RNS Number:6012I
Argonaut Games PLC
12 March 2003
For Immediate Release 12 March 2003
ARGONAUT GAMES PLC
Interim Results
for the six months ended 31 January 2003
Argonaut Games PLC ("Argonaut"), a leading UK-based computer games developer,
announces its Interim Results for the six months ended 31 January 2003.
Key points:
- Harry Potter and the Chamber of Secrets becomes the sixth hit game
developed by Argonaut to outsell 1 million copies
- Turnover of #6.9m (2002: #9.3m), with advances income up 20% to
#4.7m and a reduction in royalty income to #2.2m (2002: #5.4m)
- Loss before tax of #1.1m (2002: profit #4.0m) after goodwill and
impairment charges of #1.4m
- Development capacity expanded as average total staff numbers rise to
284 (2002: 186)
- Game development highlights
- Release of the No1 hit "Harry Potter and the Chamber of Secrets" in
November 2002
- Matoran Adventures, Argonaut's first Bionicle title for Lego,
released on Game Boy Advance in October 2002
- Malice delayed until Autumn 2003
- Kung Fu Chaos released on 25th February 2003, 6 weeks ahead of
schedule
- 2003 will see the biggest release schedule in the Group's history
- Net cash at the period end was #8.6m
Julian Paul, Chairman, commented:
"Although disappointed with the delay in the completion of Malice, Argonaut is
pleased with the success of the latest Harry Potter title as well as our strong
pipeline of games for the rest of the current financial year and for next year."
For Further Information, please contact:
Argonaut Games PLC 020 8951 6000
Jez San, Chief Executive Officer
Joss Ellis, Chief Operating Officer
John Crilly, Finance Director
www.argonaut.com
Buchanan Communications 020 7466 5000
Bobby Morse/ Isabel Petre
Chairman's Statement
The six months to 31 January 2003 saw another Argonaut developed game register a
million-plus unit sales, as Harry Potter and the Chamber of Secrets ("Harry
Potter 2") captured the number one position in the UK PS one charts. The period
also saw the Group agreeing development terms on two major titles Orchid and
I-Ninja, the continued development of our games scheduled for release in 2003
onwards, and the acquisition of Morpheme Ltd, a studio focused on the
development of games and other content for mobile phones and hand-held devices.
Results
With income from advances growing by 20% and royalties from the Harry Potter
games as forecast, turnover for the period was #6.9m (2002: #9.3m). The growth
in advances income to #4.7m (2002: #3.9m) arises from the inclusion this
half-year of advances in respect of Orchid and I-Ninja as both games were
partially developed prior to agreeing terms with the publisher. In total our
development teams worked on 9 games (18 versions) during the period. The
reduction in royalty income to #2.2m (2002: #5.4m) was in line with forecast as
this year our second PS one game under the Harry Potter brand faced new
competition from Harry Potter games developed for the more powerful PS2, Xbox
and GameCube consoles.
Wages and salaries increased to #5.3m (2002: #4.0m) reflecting the inclusion
this half year of our teams in Sheffield and at Morpheme Ltd and the organic
growth of our development teams at Argonaut, Just Add Monsters and LTStudios.
The Group had an average of 284 employees during the period, an increase of 98
over the average of 186 for the comparative period last year. Of this growth 60%
came through acquisition.
Following the first anniversary of our acquisition of Particle Systems Ltd, we
carried out a review of the carrying value of this investment. Taking a prudent
view of the valuation of this business we have taken an impairment charge of
#1.0m. This exceptional item is included in the Profit and Loss account with the
goodwill amortisation of #0.4m (2002: #0.1m) and depreciation charge of #0.3m
(2002: #0.3m) under the heading depreciation and amortisation.
Tight control of the cost base saw other operating charges maintained at #1.1m
(2002: #1.1m) as technology and development procedures were shared across the
enlarged Group. With interest income of #0.1m (2002: #0.2m) the Group made a
profit before goodwill and exceptional items of #0.3m (2000: #4.1m) and a loss
before tax for the period of #1.1m (2002: profit #4.0m). In line with the policy
statement at the time of flotation the Directors do not propose the payment of a
dividend.
The Group continues to maintain a strong balance sheet. At the half year net
cash represented #8.6m of the Group's total net assets of #20.0m.
