The Games Workshop annual report is out and things don't look so good, but in comparison with what was expected from Tom Kirby's leaked preamble it could have been a lot worse. As it stands profits are down across the board, while operating costs have been slashed. The one-man store continuum is almost complete and their is no more middle management to cut. What does this mean for GW going forward? Is there a plan to fix things? Or we just going to get a bunch of excuses signifying nothing? You can guess which one of these questions is actually answered.

As it stands, Tom Kirby hasn't given any real compelling reason for investors to think growth is coming any time soon. There is no vision here, just a plan to muddle along and generate dividends for shareholders, nothing else. You can read through the whole thing, but if you just skip to the "The Future" part of the document you will see what GW is shooting for and it ain't pretty.

The Future

Next year, internally, there will be some disruption remaining from the big reorganisation we have just made and from the one man store programme. Nevertheless I, and all the rest of Games Workshop, still believe we should be growing by opening new stores; particularly in North America and Germany.

External events that may affect us are only those things that bother everyone: interest rates, tax rates, exchange rates, directives from Brussels, war, pestilence and disease. What will not change is the eternal desire for some always to want yet more of the small, jewel-like objects of magic and wonder that we call Citadel miniatures.

Beyond next year, the business ought to be able to increase sales (single digit growth, not more) for many years and to provide owners with a steady flow of dividends. I say ‘ought to’ because no plan survives contact with the enemy and we will not promise what we cannot deliver — in particular our policy of only returning surplus cash as dividends will remain. We will not borrow (nor engage in fancy financial engineering) to pay a coupon.

Nevertheless, with or without growth, I expect to see dividends. I am not planning to sell any of my shares.

Here are a few other statements that caught my eye.

Reported sales fell by 8.2% to £123.5 million for the year. On a constant currency basis, sales were down by 6.5% from £134.6 million to £125.9 million; progress was achieved in Other sales businesses (+20.9%) and Export (+2.7%) while sales in UK (-7.1%), Continental Europe (-10.6%), North America (-7.5%), Australia (-9.4%) and Asia (-3.3%) were in decline.

Sales fell by 9% in the year, partially due to the continental european reorganisation and a disappointing year in North America.
Mail order
Our new online shop was launched this year and our online sales are broadly in line with the prior year.

We are vertically integrated. We design, manufacture and distribute ourselves; we have our own stores and web store. With the sole, and rapidly declining, exception of products from Tolkien's books we use only our own imaginary worlds. They are rich enough and deep enough to accommodate anything we may want to make, and they remain our property.

Risks and uncertainties
That we are ex-growth is a big risk seen by some. As I said above I do not believe it. But if it is true we have built a wonderfully efficient cash-generating machine. The bigger risk is the same one I repeat each year, and that is management. So long as we have great people we will be fine. Problems will arise if the board allows egos and private agendas to rule.We also need a constant flow of great managers for our stores. In the end that is still the most important thing of all.

Our market is a niche market made up of people who want to collect our miniatures. They tend to be male, middle-class, discerning teenagers and adults. We do no demographic research, we have no focus groups, we do not ask the market what it wants. These things are otiose in a niche.

Very little mention of us, the consumer, it is all about management and the personnel being the key to profits, no explanation for why profits are down across the board, except it must be all be related to management reorganization. This report is designed to reassure investors that GW will continue to print dividend checks no matter how many employee sackings and price increases it takes.

There are other great tidbits, but for now here is the annual report in all its glory.

GW 2014 annual report

Feel free to come to your own conclusions.

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