they? If so, it's not debt. If their leaseholders could come after something other than an empty shell and/or have recourse, it's debt.

At least from a "can it cause bankruptcy" perspective, though again, GW is nowhere close to that. Their bigger worry should be the stock price fading as no growth appears over and over, and then being subject to a hostile takeover.

Baragash
23-05-2016, 08:37
I thought it was from having looked before, but it doesn't show up (mind you, I haven't used the new Companies House search before so could be user error as there were a few other GW companies not there that I remember from before).

That being said, I wold have thought at best it's a mixture. Experienced venue operators like Intu and Westfield are unlikely to leave themselves open to being mugged off like that, but smaller independent landlords might not have that sort of protection.

jtrowell
23-05-2016, 13:59
I just had an epiphany : their stock is as overpriced as their products :eek: and doesn't reflect their true value.