Operating Review
Matoran Adventures, our first Bionicle title for Lego, was released on the Game
Boy Advance ("GBA") at the end of October 2002. This GBA title was developed as
a pilot to help Argonaut fully understand the intricacies of the Bionicle
universe in advance of the four format Bionicle release for Christmas 2003.
Matoran Adventures is a high quality game that has fulfilled all of its
objectives. Given the relatively high advance the Group received for Matoran
Adventures, as previously stated Argonaut is not anticipating any royalties on
this title.
Harry Potter 2, developed by Argonaut on the PS one for Electronic Arts Inc, was
released on 16 November 2002. This was the second Harry Potter game developed
by Argonaut on the PS one and, like its predecessor Harry Potter and the
Philosopher's Stone ("Harry Potter 1"), it captured the number 1 position in the
UK PS one charts giving Argonaut its sixth hit game to outsell a million copies.
The title remained at number one for five weeks and continues to sell across
all territories, as does Harry Potter 1.
Following the change of publisher from Sierra Entertainment Inc to Vivendi
Universal Games Inc, as a result of restructuring within the Vivendi Group, the
release of Malice has been delayed from the first quarter of 2003 until the
autumn of this year. This is in order to allow further development time to
accommodate editing and game play alterations and so make a uniformly high
quality title. This delay will have a significant impact on the Group's results
for the financial year to 31 July 2003 in terms of royalty potential, the
additional development costs and the fact that the team cannot be allocated to a
new advance-earning project. The development of Malice commenced before the
2002 implementation of our new project management systems, which are
specifically designed to prevent this type of delay occurring at the completion
stage of a game. Although any delay to the launch of a game is very
disappointing, we believe the maintenance of the very high quality standard of
Argonaut's games is of vital importance to the Group's long-term performance and
reputation.
Development of the Group's other games continues to be on time and on budget and
we are pleased to announce that Kung Fu Chaos, developed by our Cambridge studio
Just Add Monsters for Microsoft, was released on 25 February in the USA, some
six weeks earlier than planned, and will be released on 11 April in Europe. The
table below details the platforms, publishers and expected release dates of all
our signed titles.
Title Platform Publisher Expected Release Date
Kung Fu Chaos Xbox Microsoft 25 Feb/11 April 03
Malice PS2/Xbox Vivendi Universal Q4 2003
Bionicle PS2/PC/GC/Xbox Lego Q4 2003
SWAT GST PS2/Xbox Sierra Q4 2003
Orchid PS2/Xbox Namco TBA
I-Ninja PS2/GC Namco TBA
"PS2" Sony PlayStation 2, "GC" Nintendo Game Cube, "Xbox" Microsoft Xbox
Carve, the development code name for our water based racing game developed for
Xbox Live, is in the final stages of its development and will be ready for
release in the second quarter of 2003. Development of Powerdrome is proceeding
to plan at our Sheffield studio and we anticipate having this title ready for
release in the fourth quarter of 2003. Neither of these games has been signed to
a publisher as yet but negotiations continue on both products.
Acquisition
In August 2002, Argonaut made its first move into the mobile entertainment
market with the purchase of the London based development company Morpheme Ltd.
Since its acquisition, Morpheme has concentrated on building a portfolio of
games for the new advanced mobile handsets. In addition, it has released a
number of games for the current handsets. As stated in our announcement at the
time of acquisition, we anticipate Morpheme will be loss making in its first
year of operation within the Argonaut group.
Outlook
In the remainder of the current financial year, the Group will see the release
of its first Xbox game, Kung Fu Chaos, in Europe, and potentially the release of
its first Xbox Live game, Carve.
During the next financial year Argonaut is looking forward to its biggest ever
line up of games with up to six titles (14 versions) earmarked for release. With
a rapidly expanding video games market and the strong support of our publishers,
we hope to see many of these titles capturing lead positions in the various
games charts around the world.
As our teams complete the development of our current titles, they will move on
to new projects, exploiting Argonaut's extensive technology base and development
expertise to bring even more advanced games to the video gaming public. Although
the number of new titles required to refill the pipeline for 2004-2005 will
necessitate a great deal of signing activity, we believe the relationships we
have developed with the world's leading publishers should facilitate this
process greatly.
