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News
.25/07/01 Warthog Readies Rally Championship Extreme
Although this RNS statement that
warthog had "completed" the development of their Rally Championship title is not particularly newsworthy, the deal to which it refers is very important to Warthog and in particular its FY02 results. Warthog
originally signed an unusual full publishing and "thin" publishing deal with UK publisher Actualize (since bought by SCi) in which Warthog would receive advance royalties for the PC version of the game and a
standard royalty rate but would have to self-fund the PlayStation2 and Xbox versions of the game. In return for this increased risk, Warthog will receive an effective royalty rate of around 50% (double the standard
royalty rate) for the PS2 and Xbox SKUs. With console wholesale prices at a cyclical high, this could equate to as much as £8-£10/ unit sold and given the pedigree of the Rally Championship series (the six previous
versions have grossed over £40m worldwide whilst the last iteration averaged over 200,000 units per SKU), this represents a major contributor towards the Company's forecast FY02 year-end profitability.
31/07/01 Animaniacs deal
Warthog has secured a 4 title (6 SKU) contract with German publisher SWING!
Entertainment to develop games based on the Warner Bros cartoon series Animaniacs.
The children-focused titles will be released on all major platforms during FY03 and is the second license deal struck with Swing following the Tiny Toons development contract struck in 2000. Warthog will receive cross-collateralised advances for all SKUs so post-advance royalties will only be received should all SKUs' advances have been recouped not on a SKU by SKU basis.
01/10/01 WAP game distribution contract
Warthog has revealed that the publishers of its WAP title Pirate
Adventure, Digital Bridges, has secured a distribution deal for the title with BT MM02's mobile portal, Genie. Warthog received a royalty advance from Digital Bridges on signing the publishing agreement and the BT
deal represents one distribution route through which the advance can be recouped and post-advance royalties could be received. Investor optimism should, however, be tempered by the facts that the WAP market remains
very limited in size and that Warthog's products are amongst a number that Digital Bridges are promoting (including their own internally-generated product).
08/10/01 Warthog acquires Infogrames development project and team
In an unusual acquisition, Warthog has secured
from Infogrames a 15-strong development team (and their hardware assets) and with it a development deal to finish off the project the team were working on. The game, Looney Tunes, is an Xbox title
which Warthog will now complete on a work-for-hire (i.e. no royalty) basis. Consideration for the acquisition was nominal, whilst the deal bolsters the Company's FY03 top line. The Company intends to explore the
potential for further SKUs of the title with Infogrames. The Infogrames team (and its development project) should fit well into a Warthog business that is becoming increasingly focused on children's license
development.
08/11/01 Warthog secures ET development contract
In a third children's license deal in 4 months,
Warthog has secured a contract with US publisher NewKidCo to develop a PS2 game based around the hit movie franchise, ET. NewKidCo intend to release a range of products based around the ET license (to which they own
the games rights) and which will coincide with the launch of a re-worked version of the 1982 hit movie in March 2002. The deal is a standard development contract which comprises a healthy royalty advance from
NewKidCo which is used to fund the game's development.
15/11/01 Warthog secures Battlebots development contract
Warthog has secured a 2 SKU (PS2 and Game Cube)
development contract with US publisher THQ to develop games based around the hit US TV series Battlebots. Battlebots is a robot gladiatorial combat show similar to the UK's Robot Wars. Again, the deal is a standard
royalty-advance based contract.
13/12/01 Warthog announces interims, issues profits warning
Within Warthog's interim results for the 6 months to
30/09/01 lies a profits warning caused by a delay to the release of the PS2 version of Rally Championship Xtreme. The product, which Warthog has funded internally and for which the Company will receive a 50% royalty
rate, is being moved back to a less crowded period in the games calendar and to allow the other Rally Championship Xtreme SKU (similarly self-funded by Warthog) to be released at the same time. The decision
was taken by publisher SCi and has the effect of halving the expected FY02 profit whilst bolstering the anticipated FY03 profits.
Countering this negative development, Warthog also revealed that it had secured
additional development contracts for the PS2 version of Bounty Hunter (with Crave), for Quiz Show, an Italian quiz gameshow (with Digital Bros) and two new mobile games (with THQ).
The Company's interim results
demonstrate the continued growth in development staff and ongoing development projects with turnover increasing 140% over the previous 6 month period to £4.8m. Despite the product release delay, growth should
continue into the second half of the year and with higher margins expected during the period, the Company should report strong growth in profitability over FY01.
24/01/02 Placing and intended acquisition revealed
Warthog has successfully raised £2.1m through a
swift placing with institutional shareholders and has revealed that it is exploring the acquisition of another development team, possibly from a publisher. Details of the acquisition have not been clarified although
should it take place, the deal would be earnings accretive for FY03.
