GW’s Financials and the Future

[tag8833]

I don't know if GW financials interest you. They interest me. I worked for a financial adviser for ten years, and Economics is an interest of mine.
10846
I found a comment on the recent editorial post (GW Editorial: The (Financial) Empire is Burning!):
greatpieeater says
“For the fun of it, I decided to pull the revenue and profit from all the annual reports available on GW's website...." <- my kind of guy right there.

His numbers follow. (I generally use a fixed 3% for inflation, because calculations of the actual rate of inflation are controversial, but he chose to use the Bank of England's figures found here: http://www.bankofengland.co.uk/education/Pages/resources/inflationtools/calculator/flash/default.aspx )

Year, Rev, Prof, Rev(IA)
2014, 123.5, 12.3, 123.5
2013, 134.6, 21.3, 134.6
2012, 131.0, 19.1, 135.0
2011, 123.1, 15.3, 130.8
2010, 126.5, 16.0, 141.5
2009, 125.7, 9.0, 147.1
2008, 110.3, 2.5, 128.4
2007, 109.5, (1.8), 132.6
2006, 115.2, 4.2, 145.2

Their profit was down this year, but is still in a very acceptable range. However, the Revenue Adjusted for Inflation (last column) is bad long-term news. The company has been shrinking since 2009.

What they do Right

Interestingly enough, they have done a good job cutting expenses during that period to maintain profitability. A Really, really good job. They are an example of a company with a anti-growth philosophy (AKA a "cash out" philosophy). Contrast that to a pro-growth company like Amazon which reinvests its profits rather than banking them or paying them out in dividends. Here is a graph of Amazon's Revenue and Profit:
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We've seen with GW, a trend since 2009 of degrading customer relations, because the customers are picking up on the Cash-Out philosophy even without much understanding of the "Big Picture". Privateer Press, and other miniatures companies that are gaining market share are doing so with a pro-growth philosophy, and thus they have much more positive customer relations.

Generally, companies are able to maintain a cash out philosophy for 3 to 5 years before competitors start developing strong competitive advantages and cashing out no longer works. At that point, the company looks for buyers based on their historically good profits (AKA the last 3-5 years when they were slashing R&D, and other spending needed for long term growth such as play-testing). The recent financial report indicates that they are still doing just fine with their anti-growth philosophy, and we will likely see hemorrhaging revenue for several years to come before the powers that be decide to pull the trigger and sell.

There is Hope10847

An alternative scenario is that upper management could choose to move in a pro-growth direction in which case profits will shrink substantially, but revenue will usually increase (though it is a lagging indicator of these sort of changes). There are some that have suggested GW is entering this phase in its corporate life. The profit downturn,Tom Kirby's ouster, and the acceleration/fragmentation of codex releases are all hints this may be the case.

But not much Hope10848

However, Tom Kriby in his Chairman's Preamble to the annual report, spent more time expounding on the successful downsizing: "Having taken on the conversion of our stores to a one man format with all the concomitant complexity of staff changes and new sites and new lease negotiations – a long job not quite finished – we decided to re-arrange the management of our sales channels from a country-based system to a central one. This meant removing four european headquarters, consolidating all trade (third party) sales personnel at our Nottingham base, creating a new continental european grouping of our retail stores, and recruiting new management for these divisions whilst flattening the structure by removing all middle management."

Then he does extolling the investments toward future growth: "At the same time we changed leadership of our retail chain in the north american area, and gave birth to our new web store after many months’ labour."

As always, reading financial tea leaves is fraught with danger; but for funsies, my conclusion is that we can expect 2-3 more years of winter before pro-growth policies return, and customer relations improve.

"The beatings will continue until morale improves."
-Attributed to the Commander of the Japanese Submarine Force.

[daboarder]

do you mind if I copy and paste this every time some idiot screams about "profit" as if it was the only important indicator of a companies health?

[Wolfshade]

I think it is disengenous to state that they don't re-invest money. yes the do pay out a load of money through dividends and have been doing so for a long time (since they started being profitable again iirc).

