RNS Number:6412Q
Argonaut Games PLC
08 October 2003
For Immediate Release 8 October 2003
ARGONAUT GAMES PLC
Preliminary Results
for the twelve months ended 31 July 2003
Argonaut Games PLC ("Argonaut"), a leading UK-based computer games developer,
announces its Preliminary Results for the twelve months ended 31 July 2003.
Key points:
* Loss before tax of #10.9m (2002: profit before tax #2.8m) due to
cancellation of two major titles Malice and Orchid and delays in signing new
games
* Acceleration of goodwill write off to #2.1m (2002: #0.4m) for the
acquisitions of satellite studios
* Harry Potter and the Chamber of Secrets becomes the sixth hit game
developed by Argonaut to outsell 1 million copies
* Strong balance sheet with cash and short-term deposits of #5.9m
* Pipeline for Christmas 2003 strongest on record with 4 titles (11 SKU's)
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
http://www.argonaut.com/
Buchanan Communications 020 7466 5000
Bobby Morse/Isabel Petre
Attached: Chairman's Statement
Operational Review
Consolidated profit and loss account
Consolidated balance sheet
Consolidated cash flow statement
Notes to the accounts
Chairman's statement
The year to 31 July 2003 ('2003') has been a very difficult one for Argonaut.
The Company suffered specifically from the cancellation of Malice and the
subsequent termination of Orchid, both major Argonaut titles that had been in
development for some time. In addition the development sector in general
suffered from a reduction in the commissioning of development projects by the
publishing community. As a result several development studios in the UK have
been forced to close whilst others including Argonaut have reduced their
development capacity. This may seem at odds with market statistics that point to
sales of video games reaching record volumes. However, whilst sales have risen
strongly over the period they have been concentrated on a limited number of
titles from a limited number of publishers. The PS ONE version of Harry Potter
and the Chamber of Secrets, which the Group developed for Electronic Arts Inc.,
is one such title. However, for many publishers this concentration has led to a
scaling back of projects with the consequent knock-on effect on the development
sector.
In these difficult times we have continued to focus on improving the development
process and building strong relationships with our key publishers as we strongly
believe that our ability to deliver quality titles on time and to budget will
increasingly make Argonaut the developer of choice for the major publishers
around the world.
Results
Turnover of #5.3m (2002: #14.2m) comprised royalty income of #2.4m (2002: #6.1m)
and net advances of #2.9m (2002: #8.1m).
Royalty income remained substantial, mostly from the two Argonaut developed
Harry Potter PS ONE games. The second game, Harry Potter and the Chamber of
Secrets, released in November 2002, represents the sixth one million-plus
selling title developed by Argonaut.
As outlined in the trading statement on 30 May 2003, advances income suffered
from the cancellation of Malice and the termination of Orchid, as this
necessitated the reversal of all income previously recognised on these titles.
In addition during the year the Group had three titles in development, Carve,
Powerdrome and a new title from JustAddMonsters, which were not signed to a
publisher and therefore did not contribute to turnover.
Wages and salaries rose to #10.9m (2002: #8.3m),reflecting an increase in the
average number of employees to 285 (2002: 213). The increase in average staff
numbers is partly due to the full year impact of the Group's acquisition of
Particle Systems Limited (January 2002) and Morpheme Limited (August 2002) and
partly due to the expansion of the development capacity at our main Edgware
studio. Following a number of redundancies in June 2003 the Group ended the year
with 271 employees.
Depreciation and amortisation rose by #1.9m to #2.9m (2002: #1.0m) as we have
taken a prudent view of the valuation of the Group's investment in satellite
studios. We have taken an impairment charge of #1m on our Sheffield studio,
accelerated the goodwill write-off on LTStudios Limited and, because of the
fledgling nature of the mobile games market, written off all of the goodwill
(#0.4m) arising on the acquisition of Morpheme Limited. Depreciation on the
fixed assets of the business rose to #0.8m (2002: #0.5m) mainly due to the full
year impact of the acquisition of Particle Systems Limited and Morpheme Limited.
Notwithstanding the expansion of the Group, tight control of the cost base has
kept other operating charges of #2.6m (2002: #2.7m), in line with the prior
year.
After net interest of #0.3m, the loss before tax was #10.9m (2002: profit before
tax #2.8m). The Directors do not propose the payment of a dividend.
The Group continues to maintain a strong balance sheet, with cash and short-term
deposits representing #5.9m of the Group's total net assets of #10.2m at 31 July
2003.
