Jan 2024 GW Half-Yearly (Financial) Report: decent for investors, better for customers

[Joe]

Report is now up. Awaiting @N1SB's take.

 

Some key takeaways;

 

Quote

Our staff and their team efforts are critical to our ongoing success. We thank them all for their ongoing support and their focus on delivering their department’s goals. We also thank some of them for their resilience – our ongoing IT integration projects can at times test anyone’s patience. Removing 20 year old legacy systems, launching a new online store and maintaining service levels as we deliver the highest volumes ever at our East Midlands Gateway (‘EMG’) warehouse, was never going to be easy. I am very proud of the team's efforts to date. We thank our impacted customers (less than 5%) for their significant patience too. 

 

Quote

Warhammer+  Launched in August 2021, it continues to delight and entertain a growing subscriber base. Our subscriber numbers are  169,000 at the period end (2022/23: 115,000).  

 

Quote

Media 

 

As we announced on 18 December 2023, we have signed a contract with Amazon Content Services LLC for the prospective development by Amazon of Warhammer 40,000 universe into films and television series. We remain confident we will bring the worlds of Warhammer to the screen like you have never seen before.

 

Games Workshop and Amazon will work together for a period of 12 months to agree creative guidelines for the films and television series to be developed by Amazon. The agreement will only proceed once the creative guidelines are mutually agreed between Games Workshop and Amazon. 

 

Edited January 9 by Joe
A digit.

[ZeroWolf]

So they've got a year now then to brainstorm a project that both sides are happy with before moving on to pre-production? Am I reading that right?

[Joe]

Couple more interesting notes.

 

Quote

Manufacturing 

 

We continue to manufacture all of our core products at our three factories in Nottingham. Work on improving efficiencies has negated the need for the purchase of any additional manufacturing equipment during the period and allowed numerous manufacturing output records to be broken. As part of our longer term capacity planning, we are exploring options for Factory 4 on the site next to Factory 2.  

 

Our total manufacturing headcount has increased slightly during the period with the total number of jobs in our factories now standing at 361. An increase in temporary staff cost and the annual pay rise has increased manufacturing payroll costs by £0.7 million to £6.0 million; 2.5% of core revenue in both periods. 

 

Quote

We’ve not had many people retire from Games Workshop. During the period, John Blanche stepped down from his job as art director in our design studio. He is a creative genius, and we thank him for sharing his enormous talents and enthusiasm with us for nearly 40 years. We all wish him well. He leaves us with a well invested and talented Warhammer Studio.  

 

[N1SB]

Games Workshop released its Jan 2024 Half-Yearly (financial) Report hours ago, I've read it, I might say more later, but something remarkable happened.

Executive Summary: it's decent news for investors, and actually probably better from the customer perspective than the corporate...I rarely see this.

 

Why we're interested in this is it's a great snapshot at GW's launch products, always in the summer than around November.  In the past, it's new editions of 40k, Age of Sigmar, then Horus Heresy in the summer, then a Blood Bowl or Necromunda or something come November.  This half-year, it's 10th ed 40k and Legiones Imperialis.

 

 

Record Revenue and Profits...But Less Than Previously (for a reason)

 

Growth is about 10%, that's good, but keep in mind this is a new 10th edition of 40k AND the return of Epic.  9th ed growth was 25%, 8th was like 40%!

 

Under normal conditions, it'd mean demand is plateauing, that popularity has peaked.  GW has a different problem that I've harped on: supply has been unable to keep up with demand.  GW uses the same factories since its annual revenue was around £120 million, this year it looks on track to be four times (4x) that at £470 million.

 

Revenue is a proxy for demand, Number of Customers x How Much Product They Buy.  Because everybody just outsources/offshores production, it's usually a non-issue.  I've been saying GW's performance has been capped by this and I think it shows...because all I can find on the new website is TEMPORARILY OUT OF STOCK.

 

(I was literally talking to my friend Timperial Guard on Sunday.  He bought the Legiones Imperialis boxset...but due to detachment rules, he couldn't actually field the Knight that comes with it.  He had to procure more tiny tanks to qualify as a legit list.  He was really proud of that, but it should NOT be this hard.)

 

UK business news SHOULD love this, but it's because the UK is facing economic headwinds.  GW is judged on a curve and is clearly the smartest kid in the class.