But they do invest quite heavily in new machining and proptyping. If you had been to the studio open days/gamesday you will see that they have invested quite heavily in 3d protyping technology. Which may not sound terrifically thrilling, but it does mean that we are getting sprues packed to the rafters with extra gubbins.

3% is tracking a fraction high but even so, it is still a big concern taking that into consideration.

I do hope that GW do do something that iwll push sustainable growth rather than chasing after profits. You can understand when the company had large (ish) debt that they were chasing profits to put themselves into a stronger position position and to buy new technology, but things like that have changed.

[Psychosplodge]

I think the article this thread references was a tad hysterical, the author kept saying they had lost money this year when they merely made less.

[eldargal]

GW survived their revenue halving in 2005/6 I think they can survive this. They have no debt an are still profitable so they are in an excellent position to change their business practices.

[Wolfshade]

It all comes down to will. Which is an unknown thing

[eldargal]

Yup. Rather worried by the CEO or whoever saying 'we don't do market research, but we sell our product primarily to middle class teenage boys'. If they convince themselves that is who they have to aim at and that doing things which might make them uncomfortable (like represent women and minorities) might put them off then we could end up with a really regressive GW at a time when they need to be broadening their customer base.

[Mr Mystery]

do you mind if I copy and paste this every time some idiot screams about "profit" as if it was the only important indicator of a companies health?

It's a more positive indicator than losses and debt.....

[Wolfshade]

I think the trouble is that they end up with "word of mouth" and if you look at your local GW on a Saturday afternoon, you will see that it is full to the brim with white teenage boys. What you don't necessarily see are those who pop in and out during quiet times that drop more on the hobby than those who activiely spend time in the shop. Or those who buy via mail order because it is unpleasent/inconvenient to pop in store.

[daboarder]

It's a more positive indicator than losses and debt.....

.......:(......

[Mr Mystery]

Really? Really really?

Tell me, which company out of the following choices is in better shape overall?

Company A - Sees a sharp dip in profits, but not to the point of making a loss, and has no debts.

Company B - Sees a sharp dip in profits, which causes them to take a loss, and has no debts.

Company C - Sees a sharp dip in profits, which causes them to take a loss, and has some debts.

Company D - Sees a sharp dip in takings, sending them further into loss making territory, and has some debts.

Really. Which one is in the better shape? Note not a good shape, but better shape than the others.

It's much easier to turn things around whilst still in profit and having no debts to be serviced. Particularly when you own your own production facilities, limiting the number of external costs which could cause bumps beyond your control.

[daboarder]

Really? Really really?

Tell me, which company out of the following choices is in better shape overall?

Company A - Sees a sharp dip in profits, but not to the point of making a loss, and has no debts.

Company B - Sees a sharp dip in profits, which causes them to take a loss, and has no debts.

Company C - Sees a sharp dip in profits, which causes them to take a loss, and has some debts.

Company D - Sees a sharp dip in takings, sending them further into loss making territory, and has some debts.

Really. Which one is in the better shape? Note not a good shape, but better shape than the others.

It's much easier to turn things around whilst still in profit and having no debts to be serviced. Particularly when you own your own production facilities, limiting the number of external costs which could cause bumps beyond your control.

answer:

None of them if their sales are dropping, with no indication that the company will be able to turn said sales drop around...but ignoring details is a thing right?

edit: to be fair, when you first said loss, I had thought you were referring to lost sales

[Mr Mystery]

And tell me, where is the 'no indication' bit coming from?

Because End Times seems pretty popular, and for a system many recently considered neglected and all but dead..... Recent figures didn't include 7th Edition either.

CEO stepping down, meaning new hands on the reins in the near future, and with that at least the possibility of a new approach.

Changes are afoot, but you seem determined to write them off for reasons best know to yourself.

My whole point here is that whilst not great, GW's position allows it more than desperate gambles to turn things around and get back in solid growth.

Let's look back to 2007/2008, when the world's economy went belly up. Quite a few familiar and big names on the UK high street went under, precisely because for a variety of reasons they'd loaded themselves up with cheap debt, and the sharp fall in consumer spending meant they could no longer service said debts, or borrow more money. Net result? They collapsed in a complete surprise to no one.