08/04/02 Acquisition and new Rally contract unveiled
After an unusually protracted period of
negotiating, W arthog have acquired Swedish developer 42-Bit for around £400,000 in Warthog shares (and a further700,000 shares depending on performance). Warthog is more than familiar with 42-Bit having
subcontracted the development of Rally Championship PS2 and Animaniacs GBA to them. The former, in particular, has impressed and the Swedish company should fit in well within the Warthog group.
In a related
announcement, Warthog revealed that it had secured the development contract for the next version in the Rally Championship series from UK publisher SCi. As with the last contract (see 25/07/01 news), Warthog
will receive an advance for the PC version of the game but will self-fund the console versions (which, this time round will include the Xbox version) in return for a larger (50%) royalty rate. 42-Bit are expected to
contribute to the title's development.
03/07/02 Prelims
FY02 Turnover of £8.9m and PBT of £0.49m were marginally below expectation but still
represent considerable growth over 2001. The Company revealed that it currently has 27 SKUs in development and around £2.8m in cash whilst existing contracts currently cover a comfortable 61% of its
anticipated FY03 turnover. Rally Championship PS2, which was funded by Warthog themselves, was released shortly after the prelims but appears to have underperformed in the UK where two weeks after its release it was
only at number 32 in the PS2 sales charts. Its continental launch was said to have fared better. As part of the deal, Warthog secured a guarantee for both the PS2 and GameCube SKUs from publisher SCi which should
more or less cover the Company's development costs.
Warthog also revealed that it had signed a contract with US publisher Conspiracy for a new title, X10, which will be released on PS2, GC, Xbox and PC in 2004.
As per other development agreements, Warthog will receive royalty advances spread over the development lifetime of the product.
17/12/02 Interims, profits warning and acquisition
Keeping with the current trend for profit warnings
and negative trading updates , Warthog have contributed with a minor profits warning for the second half of its financial year. Whilst first half performance saw continued growth in both sales (mainly development
advances) and profitability, the second half is not expected to hit the levels of profitability originally expected by the Company. The principal reasons stated for this are product signing delays and adverse
exchange rate movements for both US publisher payments and Swedish development costs. In spite of this, the Company revealed that it had signed a number of new deals and pointed to some premium brands forming part
of this new business. The Company also revealed that in the current year 92% of its current guidance revenue was contracted whilst an impressive 66% of FY04 was already contracted. The second half of the current
financial year sees the release of the GameCube version of Rally Championship (for which Warthog has secured a minimum sales guarantee from publisher SCi). Although the console versions of Animaniacs and all 4 SKUs
of Mace Griffin are due for release before Warthog's year-end, any post-advance royalty flow would be realised in FY04.
The Company also announced the acquisition of Manchester developer Zed Two. As a company,
Zed Two has a limited track record but the company's founders have extensive experience having worked in games development since the 80s. Consideration for the acquisition is entirely contingent on performance (over
a 3 year period), is payable in paper and is worth up to £1.5m. The principal motivation for the Zed Two acquisition is that it brings to Warthog a partially complete and as-yet unsigned multi-platform product,
Pillage. Warthog intend to continue funding this fantasy RPG either to completion (and sign a distribution deal) or to get the remainder of the product's development funded by a publisher. Either way, the product is
expected to be completed by Q1 of Warthog's FY04.
22/01/03 Warthog secures valuable Warner Bros/EA development contract
Warthog has won a high
value licensing deal with Warner Brothers to develop a game based on the forthcoming Looney Tunes: Back In Action movie. The multi-platform (PS2, GC, GBA) game will be co-published by Electronic Arts and will be
released in conjunction with the film in November 2003. As with most licensing deals, Warthog will receive a reduced royalty rate but can expect considerable marketing and promotional support and, as a result,
enhanced unit sales of their products. Whilst the success of the game will be largely dependent upon the success of the film, the combination of the strength of Warner Bros' Looney Tunes brand with the distribution
capability of EA means that this product is, arguably, the most likely to generate post-advance royalties within Warthog's currently announced portfolio. Warthog is clearly consolidating its position within the
licence development market and we expect further major licence contract wins to be announced over the next 6 months.
05/02/03 Warthog acquires US developer
Warthog has acquired Texan development company Fever Pitch for
$300,000 in Warthog shares. The acquisition is by no means large but it is certainly significant. The parlous state of the European development market (see Thinkpieces) has seen a large number of
developers go under and has been caused by a contraction in European development investment by both European and US publishers. However, whilst the number of developers is shrinking, the larger, more established
developers are benefiting disproportionately. It is no coincidence that these more succesful companies all either have offices in the US or make regular sales trips to the US. US Publishers have become perceptibly
more inward looking and insular in their approach to new development deals, in particular following 9/11, and Warthog's establishment of a US base signals the Company's recognition of this.It is likely that Warthog
will therefore use its Fever Pitch acquisition to expand further into the US market.
