Profits and sales are still climbing for Games Workshop as they just reported higher profits for their annual report of 2016-17!
The manufacturer from Nottingham, just released their Annual Report for 2016-17, showing big gains in key areas and addressing investors in a very optimistic and upbeat tone. Plus even more recently they released their trading report with their predictions for 2017.
For the period from 29 May 2017 to 23 July 2017
Following on from the Group’s good performance in 2016/17, trading has continued strongly into 2017/18 such that sales and profits for 2017/18 to date are well above the same period in the prior year. Profits for 2017/18 are therefore likely to be above market expectations.
However, the Board remains aware that there is some uncertainty in the trading periods ahead for the rest of the 2017/18 financial year. A further update will be given as appropriate.
Key Points From the Half-Year Report:
- This report is for actual calendar year June 1, 2016 to 28 May 2017, which is the fiscal of Games Workshop. They do not follow a traditional Jan-Dec business year.
- Operating profit is up £21.4 million over same period in 2016.
- Royalty income increased £1.5 million over same period as well.
- Overall Total operating profit increased by £6.8 million with gains of £3.5 million due to “currency fluctuations”.
Here are the highlights on the things GW was making a priority for their business last year:
Highlights:
Update on priorities for 2016/17
In the year, we focussed on the following initiatives designed to improve our performance in our existing stores and deliver organic sales growth through store openings:
Staff recruitment
Our retail stores remain one of the most important factors in our success. The constant challenge is to ensure we have a great manager in every store. In 2015/16 we invested in our recruitment team. In 2016/17 a project team was set up to deliver an improvement in the tools they use.Range
In the last 18 months we have made a step change in how we support all aspects of our Hobby: collect, build, paint and play. This has helped us recruit new customers, re-recruit lapsed customers and support our existing customers. There’s still plenty of room for improvement so it will be a key area of focus for 2017/18.
The quality of our models has been ever better this year. In the year we released over 400 new high quality models across our core systems; Warhammer: Age of Sigmar and Warhammer 40,000 and added 17 new paint colours to our range. We also launched in the year new editions of our White Dwarf magazine and Blood Bowl game, the first of many new products from our Specialist Design studio. Both have sold well. In March 2017 we strengthened and refocused the Black Library team to ensure we continue to produce bestselling novels that bring our characters and worlds to life. Finally, our design to manufacture teams have been working collaboratively on the new edition of Warhammer 40,000: Dark Imperium, released in June 2017. The launch line up is the most extensive we’ve had for any game we’ve ever released. An exciting start to a new year.
Trade
We review our trade terms every year and in May 2017 we updated our terms in North America. The new terms allow our independent trade accounts (and retailers purchasing from our authorised distributors) to sell Games Workshop products online subject to complying with our standard terms. We continued to pilot the following initiatives in the year:Asia
Our four new country managers in Singapore, Hong Kong, Japan and Malaysia have now been in country for approximately 18 months. They have all reported, together with our existing business in China, double-digit sales growth. We will continue to invest in Asia and I have agreed to support our local teams and customers with more localised
content and additional product formats in 2017/18.High footfall locations
We have 102 multi-man format stores and 360 one man stores. In 2015/16 we piloted a few stores in high footfall locations. Our Tottenham Court Road store in London has completed its first full year and has been a great success achieving the highest number of transactions and sales value of any of our stores for some time. The other pilots in Sydney and Copenhagen continue to perform well. While these successes leave us with some format options to deploy when opportunities arise, our standard format will continue to be our one man store model.
New business opportunities
To continue to broaden our reach without distracting our core channels, we continue to pilot a small range of products in new markets. We launched a dispenser of eight products called Battle for Vedros in toy shops in North America in June 2016 and a small range called Build and Paint, globally, in modelling and toy shops in September 2016. Both of these
product ranges are on sale and although not delivering huge value to the Group have proven that we should continue to
support a range of products aimed at new customers. More of this in 2017/18.
Finally, after a thorough review, the non-core activities were amalgamated back into the core business functions. Being
separated off was causing the senior team and me more distractions not less. All of these areas performed well in the
year reported.Licensing
The team has had another solid year thanks to the on-going successes of Total War: Warhammer, Warhammer: End
Times – Vermintide, and Warhammer 40,000: Freeblade.
Reported income is split as follows: 80% PC and console games, 13% mobile and 7% other.Projects
In the year we had three major projects being implemented:
- Warhammer 40K: Dark Imperium product launch in June 2017.