Companies in a similar position to GW are better placed to weather such a storm, as they have less need to borrow money (though that of course does not rule out borrowing for a massive infrastructure shake up. Debt isn't always bad after all!).

As with any company, of course they should be looking toward ever greater takings, and maximising profits raised thereof. That's what companies are entirely about. But those doomsaying and claiming they're solidly stuffed forever more are frankly talking utter bollocks.

[eldargal]

I think the trouble is that they end up with "word of mouth" and if you look at your local GW on a Saturday afternoon, you will see that it is full to the brim with white teenage boys. What you don't necessarily see are those who pop in and out during quiet times that drop more on the hobby than those who activiely spend time in the shop. Or those who buy via mail order because it is unpleasent/inconvenient to pop in store.

Yup, and guess how welcoming and safe an environment for anyone not a white teenage boy a store full of white teenage boys is? Not very.:p Create a friendly environment and you get more, like we've done in my club. Create a setting which tells women they are valued and you will get even more, I know a lot of girls/women into the FFG RPGs and love the miniatures but don't get into the game because they see the massive drop off in female representation as a sign they aren't welcome.

[daboarder]

And tell me, where is the 'no indication' bit coming from?

Because End Times seems pretty popular, and for a system many recently considered neglected and all but dead..... Recent figures didn't include 7th Edition either.

CEO stepping down, meaning new hands on the reins in the near future, and with that at least the possibility of a new approach.

Changes are afoot, but you seem determined to write them off for reasons best know to yourself.


sigh, ok....

The end time, a new edition of 40k and a new edition of fantasy are all short term solutions to the long term problem (namely the community view of the company)

They cannot just change the edition whenever they feel like it without alienating their customers, and if you really think they can survive changing the edition cycle to two years without addressing community worry about cost then you are truly blind.

As to changing CEO....that is not really likely to change a damned thing, Kirby has the company and the board sitting in his tight little pocket, the new CEO may not quite be a yes man but he'll toe the chairmans line and jump when kirby says jump. So there is no likely direction change there. (And yes, this is how corporate culture works)

I dont give to much of a damn which way GW goes from here, not anymore. But if your going to analyse the company take your blinkers off. Furthermore I'd thank you to figuratively not put words into my mouth.
I stated that the OP's analysis of GW's current position is well put forward with a good look at many of the indicators affecting the companies health and then professed my desire to re-post it when a bunch of fools ignore said additional factors....why you then leapt on the attack as if I had taken the stance that profit was not important at all, or that GW was doomed I can only guess at. (as in I am pretty sure my guess would be right)

In the end I re-iterate my point, the OP's analysis of the companies health and direction is fairly good, and I'd like to see if he responds to your comments.

[Wolfshade]

Of course what you should do is spin-off and do a kickstarter of EG's FLGS/C.

[tag8833]

Here are Amazon's Revenue and Profits, since I described them as a pro-growth company. As you can see their profit is much much smaller as a factor of revenue compared to GW, meanwhile their revenue is increasing.
10854 They are a pro-growth company.

Tangent: Hilariously stock market analysts don't understand Amazon at all. They can't believe it has kept a pro-growth philosophy for 20 years now, and are utterly stunned each year, when they don't switch over to an anti-growth philosophy like every other highly successful massively traded company. This is a sign how out of touch Stock Market analysts are. When I worked with a financial adviser, we saw many Pro-Growth companies. Most of them were sole-proprietorships. Those companies were always healthier than companies which tried to be Anti-Growth. In the long run, Revenue is so much more important than profits. Banking a small profit as a rainy day reserve is a good idea, but beyond that, and you are opening yourself up to competition from companies who are pro-growth. The short term incentives of the Stock Market clash strongly with the long term health of Cooperate entities. The current rule of thumb for the stock market is that you grow for 1-3 years, and then start cashing out. Mainly because investors don't get paid unit the cash out begins. But investors getting paid is always bad for customers.

