"Challenging period ahead" as Warthog reports interim loss

British developer Warthog has announced a pre-tax loss of £2.6 million in its interim results for the first half of 2003 and warned of challenging times ahead, as difficult market conditions impact on the company's performance.

Although revenues in the first half of the year were similar to last year's in dollar terms, the weakness of the US currency meant that Warthog's quoted earnings were down to £4.95 million from last year's £5.4 million.

The bulk of the company's losses, however, came from provisions of £2.2 million made against a number of issues, including insolvent publishers and cancelled or delayed developments, in the light of certain difficulties with intellectual property rights.

Such difficulties have impacted projects including ET, for which a publisher deal has not yet been concluded; Animaniacs, which has no new publisher contract following negotiations with the original publisher's liquidators; and X10, which has been cancelled despite significant development cost, because the publisher became unable to continue backing the development.

These three games between them account for £1 million of the company's losses, while further titles which Warthog has been working on with top-tier publishers have been shelved due to uncertainty regarding the status of their related intellectual property rights - accounting for a further £1.2 million of the loss.

Responding to these difficulties, the company late last year took the pre-emptive move of reducing its development cost base by around £150k. It also plans to press forward with its strategy of working directly in partnership with IP owners, and then taking the project to a number of publishers - rather than risking the commencement of work on a project for a publisher who may not have fully secured the required IP, thus risking hundreds of thousands of pounds of development cost.

Warthog believes that its recent work with Warner Brothers on titles such as movie tie-in Loony Tunes: Back in Action is a pointer towards the future success of this approach, and plans to pursue it in other areas where possible.

Despite the financial difficulties faced by the company of late, it remains optimistic in its outlook, pointing to the huge progress made by the studio (and its recently acquired satellite studios) and the recent work which has been successfully completed on some of the most valuable IP in the industry. However, it is expected that further losses will be incurred in the second half of the year, although no mention is made of any further planned cost reductions to offset these losses.