RNS Number:0284P
SCI Entertainment Group PLC
29 February 2008
29th February 2008
SCi Entertainment Group plc
Business review and half-yearly financial report for the six months ended 31
December 2007
COMPANY TO BE RE-STRUCTURED
SCi Entertainment Group plc ('SCi' 'the Company' or the 'Group'), today
announces a group re-structuring plan following its business review and its
interim results for the six months to 31 December 2007.
The business review led by new Chief Executive, Phil Rogers, has decided on the
following actions:
Fundamental change in business structure:
* SCi's business structure will be significantly changed from a centrally
controlled development and publishing model to a studio-led business focused
around cornerstone products, such as Tomb Raider, Hitman, Championship
Manager and Deus Ex.
* Creation of Eidos PLAY to fuse together casual and new media resources to
attack growing markets.
* Flexible and efficient approach to distribution.
Product improvement initiatives started:
* Cancellation of 14 projects which the Board considers are unlikely to
generate an acceptable return on investment or are not of appropriate
quality.
* Studios focusing on product innovation and delivery of high quality games.
* Production services to form part of the studio group, relocating to
Montreal from London.
Cost reduction plan:
* New business structure targeted to operate with a maximum of 800 people, a
reduction of 25% from current headcount.
* Annual operating costs to be cut by £14 million by the end of June 2008 at
a one-off cost of £7 million
Phil Rogers, Chief Executive of SCi Entertainment Group said,
'SCi is in need of immediate change.
'Following our business review over the last six weeks, we are initiating a
clear action plan based on three fundamental strands of activity: a radical
change in our structure to a studio-led business, a top to bottom programme of
product improvement and efficiency and a considerable cost reduction plan.
'To get SCi on track we have to act rapidly and effect change quickly. We must
allow the world-class people that we have within the Group to focus on strong,
profitable titles which will create the value our shareholders deserve.
'I am confident our staff share this vision and excitement for the future, and
determination to build a working environment where our innovation and creativity
can be commercially realised.'
SCi Entertainment Group
Phil Rogers, CEO and Malcolm Dunne CFO +44 20 8636 3000
Madano Partnership
Matthew Moth/Mark Way +44 20 7593 4000
BUSINESS REVIEW
Strategic backdrop
As illustrated by today's interim results, which are set out below, our quality
has slipped below acceptable standards and, through disappointing game
development and working within an ineffective operating structure, we are
failing to realise the commercial return our creative ability and our
shareholders demand. Our infrastructure is too big and expensive for the scale
of the business.
The cost of delivering world-class games has increased significantly and we must
provide appropriate levels of resource to maximise these opportunities. At the
same time our industry is well positioned for business and margin expansion
through a broadening demographic appeal of games and initiatives centred around
online initiatives.
Our cornerstone franchises, such as Tomb Raider that has already sold 35 million
units, have the potential to deliver significant profits and substantial returns
on investment, which should not be diluted by more run-of-the-mill games. We
must optimise our return on these titles, leverage and position the Group for
online and make better use of our innovative strength. Kane & Lynch, for
example, a home grown franchise, has sold over 1.4 million copies in its first
incarnation - yet we believe it could have sold more had we optimised the
opportunity.
The business has always been run as a development and publishing organisation.
However top-down control over development with a centralised brand and product
marketing team, often in a different country and time-zone, is not the right
formula for the creation of high quality games. We need to provide the right
environment for our studios to do what they do best - create great and
commercially successful games.
Fundamental change in business structure
SCi's business structure will be significantly changed with a shift from
publishing and development to a studio-led model.
Our focus is to build the appropriate studio infrastructure around our
cornerstone franchises. Shifting key publishing responsibilities to within a
studio structure is expected to increase our efficiency and focus.
We are creating a third party business unit to manage the effective creation and
delivery of exciting new games such as Just Cause 2. Third party developers will
continue to be an important part of our business.
A new casual and mobile games group, Eidos PLAY, will be created to capitalise
on the growing casual games market that is taking games to new audiences. This
group will concentrate on the development and distribution of innovative and fun
casual and mobile phone games. Eidos PLAY, created by fusing our resources,
responsible for creating and marketing titles such as Pony Friends and our New
Media teams, will enable us to accelerate our presence in this market and
enhance our returns.
Supporting our studio-led model is a flexible and efficient approach to
distribution, with the appropriate balance of direct and third party
distribution channels and partners.
Product improvement initiatives
Shifting today's key publishing responsibilities such as brand, PR and marketing
into the studio units enables us to form highly focused teams around our
products. This promotes not only high quality games, but high-impact, focused
and coordinated marketing of those games.
With this new company strategy we have reviewed our product line-up and are
cancelling 14 projects that will not deliver the returns we require.
We will move our production services, which include localisation and QA, to
Montreal from London as part of our initiative to bring people closer to games
while benefiting from Montreal's lower cost operating environment.