 

That said, GW is being clever, because they've raised their hands to give the following correct answers.

 

 

GW Announced Plans For a Fourth (4th) Factory

 

From YOU guys, I learned the following of GW's production facilities.  It has 3 factories:

 

• Factory 1: makes minis
• Factory 2: makes moar minis
• Factory 3: makes paints

 

Now they've announced a fourth (4th) factory, like adding a new terminal to London's Heathrow Airport or something:

 

 

What's nice is they don't normally have to mention this here.  This sort of detail usually goes in the Full-Year report, so clearly they know what's up.  And it sounds like a very actionable, practical plan, we're just expanding on our own property, give up some parking space for much needed production facilities.

 

Or they're just snapping at me, "We're working on it, alright?  Stopping going on about it."  Alright.  I been told, lol.  I'll get off it now, except to say this...

 

 

Increasing Gross Profit Margin Via Efficiencies (not prices)

 

GW has this internal benchmark for a gross profit margin of 70%, which means if they sell you a Combat Patrol worth £100, it cost £30 to make, £70 profit.

 

Last fiscal year (GW starts its year in June, summer launches) there was a price increase.  I remember this because I was making a Triple C'Tan list, I wanted some Necron Warriors, but after the price increase it was actually cheaper to buy the last 9th ed Recruit Edition (and now I got 5 Assault Intercessors I don't know what to do with.)

 

Welp, it looks like instead of just increasing prices to keep that arbitrary number, it's spent a lot of effort trying to find new efficiencies across the line:

 

 

So what do we care about GW's profits?  Unless you're an investor, we don't...except that they're trying to not do it via price increases.

 

With demand outpacing supply, GW has a built-in excuse to increase prices, demand vs. supply, right?  GW's choosing not to do that.  It's like when you're playing a game and you forgot to tell your opponent something before he made his move, you let him take it back, and he's like, "Nah, I'm good, don't worry about it, just play on."

 

Aside from being a nice guy, that's an alpha male thing to do.  Like GW's not taking the easy way out, no excuses, that's how a real man plays.

 

The ONLY thing that's decreasing profitability is "Production and other" and earlier in the report that's because they're hiring more people to make minis.

 

 

New Website Issues

 

I saw the thread about GW's new website issues.  For a number of us, the new website IS the issue.  And I guess we ain't alone:

 

 

Growth is really slowest in the Online, i.e. web sales.  Remember, A LOT of stuff is only available online.  Isn't that interesting.

 

 

Amazon

 

I'm not going to comment on it until I at least see a trailer or something, except to say, let's assume it's popular.  Well, so then it'll get more licensing revenue (which is almost all profit), so that's good...if you're an investor.  It won't matter to The Hobby, however, if those new fans can't buy new Kill Teams or armies to play.

 

Therefore...Factory FOUR!  THAT's the real story.  They'll probably get that built before any Amazon 40k series.

 

 

Conclusion

 

I honestly see GW's, and by extension The Hobby's, growth hampered by demand outpacing supply.  GW seems to be making actual plans to fix the supply issue via their Factory Four, instead of just increasing prices.  So when an Amazon 40k series is finally released in 13th ed or whatever...new fans can actually get into The Hobby.

 

Factory FOUR-ward.

Edited January 9 by N1SB

[Xenith]

=][= I've merged both threads on this topic to keep us all sane and not duplicate conversations. Have at. =][=

[Joe]

Quote

Staff training and development 

 

We care passionately about our global team. We have ambitious long-term plans, but we also run the business with only the resources we need. We will continue to recruit essential new jobs or where we need to back-fill positions. Like last year, many of these recruits will be in order to scale - in our factories and warehouse facilities as well as in our support functions, mainly IT.

 

We will continue to support lifelong learning and training to develop the skills needed to enable all our staff to be successful including offering apprenticeship opportunities for on the job training. We are also more active in developing orderly succession plans of both the board and senior management. 

 

Interesting note regarding apprenticeships here. To my recollection the company has never taken part in apprenticeship schemes, at least the modern iteration. There's room there for some potentially interesting apprenticeships outside of the typical Customer Service / Business Administration.

[Xenith]

 

17 minutes ago, ZeroWolf said:

So they've got a year now then to brainstorm a project that both sides are happy with before moving on to pre-production? Am I reading that right?