Julian Paul
Chairman
Consolidated profit and loss account
For the six months ended 31 January 2003
6 months 6 months 6 months 6 months Year
ended ended ended ended ended
31 January 31 January 31 January 31 January 31 July
2003 2003 2003 2002 2002
All All
Continuing Acquisitions Consolidated Continuing Continuing
Note Unaudited Unaudited Unaudited Unaudited Audited
#'000 #'000 #'000 #'000 #'000
Turnover 2 6,919 14 6,933 9,271 14,232
Wages and salaries (5,124) (211) (5,335) (4,022) (8,275)
Depreciation and amortisation 3&4 (1,620) (109) (1,729) (371) (965)
Other operating charges (1,057) (65) (1,122) (1,077) (2,680)
Group operating (loss)/profit (882) (371) (1,253) 3,801 2,312
Share of associate's loss - - - (6) (17)
(Loss)/profit before interest and (882) (371) (1,253) 3,795 2,295
tax
Group interest receivable 168 - 168 232 498
Group interest payable (11) - (11) - (30)
(Loss)/profit on ordinary
activities before tax (725) (371) (1,096) 4,027 2,763
Tax on loss/profit on ordinary 5
activities - - - (389) -
Retained (loss)/profit for the (725) (371) (1,096) 3,638 2,763
period
Basic (loss)/profit per share 6 (1.13)p 3.86p 2.90p
Fully diluted (loss)/profit per 6 (1.13)p 3.82p 2.87p
share
Statement of total recognised gains and losses
For the six months ended 31 January 2003
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2003 2002 2002
Unaudited Unaudited Audited
#'000 #'000 #'000
(Loss)/profit for the period (1,096) 3,638 2,763
Translation differences - - 1
Total (losses)/gains recognised (1,096) 3,638 2,764
Consolidated Balance Sheet
For the six months ended 31 January 2003
31 January 31 January 31 July
2003 2002 2002
Note Unaudited Unaudited Audited
#'000 #'000 #'000
Fixed assets
Intangible assets 7 3,787 5,693 4,719
Tangible assets 2,047 1,529 1,584
Investment in associates 8 71 81 71
5,905 7,303 6,374
Current assets
Debtors 9 8,720 10,873 6,100
Current asset investment 8,981 9,771 11,103
Cash at bank and in hand 311 176 1,256
18,012 20,820 18,459
Creditors: amounts falling due within one year (3,410) (4,931) (3,241)
Net current assets 14,602 15,889 15,218
Total assets less current liabilities 20,507 23,192 21,592
Creditors: amounts falling due after more that one year (500) (638) (388)
Net assets 20,007 22,554 21,204
Capital and reserves
Called up share capital 10 973 966 966
Share premium account 21,381 21,260 21,263
Shares to be issued 11 105 810 331
Merger reserve 5,177 5,177 5,177
Profit and loss account (7,629) (5,659) (6,533)
Equity shareholders' funds 12 20,007 22,554 21,204
Consolidated cash flow statement
For the six months ended 31 January 2003
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2003 2002 2002
Note Unaudited Unaudited Audited
#'000 #'000 #'000
Net cash (outflow)/inflow from operating activities 13 (1,847) (2,610) 434
Returns on investments and servicing of finance
Interest received 168 265 498
Interest paid (11) - (13)
Net cash inflow on returns on
investments and servicing of finance 157 265 485
Capital expenditure and financial investment
Proceeds from sale of tangible assets 10 - 190
Payments to acquire tangible assets (810) (396) (904)
Net cash outflow on capital expenditure and financial
investments
(800) (396) (714)
Acquisitions and disposals
Purchase of a subsidiary undertaking 14 (344) (267) (306)
Overdrafts acquired with subsidiary - (87) (81)
Net cash outflow on acquisitions and disposals (344) (354) (387)
Management of liquid resources
Decrease in current asset investments 2,122 3,396 2,064
Financing
Proceeds from issue of ordinary share capital 10 125 279 282
Loan stock redeemed (880) (520) (520)
Net cash (outflow)/inflow from financing (755) (241) (238)
(Decrease)/increase in net cash during the period 15 (1,467) 60 1,644
Notes to the Interim Report
For the six months ended 31 January 2003
1. Basis of preparation
The interim financial information has been prepared on the basis of the
accounting policies set out in the Group's 31 July 2002 statutory accounts.
The financial information contained in this report does not constitute statutory
accounts within the meaning of section 240 of the Companies Act 1985. The
abridged accounts for the year ended 31 July 2002 are an extract from the
accounts for that year, which together with an unqualified independent auditors'
report, have been delivered to the Registrar of Companies.