We've seen with GW, a trend since 2009 of degrading customer relations, because the customers are picking up on the Cash-Out philosophy even without much understanding of the "Big Picture". Privateer Press, and other miniatures companies that are gaining market share are doing so with a pro-growth philosophy, and thus they have much more positive customer relations.

[daboarder]

tag, welcome to BoLS.

[Wolfshade]

The trouble is that the comparison with say Amazon is slightly off.

While Amazon can basically target either selling everything either directly or indirectly for all e-commerce models, they are still in a rapidly growing environment.

Whereas the wargames market isn't as large a market and the last indpened research put GW as king of the hill by quite a margin, 96% of market share (or some such) so the amount of money to spend to reach that 4% is quite high with a limited return.

But that is certainly no excuse to rest on their laurels however.

There is also the argument that GW should be pushing beyond their boundaries of what there core market is, the whole "we don't do market research but believe our market to be white middle class teenage boys". Whereas they could realise that while middle class is probably a fair target teenage, boys and white need not be. As others have long suggested a broader focus and producing models of different gender/ethnicity could help balance things out. Not like the hamfisted tau for the asian market.

With the other companies being privately owned it makes analysis of what they are doing very hard to tell, for instance, PP might be rapidly and aggressively expanding but at what cost? We don't know, we don't know if this expansion phase is balancing the books, or if they are running a healthy profit. AT-43 is a good example, burst on the scene, lots of noise and two years latter is defunct. Obviosuly mantic and others do have slightly better longevitiy and so are less likely to burst like that.

[eldargal]

Do we have any clue how well PP are actually doing though? They aren't publically listed.

The onl problem I have with these sorts of discussions is that everyone means different things when they talk about the state of GW. They obviously face some signficant issues, but that doesn't mean they aren't in a good position nor does it mean they face imminent annihilation the way some people want to imply they are.

[Wolfshade]

Nope.

Not a sausage.

I will say that I have never seen it played, nor is it held by the two FLGS I am aware of near me.

[eldargal]

I don't know anyone who plays anymore either, brothers got bored of it and X-Wing replaced it at the club.

[Wolfshade]

I suppose I also need to point out that there are 3 GW stores close than my nearest independent flgs...

But yes, there is a presumption that these games are doing well.

Ho hum.

[eldargal]

FFG though, there is a competitor who are doing well. Virtually their entire SW range, X-Wing and the RPGs, sell out rapidly and get reprinted and sell out again and so forth.

[Psychosplodge]

Don't they produce GW work under licence as well?

[eldargal]

Yup.

[Wolfshade]

Are they a competitor? Certainly the ST/SW fighter stuff is similar (though some purists will argue pre-painted stuff is a different sector). But since GW withdrew from the boardgame market directly, FFG is their choice of licencing in this.

Played battle for armageddon (GW original) on Saturday night and Fury of Dracula (FFG remake) awesome.

[Mr Mystery]

I can mindlessly speculate about PP in the way those convinced GW are irredeemably screwed - by taking anecdotal evidence and jumping to conclusions based on the conclusion I had already picked for my own agenda.... Ready!

1. Outsourced to China
2. Switched to a cheaper material than metal
3. Reports of slow restock times
4. Turning to Crowd Funding for some games.
5. Two founders quit

Therefor they're clearly on the ropes. Trying to cut costs, struggling to pay for replacement stock, and have no financial assets for development, instead depending on Kickstarters to fund, and the two founders sold up when they knew it was starting to crumble.

Now, the above is not my actual opinion, but a demonstration of how much bollocks one can come up with based on very little evidence.

[Denzark]

I think FFG does well not because of a response by customers to GW (not wholly) but because it offers something that you can play with a minimum of assets - time (modelling, painting and length of game) and money (need few models, need next to no terrain).

I would be surprised to find anyone who ONLY plays X-Wing. The same is not true regarding 40K.

But back to more OT, I genuinely believe there are people out there who cannot grasp why GW operates as it does. Why the shizzle would you release Codex Crimson Slaughter and not Codex World Eaters (insert other legion name here)?