 

50 minutes ago, Joe said:

Games Workshop and Amazon will work together for a period of 12 months to agree creative guidelines for the films and television series to be developed by Amazon. The agreement will only proceed once the creative guidelines are mutually agreed between Games Workshop and Amazon. 

 

"Agreeing creative guidelines" sounds more like "how much can amazon deviate from source material", something that will undoubtedly be a contentious issue, seeing as both Cavill left Witcher due to aparent deviation from the source, and Amazon's recent efforts have been slated for similar (though probably failed more due to bad writing).

 

I think it'll be more along the lines of maintaining the atmosphere and production quality, ensuring minimum standards against a budget, and what both sides are willing to risk. 

[Matcap86]

Honestly it's nice to have a legit take on this: 

 

53 minutes ago, N1SB said:

So what do we care about GW's profits?  Unless you're an investor, we don't...except that they're trying to not do it via price increases.

 

With demand outpacing supply, GW has a built-in excuse to increase prices, demand vs. supply, right?  GW's choosing not to do that.  It's like when you're playing a game and you forgot to tell your opponent something before he made his move, you let him take it back, and he's like, "Nah, I'm good, don't worry about it, just play on."

 

Aside from being a nice guy, that's an alpha male thing to do.  Like GW's not taking the easy way out, no excuses, that's how a real man plays.

 

The ONLY thing that's decreasing profitability is "Production and other" and earlier in the report that's because they're hiring more people to make minis.

 

 

With the economic realities facing (among others) the UK, GW choosing to mostly go the efficiency instead of price raise route might show that they're also expecting or seeing a price/quality ceiling on their products that's rapidly approaching. 

 

Edited January 9 by Matcap86

[darkhorse0607]

35 minutes ago, Matcap86 said:

Honestly it's nice to have a legit take on this: 

 

 

With the economic realities facing (among others) the UK, GW choosing to mostly go the efficiency instead of price raise route might show that they're also expecting or seeing a price/quality ceiling on their products that's rapidly approaching. 

 

 

That being said, I will be very curious to see what happens over the next month. Typically towards the beginning of the year (I believe normally in February but my memory isn't great), they do their yearly announcement for price rises with them kicking in a few weeks later. I don't think this year is going to be any different, but if they are expecting a ceiling on how high they could raise things given what's inferred from this report, I wonder what it's going to look like

 

Quote

Work on improving efficiencies has negated the need for the purchase of any additional manufacturing equipment during the period and allowed numerous manufacturing output records to be broken

 

 

Also. I'd be really interested to see what metrics they're using for this, and what specifically was the output record that was broken because that could be anything from the number of kits produced to the fact that they said around the Leviathan launch that it was the most they'd ever produced for a launch box

Edited January 9 by darkhorse0607

[Verevolf]

6 hours ago, N1SB said:

Games Workshop released its Jan 2024 Half-Yearly (financial) Report hours ago, I've read it, I might say more later, but something remarkable happened.

Executive Summary: it's decent news for investors, and actually probably better from the customer perspective than the corporate...I rarely see this.

 

Why we're interested in this is it's a great snapshot at GW's launch products, always in the summer than around November.  In the past, it's new editions of 40k, Age of Sigmar, then Horus Heresy in the summer, then a Blood Bowl or Necromunda or something come November.  This half-year, it's 10th ed 40k and Legiones Imperialis.

 

 

Record Revenue and Profits...But Less Than Previously (for a reason)

 

Growth is about 10%, that's good, but keep in mind this is a new 10th edition of 40k AND the return of Epic.  9th ed growth was 25%, 8th was like 40%!

 

Under normal conditions, it'd mean demand is plateauing, that popularity has peaked.  GW has a different problem that I've harped on: supply has been unable to keep up with demand.  GW uses the same factories since its annual revenue was around £120 million, this year it looks on track to be four times (4x) that at £470 million.

 

Revenue is a proxy for demand, Number of Customers x How Much Product They Buy.  Because everybody just outsources/offshores production, it's usually a non-issue.  I've been saying GW's performance has been capped by this and I think it shows...because all I can find on the new website is TEMPORARILY OUT OF STOCK.

 

(I was literally talking to my friend Timperial Guard on Sunday.  He bought the Legiones Imperialis boxset...but due to detachment rules, he couldn't actually field the Knight that comes with it.  He had to procure more tiny tanks to qualify as a legit list.  He was really proud of that, but it should NOT be this hard.)

