Friday, January 14

GW corporate discussion part 2: Revenge of the nerds.

Head Scratching part 2

​Hey everyone, About a week ago I opened a can of worms that was the GW year end financial statements.  Originally I only planned on doing one post relating to this document but just going through the CEO and Chairman comments took up three pages, as such I kept the financials themselves for another post.  Well, here I am again to post up my findings from those.

Interestingly enough the financials seem to know what kind of company GW really is, despite the confusion of the top dogs the financials have their head of straight.

Let’s start from the top:

1. Identity Crisis Partf Deux:

Though the CEO and Chairman have everything mixed up as far as what industry they are in the market has them listed in “Games, Toys and Children’s Vehicles.” Children’s vehicles (Is there a kids drivable Land raider out there?!!!)  Well, this description seems to make more sense then a Manufacturing company that only has goals of a retail firm, why? Because Games, Toys and Vehicles encompasses manufacturing with the retail portion that Kirby and Wells spoke of but didn’t want to admit existed… Time to come out of the closet guys! Everybody knows you’re a closet retailer who makes stuff and were cool with it!

2. Is the for-ex that thing you have cut off as a kid? Cause we like it!
The financials have sales increasing .6% year over year from 2009-2010. But if we were to hold the currency constant then we would see very quickly that sales were actually down <3.1%>.  What this means is that the difference in the sales numbers was only a function of exchange rates from foreign currency into pounds going in their favor and actually raising the amount of pounds they receive when they close accounts receivable.  When we look at the Foreign exchange rates during the reporting period we see that the Pound was worth about 25% more at the end of the reporting period than it was at the beginning, thus a higher overall revenue number without having to sell more! MAGIC!

3. Australian for “you is an idiot!”
The only places that say an increase in actual sales were North Europe .5% and North America .4%.  All other areas fell, Japan and emerging markets- <3.5%>, Australia <2.8%> and Central Europe <9.3%> Now this is interesting, in the last analysis we saw that Kirby and Wells mentioned as one of their global initiatives the new sales training practice which they took from Australia… Good idea to take sales points from the guys that LOWERED sales. Well, maybe Australia was really bad the previous year and improved to just “bad,” and they want to implement their new style.  Hey don’t get me wrong, I like Aussie style, but what is Aussie for craptasitc decision? I know it isn’t Fosters!

4. Meet the Fockers, But without the laughs.
If you want to get to know a woman before you marry her you get to know the family.  Companies aren’t any different… Let’s look at the owners of GW.  Well the top four shareholders are institutional investment banking houses and Pension funds. This isn’t a big surprise because lets be honest who else can afford to buy 23% of a company? The interesting one though is #5 shareholder on the list… a Mr. Tom Kirby who holds a whopping 6.4% of the company.  Oh, he is also chairman so he votes shares that aren’t his as well as his own shares…Hard to stop a guy who could break the company in one day if he got his panties in a twist.  

5. All that financial Mumbo-Jumbo. THE INCOME STATEMENT:
Actually even with the boost in the foreign exchange overall revenue was only up 805k for the year obviously this isn’t including interest and such, but that didn’t really help the overall number so I left it out.  But wait, I thought that Kirby and crew were saying that they were having a good year… Well I suppose that is true in some sense, because from 2006-2010 their revenues went up from 115,150 to 126,511 respectively.  Giving us about a 9% overall growth rate from point to point, which is about a 2% growth rate annually compounded.  Not bad I suppose, when the rest of the market was up about 12.5% during the same time, which is about a 3% Annual compound rate. Kudos on growing at all I suppose. I do have to give credit though; their expenses only went up by one million from point to point…

6. Mumbo Jumbo Continued: THE BALANCE SHEET.

When looking at the balance sheet we see quickly that GW borrowed 12,000 (12 million) in 2009 and 15,001 in 2010.  I wonder what you need 27 million dollars for? Well, we can see that Property, plant and equipment went up from 70 million to 78 million.  Also, the cash position went from 8 million to 17 million… Why do you need an increase in cash like that? 2 reasons, you aren’t liquid enough or you’re planning on making more purchases/ pay a dividend.  Also during the same period current liabilities dropped from 14 million to 2 million.  If I add all that up it is 29 million in changes with a borrowed 27 million. Also of note is that there was no hedging in the portfolio for foreign exchange risk.  Normally a company who has significant dealings internationally (50% or more in USA) will use foreign exchange futures to hedge the risk of their currency rising against the country where sales occurred. As I said earlier this actually worked in their favor, but did they know this was going to happen or did they just get lucky? What if the trade had gone against them and now their true losses are shown? Pretty risky when your earnings aren’t don’t that well in the first place (See#3 title). Now as far as the borrowed capital is concerned, nothing is saying that the borrowed assets went into those buckets I mentioned, but where else would you get the cash for those activities it if revenues were only up because of the Forex?

7. Hey look, an air freshener in a porta-potty?
Well, from a ratios perspective GW has made great progress, ROE is up significantly(return on equity) but It still isn’t as high as it was back in 2006. So, maybe that isn’t as good as I thought it was. Total Debt to Equity is down from .55 to .32 that is good. Inventory turnover is also lower than it has ever been.  But is that because of their initiative to carry fewer inventories in the stores or is it simple that they are selling things faster? Probably just less in inventory…since overall sales are actually down. Their Current ratio is actually the highest it has been in years 2.04 which means they are able to pay their short-term obligations better than they have in the past.  This is a really good sign for growth in the future. Lastly, this is really interesting; their product development spending is up over 20% this year.  Could this just be a reflection of extra development costs related to the production of Warhammer Fantasy, or it could be something they are ramping up on a permanent level (Faster codex production?) sadly, I won’t know until I see their half year statement which comes out in a week or so.

8. In the End:
I know that I can come down pretty harsh on GW, but in all honesty, they are doing a few smart things. They are borrowing short term money which is really cheap right now to pay down long term debt which was probably really expensive… It’s like refinancing your home; it increases cash flow which increases all your liquidity ratios.  It also seems they took the new capital and ramped up production and physical property as well as cash… Not a bad idea if you plan on growing in the future.  But despite the things that the numbers tell us the leadership doesn’t seem to agree. Mostly the numbers seem to be taking it in the end from confused leadership. Which to his credit Wells did say their bad performance was in part from bad management decisions.

I plan on doing at least one more post where I will suggest what changes I would make if I were in a position to make changes.  I will try to not just be a fan-boy, but more of what would make business sense.  It should be fairly entertaining so stay tuned.  Also, GW is releasing their half year numbers sometime in the next week or so, that also should be interesting and if I find anything Ill report on that too.  Until then Duke has left the building!



  1. Re the Aussie style: every time a thread about GW's pushy sales comes up it seems most Australians speak up with positive experiences. I know my own store staff by name and it is always very friendly, they have plenty of unofficial events and grudge matches with other stores etc.

    It really makes it more a FLGS that only carries GW than a 'GW store', if you get my meaning. I'd certainly rather go to a GW here than an independant.

  2. As a player I always think the less pushy style is better. I wish GW could find a way to make more money without having to use pushy/unfriendly sales tactics.


  3. Well I still spend more than I really should ;)

    Sales have been sluggish across the board for retail in Australia, so while we officially avoided recession the GFC still had a noticable impact.

    Add in the massive hikes to electricity (in NSW at least), interest rates and so on I'm not really surprised sales are down for what is essentially a luxury item.