GW sales down

I've never done anything that's quite as much fun * as running a public
company. The intellectual challenges and emotional rewards, even in a year
of declining sales, are always there.

This year has seen both sales and profits decline. The decline in sales was
expected, but it has been hard to project accurately the amount. Most of the
decline is due to the trading cycles I spoke about last year - partly
product cycles and partly channel problems.

Some of it, though, is our own fault. During the good times, when life is
easy, it's possible to forget the good habits that earned those good times.
All of us forgot some of those good habits, and some of us forgot all of
them. This is something I have been working at all year (and much of the
previous year) to put right. I believe there is now evidence that we are
putting it right. The standards of service which built this company are
returning.

Profits are down as well. With declining profits we had a duty to look at
our costs. The key question we asked ourselves was: is this still a growth
business? The answer was a clear 'yes' and so it would have been crazy to
take out the facilities we had just built or those temporarily unprofitable
Hobby stores. We never intended cutting costs so deeply that the
infrastructure of the business that we need for our future growth would be
damaged. Nevertheless the fact that profits aren't even lower than they are
is due to Paul Thomas (Manufacturing and Supply division) and Mark Wells
(Hobby division) who have managed the reductions in costs superbly, and far
better and further than your chairman would have.

In a bad year the management and staff of Games Workshop have taken the
opportunity to re-establish a lean and efficient company, one that will
reward owners richly as growth returns and profit and cash start flowing
again.

Hard times reveal the quality in a business and I'm proud to be associated
with the people who run this one.

During the year I have been taken to task by some owners - both individual
and corporate - over our (my) refusal to do 'something' about the share
price. I believe I do 'something' about the share price all day every day
and that 'something' is to run this company the best way I know how for
long-term success. By long-term I mean 20 years or more. Leaving aside the
dubious morality of trying to manipulate the share price on a daily basis
(and my inevitable insanity) it is simply not practicable. Owners who share
my view that I should focus all my energy on the long-term growth of the
business will be pleased to hear that I will do nothing that is designed to
engineer a short-term change in the share price. Owners who are disappointed
by that news may wish to reconsider their investment positions.

On the 'investor relations' section of our corporate web site (which has all
our annual reports since 2001, and the institutional presentations we make)
there is a place where people can post questions for me to answer. Mostly
they are about what new models we are planning (read White Dwarf), or why we
haven't got a store in Omaha, Nebraska (yet), or why we put our prices up
all the time (we don't) but every now and then I get one that touches on
something that needs to be explained. Blair Svendson from Missouri asked
'[why am I] seeing my favorite independent hobby stores going out of
business?'. He was referring to the United States, and so is my response.
This is a question that concerns all of us at Games Workshop - staff,
managers, customers and owners. I'm not certain I know THE answer, but I
have an explanation that fits the facts. Most of these small owner-manager
hobby stores have thrived over the last 20 years or so on role play games,
collectible card games (CCGs) and niche merchandise from fantasy movie
imagery. Role play games and movie merchandise are in decline; CCGs can now
be bought in mass market outlets which hurts hobby store sales. Many of
these stores carry our products very successfully, but they are not enough
to support the whole store. Additionally many of these stores are run as
lifestyle enterprises rather than as for profit businesses; when times get
hard they sometimes respond slowly and weakly which can be, and has been in
many cases, disastrous.

I have written in the past about the basics of the Games Workshop business
model and mentioned in passing that it is predicated upon the desire to own
(lots of) miniatures. I shouldn't just mention it in passing because feeding
this desire is the fundamental thing that we do. What causes these
characteristics in people I don't know, but I do know that out there in the
world is the gene that makes certain people (usually male) want to own
hundreds of miniatures. We simply fill that need - it's not new (we didn't
create it). What we do is make wonderful miniatures in a timeless and
culturally independent way and sell them at a profit. Everything else we
make and do is geared around that end. The games and stories provide the
context for the miniatures, our stores are recruitment centres that simply
give an opportunity to innate miniatures lovers to know themselves. Alan
Merrett ** and I were sitting ruminating about this basic truth last week. I
was reflecting on how it was sometimes hard for potential owners to
understand the basics of the business and why it was so long-term and
resilient. He reminded me how many of the people who work here forget it.
There is so much stuff going on: so many army lists, so many designs, so
many kits, so many campaigns, so many events, so many new stores, so many
independent stockists, so many management issues that even the people who
work here can forget from time to time that all we are doing, every day, is
selling more toy soldiers, at a profit, to people who are truly grateful.