 

UK business news SHOULD love this, but it's because the UK is facing economic headwinds.  GW is judged on a curve and is clearly the smartest kid in the class.

 

That said, GW is being clever, because they've raised their hands to give the following correct answers.

 

 

GW Announced Plans For a Fourth (4th) Factory

 

From YOU guys, I learned the following of GW's production facilities.  It has 3 factories:

 

• Factory 1: makes minis
• Factory 2: makes moar minis
• Factory 3: makes paints

 

Now they've announced a fourth (4th) factory, like adding a new terminal to London's Heathrow Airport or something:

 

 

What's nice is they don't normally have to mention this here.  This sort of detail usually goes in the Full-Year report, so clearly they know what's up.  And it sounds like a very actionable, practical plan, we're just expanding on our own property, give up some parking space for much needed production facilities.

 

Or they're just snapping at me, "We're working on it, alright?  Stopping going on about it."  Alright.  I been told, lol.  I'll get off it now, except to say this...

 

 

Increasing Gross Profit Margin Via Efficiencies (not prices)

 

GW has this internal benchmark for a gross profit margin of 70%, which means if they sell you a Combat Patrol worth £100, it cost £30 to make, £70 profit.

 

Last fiscal year (GW starts its year in June, summer launches) there was a price increase.  I remember this because I was making a Triple C'Tan list, I wanted some Necron Warriors, but after the price increase it was actually cheaper to buy the last 9th ed Recruit Edition (and now I got 5 Assault Intercessors I don't know what to do with.)

 

Welp, it looks like instead of just increasing prices to keep that arbitrary number, it's spent a lot of effort trying to find new efficiencies across the line:

 

 

So what do we care about GW's profits?  Unless you're an investor, we don't...except that they're trying to not do it via price increases.

 

With demand outpacing supply, GW has a built-in excuse to increase prices, demand vs. supply, right?  GW's choosing not to do that.  It's like when you're playing a game and you forgot to tell your opponent something before he made his move, you let him take it back, and he's like, "Nah, I'm good, don't worry about it, just play on."

 

Aside from being a nice guy, that's an alpha male thing to do.  Like GW's not taking the easy way out, no excuses, that's how a real man plays.

 

The ONLY thing that's decreasing profitability is "Production and other" and earlier in the report that's because they're hiring more people to make minis.

 

 

New Website Issues

 

I saw the thread about GW's new website issues.  For a number of us, the new website IS the issue.  And I guess we ain't alone:

 

 

Growth is really slowest in the Online, i.e. web sales.  Remember, A LOT of stuff is only available online.  Isn't that interesting.

 

 

Amazon

 

I'm not going to comment on it until I at least see a trailer or something, except to say, let's assume it's popular.  Well, so then it'll get more licensing revenue (which is almost all profit), so that's good...if you're an investor.  It won't matter to The Hobby, however, if those new fans can't buy new Kill Teams or armies to play.

 

Therefore...Factory FOUR!  THAT's the real story.  They'll probably get that built before any Amazon 40k series.

 

 

Conclusion

 

I honestly see GW's, and by extension The Hobby's, growth hampered by demand outpacing supply.  GW seems to be making actual plans to fix the supply issue via their Factory Four, instead of just increasing prices.  So when an Amazon 40k series is finally released in 13th ed or whatever...new fans can actually get into The Hobby.

 

Factory FOUR-ward.

So this location here for Factory 4?

[Marshal Rohr]

GW isn’t increasing prices because of demand because it is a precarious demand. They’ve reached a model quality ceiling, and the models are as hard to get as big fashion releases or artificially scarce tech launches. 

[Emperor Ming]

So in summary

 

 

Edited January 9 by Emperor Ming

[Gamiel]

14 minutes ago, Verevolf said:

So this location here for Factory 4?

[Dark Shepherd]

Share price seems to be down about 1% following the release of the report

[The Praetorian of Inwit]

Interesting.

 

Hopefully they get tht factory up and running soon. Without Amazon they need it. If the Amazon thing takes off, they'll probably need factory 5. 

 

@N1SB Is there any way from this report to get an idea of how successful HH 2.0 is?