On 1 August 2002, the entire issued share capital of Morpheme Limited was
acquired. This acquisition has been accounted for adopting acquisition
accounting.
The consolidated results of the Group include the Group's share of the results
of its associated company (a 49% interest in A/N Software, Inc) and the
consolidated balance sheet includes the Group's interest in the net assets of
the associate.
2. Turnover
Turnover relating to the development of games is recognised on a percentage
completion basis over the period of development on the basis of proportion of
costs incurred to date to total anticipated costs. Immediate provision is made
for anticipated losses, on the basis of the estimated direct costs to complete
the contract. Costs incurred prior to the receipt of a letter of intent or
signed contract are expensed as incurred. Turnover recognised in excess of
billings is disclosed as amounts recoverable under contracts. Royalty income is
recognised upon receipt of publishers' royalty statements.
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2003 2002 2002
Unaudited Unaudited Audited
#'000 #'000 #'000
Amounts receivable under development contracts 4,705 3,868 8,095
Royalties 2,228 5,403 6,137
6,933 9,271 14,232
3. Exceptional Item
The Company has conducted a review for the impairment of goodwill on the
acquisition of Particle Systems Limited in accordance with the guidance provided
by FRS 11, Impairment of fixed assets and goodwill.
Following this review, an impairment charge of #1,032,000 (2002: #nil) has been
included within depreciation & amortisation.
4. Depreciation and amortisation
Depreciation and amortisation of #1,729,000 includes depreciation on fixed
assets of #345,000 (January 2002: #274,000); 'normal' amortisation of goodwill
of #352,000 (January 2002: #97,000) and the above exceptional impairment charge.
5. Taxation
There is no Corporation Tax charge for the period to 31 January 2003 (2002:
#389,000) due to the effect of losses brought forward as at 31 January 2003.
6. Earnings per share
Basic earnings per share is calculated by dividing the loss attributable to
ordinary shareholders by the weighted average number of ordinary shares in issue
during the period.
Basic earnings per share
Earnings Weighted
attributable to average Basic
ordinary number of earnings
shareholders shares per share
Accounting period Unaudited Unaudited Unaudited
#'000
Six months to 31 January 2003 (1,096) 96,905,791 (1.13)p
Six months to 31 January 2002 3,638 94,229,373 3.86p
Year to 31 July 2002 2,763 95,431,125 2.90p
Fully diluted earnings per share Earnings Weighted Fully
attributable to average diluted
ordinary number of earnings
shareholders shares per share
Accounting period Unaudited Unaudited Unaudited
#'000
Six months to 31 January 2003 (1,096) 96,905,791 (1.13)p
Six months to 31 January 2002 3,638 95,215,165 3.82p
Year to 31 July 2002 2,763 96,417,309 2.87p
The diluted loss per share and basic loss per share are the same for the period
ending 31 January 2003 as in a loss-making period the effect of adjusting for
share options would be anti-dilutive.
7. Intangible Assets
As at As at As at
31 January 31 January 31 July
2003 2002 2002
Unaudited Unaudited Audited
#'000 #'000 #'000
Cost
As at 1 August 2002 5,258 720 720
Adjustment to the acquisition cost of Particle Systems Limited (see (614) - -
below)
Additions (note 14) 1,066 5,178 4,538
As at 31 January 2003 5,710 5,898 5,258
Amortisation
As at 1 August 2002 539 108 108
Amortised during the period (Note 4) 352 97 431
Impairment charge - Particle Systems Ltd (Note 3) 1,032 - -
As at 31 January 2003 1,923 205 539
Net book value 3,787 5,693 4,719
The adjustment to acquisition costs results from a reduction of #614,000 in the
future cash and shares consideration expected to be paid to the vendors of
Particle Systems Limited.
8. Investment in associates
As at As at As at
31 January 31 January 31 July
2003 2002 2002
Unaudited Unaudited Audited
#'000 #'000 #'000
A/N Software Inc.
Net book value as at 1 August 71 90 81
Share of associate's operating loss - - (11)
Translation differences - - 1
Net book value as at 31 July 71 90 71
LTStudios Limited
Net book value as at 1 August - 199 199
Share of associate's operating loss - (6) (6)
Adjustment on acquisition of controlling interest - (193) (193)
Net book value as at 31 July - - -
Total interest in associated undertakings 71 90 71
9. Debtors
With the cash flow from development contracts weighted towards the end of the
development cycle, the Group's debtor balance increases as it approaches the
completion stages of development and as the Group increases the number of
projects undertaken. In addition, the cash flow from royalties arrives 45 days
after the end of the calendar quarter in which the sales were recorded.