- European ERP – enterprise resource planning (core back office systems) – replacement. We have added
additional resource to this complex project and from April 2017 moved to a more agile methodology for
implementing the solution. The revised plan will ensure we introduce business benefits as we go along rather than
only at the end of the project. Our new Global IT manager will oversee this change. Project estimated cost of £9
million (2016 estimate: £6 million).- Mail order warehouse system replacement. At an estimated cost of £1.2 million it is scheduled to go-live in
Autumn 2017.
Checkout what Games Workshop is making a priority for the current year, and beyond:
Priorities for 2017/18
As part of our overall strategy, three key initiatives will be prioritised in 2017/18. These are designed to deliver further sales growth whilst maintaining our operating profit margin.
Firstly, staff recruitment.
We are updating our recruitment web site, our company recruitment branding across all other social media platforms and creating a site to enable us to welcome and commence induction prior to new recruits starting with us. These improvements started in 2016/17 and will be completed in 2017. It will also give us a global dashboard of recruitment metrics to help us develop our global recruitment teams and processes.Secondly, we will continue to review our product range and offer.
- We have started the year off with a huge event in June 2017 with our launch of Warhammer 40K: Dark Imperium.
- We will continue to review our product range and in store merchandising. We have not made as much progress as I would have liked on range management and in store merchandising (busy year!), so I will be reviewing my structure to ensure we have the right focus on this important sales opportunity.
- We will also continue to invest in Warhammer: Age of Sigmar, Forge World, our specialist games and Black Library with exciting product launches planned throughout 2017/18.
Thirdly, we will continue to focus on recruiting new customers and retaining our existing customers for longer. The aim is
to:
- Open more of our own stores, mostly in our one man store format in North America and in the second half of the year in Germany. My goal is to open 25 stores (net) in 2017/18.
- Open more trade accounts. This will be based on our well established terms and conditions, selling independent accounts our best selling products and, where appropriate, the extended range.
- Continue to improve our online marketing and communication with a particular focus on new and potential customers.
Risks and uncertainties
The board has overall responsibility for ensuring risk is appropriately managed across the Group. The top five risks to the Group are reviewed at each board meeting. The risks are rated as to their business impact and their likelihood of occurring. In addition, the Group has a disaster recovery plan to ensure ongoing operations are maintained in all circumstances. The principal risks identified in 2016/17 are discussed below. These risks are not intended to be an extensive analysis of all risks that may arise but more importantly are the ones that could cause business interruption in
the year ahead.ERP change – as discussed above we are changing our core ERP system in the UK. This is a complicated project with the risk of widespread business disruption if it is not implemented well. It is being implemented and managed by a strong internal project team and specialist ERP software consultants. Store manager recruitment – this comprises both recruitment of managers for new stores as well as replacing poor performing managers. Retail is our primary method of recruiting new customers and so we need great managers in all our stores.
Supply chain – as discussed above we are currently changing our mail order warehouse system. This is part of an ongoing programme of continuous improvement for these warehouse systems. As with any system change there are risks associated with the transition. In line with our ERP project, we have a strong internal project team and are utilising specialist supply chain software consultants.
Range management – as discussed above we are reviewing our range to ensure that we are exploring all opportunities. The risk is that we don’t fully exploit all the opportunities that are available to us.
Distractions – this is anything else that gets in the way of us delivering our goals.Games Workshop relies upon the continued availability and integrity of its IT systems. Our business critical systems are monitored and disaster recovery plans are in place and reviewed to ensure they remain up to date. The security of our systems is reviewed with software updates applied and equipment updated as required.
We do not consider that we have material solvency or liquidity risks. We also feel that it is too early to tell what the effects will be on Games Workshop of the UK Government invoking Article 50 of the Treaty of Lisbon, notifying the European Council of its intention to withdraw from the European Union.
In my opinion the greatest risk is the same one that we repeat each year, namely, management. So long as we have the right people in the right jobs we will be fine. Problems will arise if the board allows egos and private agendas to rule. I will do my utmost to ensure that this does not happen, especially in the year when Tom steps down from the board. Thanks
Tom.Retail
Store openings and closures during the year
It looks like Games Workshop is doing better now than they have ever done. There are more stores open now than there was this time last year, and profits are definitely up. They did a great job at showing investors where they still have some concerns, but at the same time presented some solutions as well.
It doesn’t seem like Games Workshop has any plans of slowing down, and with the release of 8th edition, one would imagine the new fiscal year is off to a great start.
What do you think about the latest update on last year’s performance? We’d like to hear your thoughts.