[Xenith]

13 hours ago, Dark Shepherd said:

Share price seems to be down about 1% following the release of the report

 

They fluctuate by that or more on a daily-weekly basis. If people were reacting negatively to this report, I would expect a ~10% drop like the last one when they announced lower expected profits than the previous year. 

Edited January 10 by Xenith

[WrathOfTheLion]

On 1/9/2024 at 8:12 AM, Matcap86 said:

With the economic realities facing (among others) the UK, GW choosing to mostly go the efficiency instead of price raise route might show that they're also expecting or seeing a price/quality ceiling on their products that's rapidly approaching. 

 

I think we've seen some evidence of this prior. Things like infantry kits outside the UK have survived more than one price increase now untouched, showing that they've been pretty hesitant to push certain things much further in the US/Australia/NZ. For example, I think Intercessors have been $60 since 2019 or so in the US.

 

----

 

On 1/9/2024 at 7:19 AM, N1SB said:

Revenue is a proxy for demand, Number of Customers x How Much Product They Buy.  Because everybody just outsources/offshores production, it's usually a non-issue.  I've been saying GW's performance has been capped by this and I think it shows...because all I can find on the new website is TEMPORARILY OUT OF STOCK.

I think this happened last year with Horus Heresy as well, which I know a few of us mentioned. Given stock levels, there was basically no way they could have made any more money off it it, given things like Rhinos, etc. were gone for months on end.

[Dark Shepherd]

6 hours ago, Xenith said:

 

They fluctuate by that or more on a daily-weekly basis. If people were reacting negatively to this report, I would expect a ~10% drop like the last one when they announced lower expected profits than the previous year. 

I wouldve expected a more positive reaction if anything

 

The volume of shares traded is super low though. Not an expert but seems to me theres a lot more random fan small shareholdings in GW compared to most listed companies, which when I think about it may affect price fluctuations a lot. The figure is published somewhere but its still something like 90% owned by a smallish number of hedge funds etc (and most of rest is owned by GW staff and board) but theres a lot of people who own single or double digit amounts of shares (comparitively)

Edited January 10 by Dark Shepherd

[N1SB]

On 1/10/2024 at 3:57 AM, The Praetorian of Inwit said:

@N1SB Is there any way from this report to get an idea of how successful HH 2.0 is?

 

20 hours ago, WrathOfTheLion said:

I think this happened last year with Horus Heresy as well, which I know a few of us mentioned. Given stock levels, there was basically no way they could have made any more money off it it, given things like Rhinos, etc. were gone for months on end.

 

I was thinking the exact same thing.  GW Revenue was a useful barometer for the growth of The Hobby.  We've gone off the charts.  The best opportunity to measure HH 2.0 was last year's report and I struggled with it.  At the time, I was being dumb (my natural state), NOW I question how far back it goes.

 

Because I also remember listening to you guys about HH 2.0.  We were still coming out of Covid, everyone was dealing with supply chain issues, so I wasn't sure then.  Yet I also started really focusing on Property, Plant and Equipment, even before they started talking about Factory Four.  It was a red flag.

 

The thing about going off the charts is, it's hard to tell exactly when we went into the red zone.  It's that scene in a movie when an engineer's tapping on some meter and realised the reading's been wrong THE WHOLE TIME and he's running down the hall, shouting to get the President on the phone.

 

I say this because, unlike business news reporters, I'm here in The Hobby.  Legiones Imperialis sold out in about 15 minutes.  The Old World in about 20 minutes.  Just hanging out at the store I heard 2 expats saying they visited 3 or 4 different countries looking for certain minis.  The signs were all there.

 

(The only thing that possibly beat it in this economy are Taylor Swift concert tickets.  And I suspect there's fewer scalpers here.)

 

I now very strongly suspect...we'll probably know for sure, that production peak happened around this time last year, that HH 2.0 period.

 

TL;DR - The Hobby's gone off the (financial) charts, I'm pretty sure.  The question is when.  I suspect now that it really happened with HH 2.0

[N1SB]

On 1/10/2024 at 3:23 AM, Dark Shepherd said:

Share price seems to be down about 1% following the release of the report

 

On 1/10/2024 at 4:22 PM, Xenith said:

They fluctuate by that or more on a daily-weekly basis. If people were reacting negatively to this report, I would expect a ~10% drop like the last one when they announced lower expected profits than the previous year. 