At last year's staff meeting (which we hold annually to discuss the year's
results with staff) I was asked what interest 'the City' took in our
environmental and community programmes. I said 'not much' which, given the
number of questions I had had on the topic from institutional investors on
the road show, was an exaggeration. On reflection I think this was a pretty
poor answer. Firstly, I had forgotten the thousands of owners who do not
benefit from a corporate road show who might care very much indeed and,
secondly, I was dismissing way too lightly the enormous amounts of effort
put into these schemes by Games Workshop staff. Later in this report you'll
be able to read about these programmes. They are important to us for two
reasons. Firstly, they are important because the good habits they demand
usually result in better practices, which in turn lead (you've guessed it)
to more profit. Secondly, and this is the bigger reason, they are important
because they are the right things to do.

* fun, that is, so long as you don't want to win popularity contests or
track your personal net worth on a daily basis

** Alan is one of a small group of people who are responsible for helping
line management maintain the integrity of our products and our business. He
tends to get very passionate and excited when making points in debate and
thus gets called 'Ranter' Merrett which is a bit unfair, but funnier than
Alan 'Very Passionate And Excited' Merrett.


Business Review

Summary of results:
This year our sales and profits have fallen for two main reasons: firstly,
the continuing decline in sales following an exceptional trading period *,
and secondly, the continued reduction in our sales to independent toy and
hobby retailers, notably in the US, where many smaller independent operators
are ceasing to trade.

Following the decline in sales, management faced three issues. Firstly, the
need for all staff to be focused on the temporary nature of the decline.
Secondly, during the rapid sales upturn between 2002 and 2004, some of the
good habits on which we have built the business became eroded. Thirdly, over
the same period, our traditional product stream became disrupted. The first
was the easiest to deal with - we all knew the franchise was sound and
undamaged - all we had to do was to remind everyone to be patient. The
second required us to work hard at re-training and re-invigorating our staff
in the basics of providing our normal, exceptional, customer service. As
regards the third we are now engaged in the process of re-establishing our
normal product life cycles.

We have also taken the opportunity to examine closely the costs that have
come into the business over the last few years. We believe we have made
significant inroads into the extra costs that had crept in.

The results of this work leave the Company in a more healthy state at the
end of this year than at its beginning. In the first half of the year we
reported a sales decline of 20%. In the second half this decline slowed to
12%. By the end of the year our Games Workshop Hobby stores in seven of our
nine sales businesses, including both the US and the UK - our two largest
businesses - were recording growth.

Despite the lower production volumes resulting from the decline in sales, we
have been able to maintain and improve our gross profit margin to 70%. This
is due to price rises, improved operational efficiency from the capital
investments which have now been completed in our manufacturing facilities at
both Nottingham and Memphis, and the sourcing of bought-in components and
print more cost effectively from both Europe and Asia.

Additionally we have reduced overheads by £2.8 million during the year,
whilst increasing our expenditure on customer facing activities including a
net increase of ten new Hobby stores since May 2005.