Acquisitions
In August 2002, Argonaut made its first move into the mobile games market
through the acquisition of Morpheme Limited, a developer of games and other
entertainment product for mobile phones. The studio has made good progress
during the year, it has built a substantial portfolio of games across all the
major handsets, tested a number of alternative distribution channels, both
domestic and international, and is currently negotiating potential distribution
deals with some of the world's major mobile services providers. Although the
market for mobile games is potentially very large it is at present relatively
new and untried, hence it is important for Morpheme to experiment with the
various methods of delivering games to the consumer.
Development teams
In a very difficult year, thanks to the professionalism and dedication of the
Group's staff, we were not only able to overcome the disappointments but build
on the experience, putting the Company in good stead for the future. I would
like therefore to express the Board's gratitude to all our employees for their
contribution during the year.
Outlook
As the development teams are putting the final touches to our current titles we
look forward to the Christmas season which will see the release of SWAT: GST
(PS2 & Xbox), Bionicle (all formats) and I-Ninja (all formats). In addition we
have recently entered into a zero advance royalty-based distribution agreement
with Global Star Software Inc., a subsidiary of the very successful publisher
Take-Two Interactive Software Inc. that will see Carve (Xbox Live) released
during the same period. This will give Argonaut its largest released schedule in
its history with four titles (11 versions) being launched into the market.
As both Malice and Powerdrome are practically complete we have entered into
negotiations with several companies with a view to signing distribution
agreements on these titles. Given the time scales involved it is unlikely that
Malice and Powerdrome (both PS2 & Xbox) will be released before the first
quarter of 2004.
With the development of the above titles drawing near to completion the Group
has entered into preliminary discussions concerning sequels or replacement
titles with these and other major publishers. Although it is early in the
process, we are pleased with progress to date.
The Board fully believe Argonaut's professional and systematic approach to game
development underpinned by our advanced technology will keep the Group at the
forefront of the development sector and continue to attract the world's leading
publishers.
Julian Paul
Chairman
8 October 2003
Operating review
Although this year's financial results are dominated by the consequences of the
Malice cancellation, operationally the Group has made solid progress throughout
the period.
In the early part of the year we completed the development of Harry Potter and
the Chamber of Secrets on the PS ONE for Electronic Arts Inc and Kung Fu Chaos,
our first Xbox title, for Microsoft. Both games were completed on time and on
budget and released during the year with the former charting at No.1 in the UK
PS ONE charts, and becoming the sixth one million plus selling title developed
by Argonaut. Although Kung Fu Chaos was very well received by Microsoft and the
industry press, the game's market performance has been disappointing and, due to
the large advance on this title, it did not earn royalty income for the Group.
During this early period we also agreed development terms on I-Ninja and Orchid
with Namco Hometek Inc. (Namco) and made our first move into the new mobile
games market with the acquisition of Morpheme Limited, one of the leading
developers in this field.
At the end of May 2003, following the consolidation of all of Vivendi SA's video
game assets into Vivendi Universal Games Inc (VUG), VUG decided to concentrate
its resources on its own intellectual properties and cancelled the development
contract for Malice. This was a heavy blow to the Group both financially in
terms of lost revenue as well as operationally in terms of the allocation of our
development resources. As a result of the cancellation we immediately scaled
down the final stages of development on Malice, agreed with Namco to terminate
the development of Orchid, and unfortunately lost 19 development staff through
redundancies.
Games scheduled for release in the year to 31 July 2004
The actions taken as a result of the Malice cancellation did not impinge on the
development of our other games or on the Group's relationships with its
publishers.
SWAT: GST, our squad-based shooter with voice recognition control, developed for
VUG on PS2 and Xbox, remained on time and on budget. Work is now complete on
this title, subject only to the inclusion of foreign language translations to be
supplied by the publisher. The title has received very encouraging reviews in
the trade press and we look forward to its release over the Christmas period.
Work on BionicleTM:The Game for LEGO(R) is drawing to a close with all console
versions completed and the PC version in the final testing stage prior to
manufacture. BionicleTM: The Game is our second title to be released over the
Christmas period and brings the highly successful LEGO(R) toys to all four
gaming platforms - PS2, Xbox, GameCube and PC.
Development work on I-Ninja, our original character-based action adventure game
for Namco, is almost complete. I-Ninja will be our third title released during
the Christmas period. Following a very successful showing at E3, the
international video game convention held in the USA during May of each year, we
agreed with Namco to extend the number of versions of the game to cover the Xbox
and PC platforms in addition to the PS2 and GameCube. Thanks to our cross
platform capabilities and the diligence of our development teams we have managed
to achieve this within the very limited time scale.