 

20 hours ago, Dark Shepherd said:

I wouldve expected a more positive reaction if anything

 

The volume of shares traded is super low though. Not an expert but seems to me theres a lot more random fan small shareholdings in GW compared to most listed companies, which when I think about it may affect price fluctuations a lot. The figure is published somewhere but its still something like 90% owned by a smallish number of hedge funds etc (and most of rest is owned by GW staff and board) but theres a lot of people who own single or double digit amounts of shares (comparitively)

 

You are both correct.  In fact, Boeing's share price dropped about exactly that 10% recently when their Boeing 737 Max 9 got grounded.

 

And you guys sound pretty expert to me, you sound like my old colleagues in Equities.  The volume of shares trading is low because there's big institutional investors (like Blackrock, Vanguard), which as you say means there are less small private equity firms and personal investors.  Those smaller investors speculate more; they react more strongly to, say, Amazon hype, because even professionals like a good story to pitch (and they work on commissions, right, pitch a story, get your client to feel like you're an in-the-know, get them to buy and sell, it's Wolf of Wall Street).  Institutional investors are more like the classical men-in-grey-suits, or more accurately, AI algorithms acting like we used to act.

 

But I can tell you with much more certainty why.  It's the financial ratio, the Mathhammer, that they're using now: CAGR.

 

Compound Annual Growth Rate.  It means the average growth rate for like the last few years.  This year's growth's about 10%.  In the past, it's been about 30%.  This is how they Mathhammer it out.  They don't look at details like how it's a supply end issue (any given business news article think it's demand).

 

Even though their reasoning is wrong, their understanding of the result is correct.  The trading algorithm is doing what it's programmed to.

[N1SB]

On 1/10/2024 at 2:48 AM, Verevolf said:

So this location here for Factory 4?

 

On 1/10/2024 at 3:03 AM, Gamiel said:

 

You guys remind me of the quote:

 

A powerful man is not a man who dissects the universe like a puzzle-box, examining it piece by piece and measuring each piece with scientific precision.

 

That's me!

 

A powerful man has only to look upon the universe to change it.

 

That's you!

 

That overhead picture of the Nottingham is now a better indicator of GW's future fortunes than me with 40 years of reports.

 

(Btw, previously, I was just joking about building Factory Four in the parking lot.  I LITERALLY THINK IT'LL BE THE PARKING LOT NOW.)

[N1SB]

On 1/10/2024 at 2:54 AM, Marshal Rohr said:

GW isn’t increasing prices because of demand because it is a precarious demand. They’ve reached a model quality ceiling, and the models are as hard to get as big fashion releases or artificially scarce tech launches. 

 

Yeah, that sounds about right, and also I'm thinking about the following things:

 

• 3D printing is a thing, will continue being a thing, and will only get cheaper
• One day, in the year 50,000, Amazon will finally have something to show, and you don't wanna scare off newcomers with (price) sticker shock

 

So the Balance Dataslate for Q1 2024 is just about to land (aside from the recent Necrons FAQ).  I heard-tell they're nerfing Eldar (the Yncarne godling, warp spiders in particular) and CSM (Forgefiends, Chosen, those new mutated freaky Cultists).  And why in cog's name am I bringing this up?

 

Because it's about investing in, seeing the long-term.  We don't go chasing the meta/FotM/short-term, even...especially when it's tempting.

 

Says the guy who went all-in with Triple C'Tan this edition, are you kidding me, they ALL get FNP?  But it's not just about price, it's about the future.

[Noserenda]

I think the manufacturing difficulties started around the spikes for 8th ed and COVID? I certainly remember one of our group moaning he couldn't buy nids for an age :D

[Firedrake Cordova]

1 hour ago, Noserenda said:

I think the manufacturing difficulties started around ... COVID? I certainly remember one of our group moaning he couldn't buy nids for an age :D

Maybe they used the wrong type of bug spray in the factory?  

[Dark Shepherd]

Im reminded of a story about an ex head of the US Federal Reserve: how he measured how well the economy was doing was he would just go to the docks and see how many empty containers were sitting there, the less the better as that meant the economy was active/purring/motoring

 

GW is like that, except theyve run out of (munitorum supply)  containers

 

2. Taylor Swift fans might just be a more.emmm.vociferous fandom than 40k :)