Click here for the COMPLETE Breakdown (PDF)

"Garth" <garthas.RemoveThis@gmail.com> wrote in message
news:BGbyg.182852$F_3.148123@newssvr29.news.prodigy.net...
> I've never done anything that's quite as much fun * as running a public
> company. The intellectual challenges and emotional rewards, even in a year
> of declining sales, are always there.
>
> This year has seen both sales and profits decline. The decline in sales
was
> expected, but it has been hard to project accurately the amount. Most of
the
> decline is due to the trading cycles I spoke about last year - partly
> product cycles and partly channel problems.
>
> Some of it, though, is our own fault. During the good times, when life is
> easy, it's possible to forget the good habits that earned those good
times.
> All of us forgot some of those good habits, and some of us forgot all of
> them. This is something I have been working at all year (and much of the
> previous year) to put right. I believe there is now evidence that we are
> putting it right. The standards of service which built this company are
> returning.
>
> Profits are down as well. With declining profits we had a duty to look at
> our costs. The key question we asked ourselves was: is this still a growth
> business? The answer was a clear 'yes' and so it would have been crazy to
> take out the facilities we had just built or those temporarily
unprofitable
> Hobby stores. We never intended cutting costs so deeply that the
> infrastructure of the business that we need for our future growth would be
> damaged. Nevertheless the fact that profits aren't even lower than they
are
> is due to Paul Thomas (Manufacturing and Supply division) and Mark Wells
> (Hobby division) who have managed the reductions in costs superbly, and
far
> better and further than your chairman would have.
>
> In a bad year the management and staff of Games Workshop have taken the
> opportunity to re-establish a lean and efficient company, one that will
> reward owners richly as growth returns and profit and cash start flowing
> again.
>
> Hard times reveal the quality in a business and I'm proud to be associated
> with the people who run this one.
>
> During the year I have been taken to task by some owners - both individual
> and corporate - over our (my) refusal to do 'something' about the share
> price. I believe I do 'something' about the share price all day every day
> and that 'something' is to run this company the best way I know how for
> long-term success. By long-term I mean 20 years or more. Leaving aside the
> dubious morality of trying to manipulate the share price on a daily basis
> (and my inevitable insanity) it is simply not practicable. Owners who
share
> my view that I should focus all my energy on the long-term growth of the
> business will be pleased to hear that I will do nothing that is designed
to
> engineer a short-term change in the share price. Owners who are
disappointed
> by that news may wish to reconsider their investment positions.
>
> On the 'investor relations' section of our corporate web site (which has
all
> our annual reports since 2001, and the institutional presentations we
make)
> there is a place where people can post questions for me to answer. Mostly
> they are about what new models we are planning (read White Dwarf), or why
we
> haven't got a store in Omaha, Nebraska (yet), or why we put our prices up
> all the time (we don't) but every now and then I get one that touches on
> something that needs to be explained. Blair Svendson from Missouri asked
> '[why am I] seeing my favorite independent hobby stores going out of
> business?'. He was referring to the United States, and so is my response.
> This is a question that concerns all of us at Games Workshop - staff,
> managers, customers and owners. I'm not certain I know THE answer, but I
> have an explanation that fits the facts. Most of these small owner-manager
> hobby stores have thrived over the last 20 years or so on role play games,
> collectible card games (CCGs) and niche merchandise from fantasy movie
> imagery. Role play games and movie merchandise are in decline; CCGs can
now
> be bought in mass market outlets which hurts hobby store sales. Many of
> these stores carry our products very successfully, but they are not enough
> to support the whole store. Additionally many of these stores are run as
> lifestyle enterprises rather than as for profit businesses; when times get
> hard they sometimes respond slowly and weakly which can be, and has been
in
> many cases, disastrous.
>
> I have written in the past about the basics of the Games Workshop business
> model and mentioned in passing that it is predicated upon the desire to
own
> (lots of) miniatures. I shouldn't just mention it in passing because
feeding
> this desire is the fundamental thing that we do. What causes these
> characteristics in people I don't know, but I do know that out there in
the
> world is the gene that makes certain people (usually male) want to own
> hundreds of miniatures. We simply fill that need - it's not new (we didn't
> create it). What we do is make wonderful miniatures in a timeless and
> culturally independent way and sell them at a profit. Everything else we