10. Called up share capital
As at As at As at
31 January 31 January 31 July
2003 2002 2002
Unaudited Unaudited Audited
# '000 # '000 # '000
Authorised
125,000,000 ordinary shares of 1p each (31 July 2002 and 31 January
2002: 125,000,000 ordinary shares of 1p each) 1,250 1,250 1,250
Allotted, called up and fully paid
97,337,536 Ordinary shares of 1p each (31 January 2002: 96,643,738;
31 July 2002: 96,655,561 ordinary shares of 1p each) 973 966 966
The following share options were exercised during the six months to 31 January
2003:
Date of exercise Number of Exercise Net Proceeds Market
Shares Price Price
(p) # '000 (p)
15 November 2002 3,675 10.5 0 22.5
15 November 2002 6,300 17.5 1 22.5
25 November 2002 252,000 17.5 44 24.0
25 November 2002 420,000 19 80 24.0
681,975 125
11. Shares to be issued
As at As at As at
31 January 31 January 31 July
2003 2002 2002
Unaudited Unaudited Audited
#'000 #'000 #'000
Shares to be issued to the vendors of Particle Systems contingent on
future financial performance 105 810 331
12. Reconciliation of movements in equity shareholders' funds
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2003 2002 2002
Unaudited Unaudited Audited
#'000 #'000 #'000
As at 1 August 2002 21,204 16,867 16,867
Net proceeds from issue of equity shares 125 279 282
Issue of shares -Particle Systems - 960 960
Shares to be issued - 810 331
Revision of equity contingent consideration (226) - -
(Loss)/profit for the period (1,096) 3,638 2,763
Translation differences - - 1
As at 31 January 2003 20,007 22,554 21,204
13. Reconciliation of operating profit to net cash inflow/outflow
from operating activities
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2003 2002 2002
Unaudited Unaudited Audited
#'000 #'000 #'000
Continuing operations
Operating (loss)/profit (1,253) 3,801 2,312
Depreciation and amortisation 1,729 371 965
Loss on disposal of fixed assets - - (14)
(Increase)/decrease in debtors (2,597) (7,071) (2,279)
Increase/(Decrease) in creditors due within one year 274 289 (550)
Net cash (outflow)/inflow from operating activities (1,847) (2,610) 434
14. Acquisitions and disposals
On 1 August 2002 the entire share capital of Morpheme Limited was acquired for
#293,000 in cash with up to a further #700,000 in cash and 2,757,376 shares
contingent on future financial performance over the period to July 2005. The
Directors anticipate a further #640,000 in cash will be payable to the vendors.
Purchase consideration # '000
Acquisition costs 51
Cash Consideration 293
344
Contingent consideration 640
984
The provisional fair values of Morpheme's identifiable assets and liabilities at
the date of acquisition were as follows:
Assets and liabilities acquired #'000
Fixed assets 8
Debtors 23
Creditors (112)
Provisions for liabilities and charges (1)
Net liabilities acquired (82)
Goodwill 1,066
984
Goodwill arising on the acquisition of a subsidiary is calculated as the
difference between the purchase consideration and the net assets on a fair value
basis. Goodwill is amortised over its expected useful life, which in the case of
Morpheme is 5 years.
15. Analysis of changes in net cash, investments and loans
Cash at Current
bank and Bank asset
in hand overdrafts Net cash Loan stock investment Total
# '000s # '000s # '000s # '000s # '000s
As at 31 July 2002 1,256 - 1,256 (1,020) 11,103 11,339
Cash inflows/outflows (945) (522) (1,467) 880 (2,122) (2,709)
As at 31 January 2003 311 (522) (211) (140) 8,981 8,630
16. Subsequent event - group restructuring
Following the half-year the directors of Particle Systems Limited put the
company into voluntary liquidation. As part of this process all Particle's staff
were transferred to, and the assets and games in development acquired by,
Argonaut Software Limited. This process had no impact on the work of the Group's
development teams in Sheffield and operations continue as before save that the
teams now form a division of Argonaut Software Limited as opposed to a separate
legal entity.
This information is provided by RNS
The company news service from the London Stock Exchange
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