|
The 26% decrease in sales recorded during Argonaut's 1H03 can be largely attributed to the fall in post-advance royalties
received from the sale of the second Harry Potter PSX product, developed by the Company. As pointed out after the success of the first product, the increased number of HP2 SKUs released last Christmas combined with
the ever decreasing active user base of PSX owners made decreased sales and royalties a certainty. Post-advance royalties received by Argonaut totaled £2.2m in the six months to January 2003 versus £5.4m the
previous year. The results were also dampened by the inclusion of an "exceptional" impairment charge of £1m relating to a readjustment of the goodwill value within the Particle Systems valuation. Although not
expanded upon in any detail in this instance, such an impairment charge is often levied when a purchaser believes that its acquisition has not met expectation and is not providing full value for the consideration
provided.
More positively, Argonaut's advance revenue increased 20% over the corresponding period last year although given the fact that the Company's headcount has increased 53% to 284 this indicates a worrying
fall in productivity. Argonaut has pointed to 2003 representing its biggest release schedule ever but the Company will only benefit if the 2003 product releases sell enough to recoup their advances. Unfortunately
the first product of the current period, Kung-Fu Chaos, has met with generally poor reviews and limited commercial success. Other high-potential releases, Malice, Bionicle and SWAT GST are not due until the end of
the calendar year so their effect will not be felt for quite some time. Upside to Argonaut's results will therefore come from new publishing deals with self-funded titles Carve and Powerdrome both expected to be
completed by the end of the year and both offering the potential for higher than normal royalty rates and revenue-flow from day-one sales. However, product placement has not proven Argonaut's forte over the last few
years so investors will be relieved to see a 31/01/03 cash and short-term investments level of over £9m...
30/05/03 Another negative trading update
The development problems that have plagued Argonaut over the last 18
months continue with the announcement that the Company's much delayed platform showpiece Malice has been canned by publishers Vivendi and that Orchid, which took such a long time to find a publishing home, has been
canned by Japanese publishers Namco. Furthermore, Microsoft have canned an expected sequel to Kung Fu Chaos which failed to sell in volume following mixed press reviews and the Company is not expecting to secure a
publisher for another of its self-funded and nearly complete products Powerdrome, before the end of FY03.
As pointed out previously, Argonaut has some desperate development quality control problems that have
directly led to its inability to place products. Ironically, its strong cash position has proven its undoing as this has given it the false confidence that with further development time invested in these products,
an eventual publisher placement can be achieved. For many developers, this supposition is often proven correct, but Argonaut clearly has not understood the remarkable rapidity and extent to which its development
capabilities have diminished in the eyes of most publishers. It is now too late for the Company to try to analyse why this is the case, it is burning through its cash at a rate of over £750,000 per month and will
need to shed teams to re-introduce some financial stability to the Company. It is also going to need to sign some products soon and it looks like its once proud boast of only working with the top 5 publishers will
have to be thrown far out of the window to achieve this.
08/10/03 Full-year results
Argonaut's dire FY03 has culminated in a remarkable £10.9m loss on sales of just £5.3m,
in stark contrast to its £2.8m gain on £14.2m of sales in the previous year. Contributing to the £10.9m loss was an accelerated write-off of goodwill from the acquisition of LTStudios and Morpheme as well as the £1m
Particle Systems impairment charge reported in the interims. Despite the exceptional nature of these costs, the underlying performance of the Company was still dismal with advance income down 64% and overages down
61%.. The Company ended the year with a cash balance of £5.9m (over £3.1m lower than at the interim stage) and a more or less even debtor:creditor balance. The Company's 271-person headcount looks dangerously high
given the uncertainty of its future publishing contracts and cash-flows. Despite this, the Company presented a surprisingly upbeat outlook pointing to the 4 title/11SKU Christmas line-up representing the"largest
released schedule in its history". However since three out of the four titles were funded on an advance-basis, their releases will most likely have limited, if any, impact on the Company's finances unless the
products substantially outperform market expectation. The fourth product, Carve, is to be distributed by Global Star Software (the value PC games and productivity division of Take 2) on a profit-share basis that
will see Argonaut generate revenues from day one of sales. That the Xbox game is being distributed by Global Star (a PC specialist with limited console experience) is interesting. Although the Global Star brand is
said to be re-launching with console product a core focus, Argonaut's deal is perhaps testament to the difficulties they have experienced in placing the product and will likely see it released at a mid-price point.
The Company also appears confident that its other unsigned games, Malice and Powerdrome, will secure similar publishing deals but not before the second quarter of calendar 04 and there is a chance that they too will
be released at a mid-price point.
22/01/04 New publishing agreements
Argonaut has finally secured publishing agreements for Powerdrome and Malice
and as a result expect the products to be released in calendar Q2 04. The deals, with Bethseda Softworks for the North American launches, and XIM for all non-Asian territories outside of North America, will generate
revenues for Argonaut from the first units sold. Since the publishers are not contributing towards the development cost of the products (i.e. there is no advance), they will simply revenue-share with Argonaut. The
publishers will handle distribution and marketing so the agreements could be viewed as value-added distribution rather than publishing deals. It is excellent news that Argonaut has secured global publishing
agreements for these products but neither publisher is large and both as a consequence lack the retail punch of the larger players. It is also unclear what price point the titles will be sold at although a
Carve-like sub-premium price would appear likely.
13/02/04 Catwoman project unveiled
Argonaut have revealed that it has won a major new contract with Electronic
Arts for a game based on the forthcoming Warner Bros. feature film Catwoman. The title is being developed by Argonaut for all major platforms and is due for release along side the film at the end of July 2004.
Catwoman represents the largest project undertaken by Argonaut and is understood to have had around 120 staff put onto it. The post-royalty earnings potential from this project for Argonaut remains high although
some recent EA licence-based development contracts have severely curtailed the potential for developers to profit the way that Argonaut did with the original Harry Potter games and this contract is very unlikely to
produce such a return also. The Company should take the continuing commitment to them by EA as an endorsement of their ability to tackle such major contracts at short notice and it may well be that such
licence-based (rather than original IP) development will continue to become the Company's principal focus.
11/03/04 Interims
|