> make and do is geared around that end. The games and stories provide the
> context for the miniatures, our stores are recruitment centres that simply
> give an opportunity to innate miniatures lovers to know themselves. Alan
> Merrett ** and I were sitting ruminating about this basic truth last week.
I
> was reflecting on how it was sometimes hard for potential owners to
> understand the basics of the business and why it was so long-term and
> resilient. He reminded me how many of the people who work here forget it.
> There is so much stuff going on: so many army lists, so many designs, so
> many kits, so many campaigns, so many events, so many new stores, so many
> independent stockists, so many management issues that even the people who
> work here can forget from time to time that all we are doing, every day,
is
> selling more toy soldiers, at a profit, to people who are truly grateful.
>
> At last year's staff meeting (which we hold annually to discuss the year's
> results with staff) I was asked what interest 'the City' took in our
> environmental and community programmes. I said 'not much' which, given the
> number of questions I had had on the topic from institutional investors on
> the road show, was an exaggeration. On reflection I think this was a
pretty
> poor answer. Firstly, I had forgotten the thousands of owners who do not
> benefit from a corporate road show who might care very much indeed and,
> secondly, I was dismissing way too lightly the enormous amounts of effort
> put into these schemes by Games Workshop staff. Later in this report
you'll
> be able to read about these programmes. They are important to us for two
> reasons. Firstly, they are important because the good habits they demand
> usually result in better practices, which in turn lead (you've guessed it)
> to more profit. Secondly, and this is the bigger reason, they are
important
> because they are the right things to do.
>
> * fun, that is, so long as you don't want to win popularity contests or
> track your personal net worth on a daily basis
>
> ** Alan is one of a small group of people who are responsible for helping
> line management maintain the integrity of our products and our business.
He
> tends to get very passionate and excited when making points in debate and
> thus gets called 'Ranter' Merrett which is a bit unfair, but funnier than
> Alan 'Very Passionate And Excited' Merrett.
>
>
> Business Review
>
> Summary of results:
> This year our sales and profits have fallen for two main reasons: firstly,
> the continuing decline in sales following an exceptional trading period *,
> and secondly, the continued reduction in our sales to independent toy and
> hobby retailers, notably in the US, where many smaller independent
operators
> are ceasing to trade.
>
> Following the decline in sales, management faced three issues. Firstly,
the
> need for all staff to be focused on the temporary nature of the decline.
> Secondly, during the rapid sales upturn between 2002 and 2004, some of the
> good habits on which we have built the business became eroded. Thirdly,
over
> the same period, our traditional product stream became disrupted. The
first
> was the easiest to deal with - we all knew the franchise was sound and
> undamaged - all we had to do was to remind everyone to be patient. The
> second required us to work hard at re-training and re-invigorating our
staff
> in the basics of providing our normal, exceptional, customer service. As
> regards the third we are now engaged in the process of re-establishing our
> normal product life cycles.
>
> We have also taken the opportunity to examine closely the costs that have
> come into the business over the last few years. We believe we have made
> significant inroads into the extra costs that had crept in.
>
> The results of this work leave the Company in a more healthy state at the
> end of this year than at its beginning. In the first half of the year we
> reported a sales decline of 20%. In the second half this decline slowed to
> 12%. By the end of the year our Games Workshop Hobby stores in seven of
our
> nine sales businesses, including both the US and the UK - our two largest
> businesses - were recording growth.
>
> Despite the lower production volumes resulting from the decline in sales,
we
> have been able to maintain and improve our gross profit margin to 70%.
This
> is due to price rises, improved operational efficiency from the capital
> investments which have now been completed in our manufacturing facilities
at
> both Nottingham and Memphis, and the sourcing of bought-in components and
> print more cost effectively from both Europe and Asia.
>
> Additionally we have reduced overheads by £2.8 million during the year,
> whilst increasing our expenditure on customer facing activities including
a
> net increase of ten new Hobby stores since May 2005.
>
> Click here for the COMPLETE Breakdown (PDF)
>
>

I believe this might also be the result of many patriotic hobbyists being
deployed overseas. I had an easy dozen pals in the army for my gaming
group. And my local hobby store owner has definitely noticed the overall
drop in action.

I pray that my fellow hobby enthusiasts in uniform return safely to roll the
bones.

B