Our fourth title for release over the Christmas period is Carve, an exciting
Xbox Live watercraft racing game. Carve has completed its development cycle and
will be released under our new distribution agreement with Global Star.
With four titles (11 versions) this is the biggest Christmas release schedule in
Argonaut's history. With the backing of some of the world's foremost games
publishers we look forward to seeing Argonaut's games rising through the charts
over the coming period.
In addition to our four Christmas titles, development work on both Malice and
Powerdrome is drawing to a close. Given that the two titles are almost complete,
we have entered into discussions with a number of specialist distribution
companies with a view to signing distribution agreements on these games. As
these negotiations tend to take some time to conclude we believe it is unlikely
either title will be released before the first quarter of 2004.
Development in the year to 31 July 2004
One of the important aspects of the completion of the games mentioned above is
that the majority were developed under our new project management system and
were completed on time and on budget. We strongly believe this is one of
Argonaut's key strengths and as we continue to produce top quality games to
schedule, we will increasingly attract premium titles from the world's major
publishers. To this end we constantly refine the development process, ensuring
efficiencies are achieved at every stage and that the game designs we produce
are flexible and underpinned by our cross platform technology.
At the present time the teams that worked on our Christmas release games are
drawing up designs for sequels and new game ideas. Being able to provide
potential publishers with the assurance that development will be completed on
schedule and within budget greatly enhances our ability to have the titles
signed quickly.
Jez San OBE Joss Ellis
Chief Executive Officer Chief Operating Officer
Argonaut Games PLC
Consolidated Profit and Loss Account
For the year ended 31 July 2003
Year ended Year ended Year ended Year ended
31 July 31 July 31 July 31 July
2003 2003 2003 2002
Note Continuing Acquisitions Total Total
#'000 #'000 #'000 #'000
Turnover 2 5,271 46 5,317 14,232
Staff costs (10,432) (497) (10,929) (8,275)
Depreciation and amortisation (2,505) (434) (2,939) (965)
Other operating charges (2,458) (149) (2,607) (2,680)
Group operating (loss)/ profit (10,124) (1,034) (11,158) 2,312
Share of associate's operating losses (24) (17)
(Loss)/ profit before interest and tax (11,182) 2,295
Interest receivable and similar income 315 498
Interest payable and similar charges (15) (30)
(Loss)/ profit on ordinary activities (10,882) 2,763
before taxation
Taxation 3 - -
Retained (loss)/ profit for the year (10,882) 2,763
Basic earnings/(loss) per share 4 (11.20)p 2.90p
Fully diluted earnings/(loss) per share 4 (11.20)p 2.87p
Statement of Total Recognised Gains and Losses
For the year ended 31 July 2003
Year ended Year ended
31 July 31 July
2003 2002
#'000 #'000
(Loss)/ profit for the year (10,882) 2,763
Translation differences (11) 1
Total (losses)/ gains recognised (10,893) 2,764
There is no material difference between historical cost profits and losses and
those shown above.
The notes on pages 10 to 15 form part of this preliminary announcement.
Argonaut Games PLC
Consolidated Balance Sheet
As at 31 July 2003
As at As at
31 July 31 July
Note 2003 2002
#'000 #'000
Fixed assets
Intangible assets 5 2,297 4,719
Tangible assets 1,855 1,584
Interest in associate 6 36 71
4,188 6,374
Current assets
Debtors 2,631 6,100
Investments - deposits 11 5,636 11,103
Cash at bank and in hand 11 232 1,256
8,499 18,459
Creditors: amounts falling due within one year (2,148) (3,241)
Net current assets 6,351 15,218
Total assets less current liabilities 10,539 21,592
Creditors: amounts falling due after more than one year (388) (388)
Net assets 10,151 21,204
Capital and reserves
Called up share capital 7 973 966
Share premium account 21,381 21,263
Shares to be issued 46 331
Merger reserve 5,177 5,177
Profit and loss account (17,426) (6,533)
Equity shareholders' funds 8 10,151 21,204
The notes on pages 10 to 15 form part of this preliminary announcement.