Why are you not customer focussed - why do you not consult me to satisfy my every whim? Who playtests?

etc etc.

[Mr Mystery]

I'd guess a large part of the lack of consulting is from two reasons.

1. No two gamers will ever want exactly the same thing at the same time.
2. The majority of their attempts to interact online devolve into bile and stupidity by those who suffered the indignity of GW molesting their Granny.

[Denzark]

Yer thats aboot right. The Granny molesting.

I think if people want interaction they should buy shares and go to the AGM. You can't expect GW to suffer the levels of chippy abuse they were getting on their facebook pages to be allowed in public - the level of benefit from having one was outweighed by the negatives having to be edited.

[Mr Mystery]

Indeedy.

If the lynch mob could wind their bloody necks in once in a while, you might get some kind of decent dialogue going. All their recent attempts have shown is that some of their 'claim to be' players are dicks, and nothing will ever be good enough for them.

Example? E-Codecies. Initially released for Apple Devices. Seemingly because although Android is a more widespread platform, it tends to require additional device specific coding (or so I'm told. I'm not terribly up on these things). iOS however is a single platform, with no device dependant doohickeys, and thus is easier to programme a launch for. But no. Clearly it was done because GW have a hidden agenda against a handful of very vocal, very whiney people in the world.

I once came across an interesting analogy on Dakka, describing GW customers as battered spouses, willing to put up with whatever because reasons.

Yet in my experience, there are apparent customers (who claim never to spend on or play GW products, hence the 'apparent' bit) who are closer to the abusive spouse. No matter what is done, how it is done, or for what reason, it's never good enough, and has clearly been done to wind that person up. And so like the big strong men they are, they take anonymously to the Interwebs to vomit their opinion from their keyboard. They also have an inability to comprehend that their opinion is not the only opinion, and certainly no more valid than anyone elses. They snark and they imply that someone with the temerity to actively enjoy a hobby they'll have spent hundreds if not thousands of (insert local currency here) on is somehow mentally deficient.

[tag8833]

The trouble is that the comparison with say Amazon is slightly off.

While Amazon can basically target either selling everything either directly or indirectly for all e-commerce models, they are still in a rapidly growing environment.

Whereas the wargames market isn't as large a market and the last indpened research put GW as king of the hill by quite a margin, 96% of market share (or some such) so the amount of money to spend to reach that 4% is quite high with a limited return.
Businesses don't have to be pigeon holed like that. Amazon is a "book" seller. The problem is the market for books is niche, and once you capture a certain share of the market it is not profitable to continue expanding in that market space. However Amazon has dominated the book selling market place for more than a decade now. Yet they still grow wildly. How? Well, DVDs are a lot like books, and so you expand into DVDs. E.Books are the wave of the future, so you expand into e.book readers. DVDs are fine, but streaming video will be big, so expand there. By this point they are a financial services company, and also a giant retailer that sell pretty much everything. The Sears catalog of the 2000's

GW currently strattles 3 marketplaces that are only marginally related. 1) They sell models. 2) They sell books. 3) They do retail sales. There is plenty of room for expansion in all 3 of those arenas even if the expansion doesn't relate all 3 together. For instance, I could image GW publishing books based on new IP that has nothing to do with wargaming. They could expand their retail sales into things besides their own products.

"They dominate the marketplace, and thus there is no way to grow" is a compelling argument to a miniatures war gamer, but not to a business executive. If they wanted to grow, they would. They chose not to do so.

[Wolfshade]

I do get the point that you are trying to make. I just think that Amazon isn't a cogent paradigm.

Black Library have increased massively their sales, I remember reading warhammer novels back 10+ years ago, but they were not BL published, now look at them they get new york times best seller spots.

Ironically, historically, they were quite diverse, they had games like fury of dracula and other board games, they had their "specialist" range as mainstream.

While they certainly could become the next "Hasbro", I think that they lack the will to do so. They are content with sticking to the niche of miniature wargaming and not really expanding on that. And certainly, a growing GW plc is ging to be good for every hobbyist.