Cost reduction plan
Cost savings initiatives are underway and today we are announcing a new business
structure to reduce headcount to 800 people, a reduction of 25% from the current
level; we expect that annual operating costs will be cut by £14 million by the
end of June 2008.
Working capital
The Board is reviewing the working capital required for the successful
implementation of the revised strategy. This amount is not yet finalised, but
it is estimated to be between £45 - 55 million, over and above the current
overdraft facility of £20 million.
The Board believes that value for shareholders is best achieved by raising this
through the issue of new equity. The Board's preferred method of equity fund
raising is through the capital markets, though discussions with potential
commercial partners indicate that equity may also be forthcoming from such
sources. Encouraging discussions continue with the Company's lending bank
regarding the extension of the current banking facilities.
At this time the Board is not encouraging offers for the Company but, in a
consolidating industry, any sensible offer for the Company or proposal for
crystallising value for some of the Group's IP will be considered in the context
of the alternatives and benchmarked against the value the Board believes can be
delivered for shareholders through the revised strategy and business plan.
INTERIM RESULTS
6 months to 31 December 6 months to 31 December 12 months to 30 June
2007 2006 2007
£m £m £m
Revenue 73.0 74.5 144.0
Loss from operations (81.4) (17.9) (31.4)
EPS (pence) (96.2)p (17.0)p (35.3)p
CHAIRMAN'S STATEMENT
Results overview
Revenue for the six months to 31 December 2007 was £73.0m against £74.5m in the
comparable period for 2006. The Group released three games, versus four in the
comparable period of the prior year.
The Group made a loss from operations of £81.4m in the six months to 31 December
2007 compared to a loss of £17.9m in the same period in 2006.
Our financial loss reflects a significant charge of £79.6m against the Group's
capitalised development costs, compared to £11.8m in the same period last year.
In our trading update in January the Group adjusted its projections for the
second half of the financial year. Historically, we have generated the majority
of our revenue in the second half of the year. However, recent changes to our
product release schedule for the remainder of the year, coupled with the
required charges to effect our business re-structure, mean that the Board now
expects the Group will make an operating loss for the full financial year 2008.
Potential offer talks terminated
On 27 September 2007 the Group announced that it was in discussion with a number
of interested parties with respect to a potential offer. Discussions were
ongoing from September but the Group did not receive a formal offer within the
timeframe requested. On 10 January 2008, the Board announced that it had reached
the view that it was not in the Group's or its Shareholders' interests to
prolong these discussions further and therefore offer related discussions were
terminated.
Announced movement of four titles into financial year 2008/9
Following a review of our 2008 platform and product line up, the Group has
decided to move the release date of four titles into the fourth calendar
quarter. The most significant of these titles is the next Tomb Raider game, Tomb
Raider: Underworld, which is now scheduled to launch during the 2008 Christmas
season.
Review of working capital needs
The Board is reviewing the working capital required for the successful
implementation of the revised strategy, announced today. This amount is not yet
finalised, but it is estimated to be between £45 - 55 million, over and above
the current overdraft facility of £20 million.
The Board believes that value for shareholders is best achieved by raising this
through the issue of new equity. The Board's preferred method of equity fund
raising is through the capital markets, though discussions with potential
commercial partners indicate that equity may also be forthcoming from such
sources. Encouraging discussions continue with the Company's lending bank
regarding the extension of the current banking facilities.
At this time the Board is not encouraging offers for the Company but, in a
consolidating industry, any sensible offer for the Company or proposal for
crystallising value for some of the Group's IP will be considered in the context
of the alternatives and benchmarked against the value the Board believes can be
delivered for shareholders through the revised strategy and business plan.
Going Concern
The Board is confident that the short and medium term funding issues facing the
Group will be resolved allowing operations to continue as normal without serious
curtailment for the foreseeable future. For this reason, the Board has concluded
that the going concern basis has been appropriately adopted in the preparation
of these financial statements. More information relating to this issue can be
found in Note 2 (Going Concern/Working Capital) to these interim financial
statements.
Changes to the Board
On 18 January 2008, Jane Cavanagh, Bill Ennis and Rob Murphy all stepped down
from their respective positions as CEO, Managing Director, Publishing and
Managing Director, Studios.
Phil Rogers, who joined the Group in March 2007 and became CFO in September
2007, was appointed as Chief Executive Officer in January 2008.
Furthermore Malcolm Dunne, previously CFO of our US operation has been appointed
interim CFO, with Juergen Goeldner, appointed interim COO. Neither of these are
Board appointments.
Dividend
There are no current plans to pay a dividend. We will keep this policy under
review.