Argonaut Games PLC
Consolidated Cash Flow Statement
For the year ended 31 July 2003
Year ended Year ended
31 July 31 July
Note 2003 2002
#'000 #'000
Net cash (outflow)/ inflow from operating activities 9 (4,519) 434
Returns on investments and servicing of finance
Interest received 314 498
Interest paid (15) (13)
Net cash inflow on returns on investments and servicing of finance 299 485
Capital expenditure and financial investment
Proceeds from sale of tangible assets 46 190
Payments to acquire tangible assets (1,148) (904)
Net cash outflow on capital expenditure and financial investment (1,102) (714)
Acquisitions and disposals
Purchase of subsidiary undertakings 10 (344) (306)
Overdrafts acquired with subsidiary undertakings - (81)
Net cash outflow on acquisitions and disposals (344) (387)
Net cash outflow before use of liquid resources and financing (5,666) (182)
Management of liquid resources
Decrease in investments - deposits 5,467 2,064
Financing
Proceeds from issue of ordinary share capital 7 125 282
Redemption of loan stock (950) (520)
Net cash outflow from financing (825) (238)
(Decrease)/ increase in net cash during the year 11 (1,024) 1,644
The notes on pages 10 to 15 form part of this preliminary announcement.
Argonaut Games PLC
Notes
1. Basis of preparation
The Preliminary Announcement has been prepared on the basis of the accounting
policies set out in the Group's 31 July 2002 statutory accounts. The financial
information set out above does not constitute statutory accounts for the year
ended 31 July 2003 but is derived from those accounts. Statutory accounts for
the year ended 31 July 2002 have been delivered to the registrar of companies
and those for the year ended 31 July 2003 will be delivered following the Annual
General Meeting. The Auditors have reported on the July 2002 accounts and their
report was unqualified and did not contain statements under sections 237 (2) or
(3) of the Companies Act 1985.
On 1 August 2002 the entire share capital of Morpheme Limited was acquired. This
acquisition has been accounted for using acquisition accounting. Results of the
acquired business have been shown as acquisitions on the face of the profit and
loss account.
The consolidated results of the Group include the Group's share of the results
of its associate (a 49% interest in A/N Software, Inc.) and the consolidated
balance sheet includes the Group's interest in the net assets of its associate.
2. Turnover
Continuing operations and acquisitions
The Group's royalty income is recognised upon receipt of our publishers' royalty
statements. 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.
Year ended Year ended
31 July 2003 31 July 2002
#'000 #'000
Royalties 2,389 6,137
Amounts receivable under development contracts 5,335 8,095
Amounts receivable recognised in previous years, written back in 2003 (2,407) -
2,928 8,095
5,317 14,232
Turnover originates from one segment of activities within the United Kingdom.
3. Taxation
There is no corporation tax charge to the Group because of the losses incurred
during the period to 31 July 2003.
4. (Loss)/earnings per share
Calculation of the loss per ordinary share is based on the consolidated loss for
the year of #10,882,000 (2002: Profit - #2,763,000) and on 97,120,477 (2002:
95,431,125) ordinary shares, being the weighted average number of shares in
issue for the year. The weighted average number of shares has been calculated by
taking into account all share issues made during the year.
Diluted and basic loss per share are the same for the year ending 31 July 2003,
as in a loss-making year, the effect of adjusting for options would be
anti-dilutive.
5. Intangible Assets
Cost #'000
As at 1 August 2002 5,258
Additions 426
Adjustment to the acquisition cost of former Particle Systems Limited business (536)
Adjustment to the fair value of net liabilities taken over on acquisition (187)
As at 31 July 2003 4,961
Amortisation
As at 1 August 2002 539
Impairment charge - former Particle Systems Limited business 1,032
Amortised during the year 1,093
Amortisation & impairment of goodwill on acquisitions 2,125
As at 31 July 2003 2,664
Net book value
As at 31 July 2003 2,297
As at 1 August 2002 4,719
Goodwill is being amortised over its estimated useful lives of 5 years for Just
Add Monsters, 2 years for LT Studios, and 10 years for the business formerly
known as Particle Systems. Goodwill on the acquisition of Morpheme has been
written off in the year of acquisition, due to the fledgling nature of
the market in which Morpheme operates.
6. Interest in associate
#'000
A/N Software Inc.