28/04/03 Battlestar Galactica game announced
Warthog have announced that they are working on a game
based on the 70s TV series Battlestar Galactica for Vivendi. The game has been in development for over a year and is due for release in Q3 2003. Although the original series is showing its age, a new Battlestar
Galactica mini-series is being filmed for release later in 2003 which the Warthog game is expected to tie in closely to.
04/07/03 Full-year profits warning issued, Harry Potter deal announced
Warthog today issued its second
profits warning in a year, citing an inability to sign as many new publishing deals as it had originally anticipated as the principal cause of the underperformance. The Company now has over 230 employees and its
publisher sales process needs to produce new deals on a regular basis in order to cover development costs without eating into its precious cash reserves. Warthog's problem is exacerbated by the collapse of some of
its smaller publishing partners such as Swing and New Kid Co, some of whom are understood to owe money to the Company.
Despite not being able to pick up the volume of new publishing deals that it wanted, Warthog
has at least continued to pick up some of the more valuable licence development contracts on offer and has announced what could be its most lucrative contract to date. Warthog is developing a game based around the
first Harry Potter novel, Harry Potter and the Philosopher's Stone, for EA. EA released a game based on the first novel in 2001 but only commissioned PlayStation, Game Boy and PC SKUs; EA is taking advantage of the
break in Harry Potter films (the third film is not due until mid 2004) to release the PS2, GameCube and Xbox versions, all of which are being developed by Warthog. Although it could be argued that Warthog's games
are stop-gaps, all three SKUs will be released into the Christmas market and will not be superceded until the summer of 2004 at the earliest. Whilst this is sufficient time to generate very substantial sales, it
should be noted that EA are also releasing a title based on the Harry Potter "sport", Quidditch, in October and early indications are that EA is prioritising its sales attention on that rather than Warthog's titles.
Both the previous Harry Potter products were released at Christmas (01and 02) and by the 31st March of the following year had (respectively) achieved $207m and $248m in gross sales for EA. Warthog would therefore be
happy if sales only even managed a third of these figures.
29/07/03 Prelims announced
In line with its warnings earlier in the month, Warthog produced somewhat
disappointing full-year financials. Although sales increased to £11.4m from £8.9m, it reported a loss before tax of £0.8m versus a profit of £0.5m in FY02 thanks to a £1.3m provision for some of its more difficult
contracts which it believes could result in bad debt or publishing agreement cancellations. Whilst similar provisions have been used in the past by other listed games companies and have during a subsequent period
been paid back (and used to bolster that period's results), their use in this instance is particularly valid. The trouble experienced by some of its smaller publishing partners has led to publishing deals faltering
and Warthog has attempted to acquire the publishing rights to Animaniacs and ET as a result. Should they be succesful at both securing these rights and placing the games with new publishers, the Company will be able
to write back any gains directly through the P&L. However, that a provision was used in the first place suggests that the Company does not think that this will be likely to happen and in the current climate they
may well be right.
28/11/03 Half-year profits warning deja vu
Maintaining what has become a more or less continuous stream
of profit warnings, Warthog revealed that its half-year as well as full-year figures will be below expectation. Citing continuing problems with a number of its publishing partners (and the products they had
commissioned) as well as the adverse movement of the dollar to sterling, the Company now expects first half losses to come to £2m. Presumably the Company has either failed to secure the rights to ET and Animaniacs
or has done so but failed to secure a new publishing partner. This latest warning has propelled the Company to make some substantial changes to its core development strategy. Expansion of the Company's US presence
and closely allied to this the intention to target only the largest IP licences from the more financially stable publishers will now take precedence over original IP development,
sub-scale IP licence development from smaller publishers and, it appears, UK development. To achieve this, Warthog has shed a number of its UK development staff and announced its intention to "strengthen its balance sheet" (i.e. seek new funds). Lamentable though this strategy is for UK development overall, it is a prudent move given the current market and exchange rate conditions. Although it was once cheaper to develop in the UK, the continued weakening of the dollar has made development costs more or less equal in the states for US publishers so aside from quality grounds there are few reasons for choosing UK development over US development. However, a strategy that focuses on licence development invariably curtails value growth as it precludes brand ownership. It also hastens the commoditisation of the Company's development services and limits the potential upside from a hit product.
30/12/03 Interims
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