Net book value as at 1 August 2002 71
Share of associate's operating loss (24)
Translation differences (11)
Net book value as at 31 July 2003 36
7. Share Capital
Group and Company 31 July 2003 31 July 2002
#'000 #'000
Authorised:
125,000,000 ordinary shares of 1p each (2002: 125,000,000 ordinary shares) 1,250 1,250
Allotted, called up and fully paid
97,337,536 ordinary shares of 1p each (2002: 96,655,561 ordinary shares) 973 966
Share Options
The Company granted share options to certain employees (excluding current
Directors) over 1,995,500 ordinary shares, and cancelled options over 2,875,400
ordinary shares, as follows:
Options Exercise Options
outstanding price outstanding
Date of Vesting 31 July (pence Movement During the Year 31 July
Grant dates 2002 per share) Granted Exercised Lapsed Cancelled 2003
Sept 1995 1998 - 2008 169,869 10.5 - (3,675) - - 166,194
Jan 1997 2000 - 2010 300,300 17.5 - (6,300) - - 294,000
March 2000 2001 - 2004 2,638,800 68.0 - - (181,800) (1,569,600) 887,400
Oct 2000 2001 - 2004 120,000 75.5 - - - (120,000) -
Nov 2000 2001 - 2004 660,050 71.5 - - (7,750) (400,800) 251,500
Dec 2000 2001 - 2004 71,500 68.5 - - - (71,500) -
Dec 2001 2002 - 2005 985,500 60.0 - - (52,500) (713,500) 219,500
Nov 2002(A) 2003 - 2013 - 19.5 1,995,500 - (95,000) - 1,900,500
4,946,019 1,995,500 (9,975) (337,050) (2,875,400) 3,719,094
(A) These options were issued under the Group's new, Inland Revenue approved,
share options scheme. All other share options are unapproved.
The following share options were exercised (none of the directors exercised any
options during the year):
Date of exercise Number of Exercise Net Market
Shares Price Proceeds Price
(pence) # '000 (pence)
15 November 2002 3,675 10.5 0 22.5
15 November 2002 6,300 17.5 1 22.5
25 November 2002 (1) 252,000 17.5 44 24.0
25 November 2002 (1) 420,000 19.0 80 24.0
681,975 125
(1) On 25 November 2002, former Director Keith Robinson exercised his entire
holding of 672,000 unapproved share options. These options were formerly
disclosed under Directors' options
8. Reconciliation of movements in shareholders' funds
31 July 2003 31 July 2003
Group Company
#'000 #'000
As at 1 August 2002 21,204 23,773
Net proceeds from issue of equity shares 125 125
Movement in shares to be issued (285) (285)
Retained loss for the year (10,882) (1,318)
Translation differences (11) -
As at 31 July 2003 10,151 22,295
9. Reconciliation of operating (loss)/profit to net cash inflow
from operating activities
Year ended Year ended
31 July 2003 31 July 2002
#'000 #'000
Continuing operations:
Operating (loss)/ profit (11,158) 2,312
Depreciation and amortisation 2,939 965
Loss/(profit) on disposal of fixed assets 25 (14)
Profit on disposal of subsidiary undertaking (112) -
Decrease/ (increase) in debtors 3,531 (2,279)
Increase/(decrease) in creditors due within one year 256 (550)
Net cash (outflow)/ inflow from operating activities (4,519) 434
10. Acquisitions and disposals
Acquisition of Morpheme Limited
On 1 August 2002 the entire share capital of Morpheme Limited was acquired for
#293,000 in cash with a further #500,000 in cash and 2,014,008 shares contingent
on future financial performance over the period to 31 July 2005. The initial
assessment at 31 January 2003 that #640,000 further consideration would become
payable has been amended. As at 31 July 2003, the Directors do not anticipate
further consideration becoming payable to Morpheme's vendors.
The purchase consideration, and provisional fair (and book) values of Morpheme
Limited's identifiable assets and liabilities at the date of acquisition were as
follows:
Purchase consideration #'000
Acquisition costs 51
Cash 293
344
Assets and liabilities acquired
Fixed assets 8
Debtors 23
Creditors (112)
Provision for liabilities and charges (1)
(82)
Goodwill 426
Total acquisition cost 344
Voluntary liquidation of Particle Systems Limited
On 4 February 2003, Particle Systems Limited was put into voluntary liquidation.
Particle's assets were subsequently acquired by, and Particle's staff
transferred to, Argonaut Software Limited. As such, the performance of Particle
Systems Limited has been shown within "continuing operations" in the profit and
loss account.
The profit on disposal of Particle Systems Limited is made up as follows:
#'000
Write-back of net liabilities 112
Profit on disposal of Particle Systems Ltd 112
11. Analysis of changes in net cash, investments and loans
Cash at
bank and Loan Investments
in hand stock - deposits Total
#'000 #'000 #'000 #'000
As at 1 August 2002 1,256 (1,020) 11,103 11,339
Cash inflows/ outflows (1,024) 950 (5,467) (5,541)
As at 31 July 2003 232 (70) 5,636 5,798
12. The Annual Report and Accounts
The audited accounts of the Company will be sent to shareholders in October
2003. Thereafter copies will be available at the company's registered office and
from the website, www.argonaut.com.
This information is provided by RNS
The company news service from the London Stock Exchange
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