Tim Ryan, 29 February, 2008
Chairman
CEO STATEMENT
The Group made a loss from operations of £81.4m in the six months to 31 December
2007 (six months to 31 December 2006 - loss of £17.9m), this includes a charge
of £79.6m (six months to 31 December 2006 - £11.8m) against the Group's
Capitalised development costs. Revenue for the six months to 31 December 2007
was £73.0m (six months to 31 December 2006 - £74.5m).The most significant new
product launches in the first half of the year were Tomb Raider: Anniversary on
Xbox 360 and Nintendo Wii and Kane & Lynch: Dead Men. These, together with
Championship Manager and catalogue sales, resulted in total sales of 7.1m units
(H1 FY07: 8.3m).
Product Pipeline
We invested £35.7m ( six months to 31 December 2006 £30.1m) in our product
pipeline this half year. In the second half of the financial year planned
releases include Top Trumps: Doctor Who on PlayStation 2, Nintendo DS and PC,
Wacky Races: Crash and Dash on Nintendo Wii and DS, and Looney Tunes: Cartoon
Concerto on Nintendo DS. We will distribute Age of Conan: Hyborian Adventures
on PC.
Market and future outlook
The market outlook for video games is strong. Today's business review and
consequent action plan is focused on ensuring SCi is well placed to fully
exploit its valuable IP and capitalise on opportunities for future market
growth.
Related party transactions
There have been no related parties transactions that have taken place in the
first six months of the current financial year that have materially affected the
financial position or the performance of the Group during that period.
Principal risks and uncertainties
Risks to the business include the risk of development delays and cost overruns,
competitive introduction of new hardware platforms, the need to maintain
sufficient working capital, the loss of key personnel, associated lead times to
develop games for new hardware, increased regulation of products and foreign
currency fluctuation risks.
The directors regularly monitor all these risks and uncertainties and
appropriate actions are taken to mitigate the risks of their potential outcomes.
Phil Rogers 29 February 2008
Chief Executive
Statement of Directors' responsibilities
Each director confirms that, to the best of his knowledge:
The Interim Financial Statements have been prepared in accordance with the
Disclosure and Transparency Rules of the UK Financial Services Authority and
International Financial Reporting Standards (IFRS), as adopted by the European
Union (EU). The accounting policies applied are consistent with those described
in the Annual Report 2007 and give a true and fair view of the assets,
liabilities, financial position and profit of the Group.
The interim management report includes a fair review of the business and
important events impacting it, as well as a description of the principal risks
and uncertainties of the business. The Interim Financial Statements include a
fair review of the related party disclosure requirements
Phil Rogers (Chief Executive)
Tim Ryan (Chairman)
Nigel Wayne (Non executive director)
Roger Ames (Non executive director)
Don Johnston (Non executive director)
29 February 2008
Independent Review Report to SCi Entertainment Group Plc
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
December 2007 which comprises the Consolidated Income Statement, the
Consolidated Balance Sheet, the Consolidated Cashflow Statement, the
Consolidated Statement of Changes in Equity and related explanatory notes.
We have read the other information contained in the half-yearly financial report
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and has been approved
by the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union. The condensed set of financial statements
included in this half-yearly financial report has been prepared in accordance
with International Accounting Standard 34, ''Interim Financial Reporting'', as
adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting its responsibilities in respect to half-yearly
financial reporting in accordance with the Disclosure and Transparency Rules of
the United Kingdom's Financial Services Authority and for no other purpose. No
person is entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose of our terms
of engagement or has been expressly authorised to do so by our prior written
consent. Save as above, we do not accept responsibility for this report to any
other person or for any other purpose and we hereby expressly disclaim any and
all such liability.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information
Performed by the Independent Auditor of the Entity'', issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
However, the evidence available to us was limited because of the following
significant matter.
Basis for qualified conclusion - going concern
As detailed in note 2 the directors recognise that there are material
uncertainties concerning the availability and raising of cash which cast
significant doubt on the Group's ability to continue as a going concern. After
considering these uncertainties the directors consider it appropriate to prepare
the interim financial information on the going concern basis. However, we have
been unable to obtain sufficient evidence regarding the reasonableness of the
directors assumptions regarding the material uncertainties. As a result, and in
the absence of any alternative evidence available to us, we have been unable to
form a view as to the appropriateness of the going concern basis of preparation,
together with the effect on the financial statements in the half-yearly
financial report should it be inappropriate. Any such adjustments would
include, where appropriate, writing down the carrying value of assets to their
recoverable amount and providing for any further liabilities that might arise.
Qualified conclusion arising from limitation in scope
Except for the adjustments to the interim financial information that we might
have become aware of had it not been for the uncertainties surrounding the going
concern basis of preparation and related limitation of scope as discussed above,
based on our review, nothing has come to our attention that causes us to believe
that the financial statements in the half-yearly financial report for the six
months ended 31 December 2007 are not prepared, in all material respects, in
accordance with International Accounting Standard 34, as adopted by the European
Union, and the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
BDO Stoy Hayward LLP
Chartered Accountants and Registered Auditors
London
29 February 2008
Consolidated Income Statement for the six months ended 31 December 2007
Notes 6 months to 6 months to 12 months to 30
31 December 31 December June 2007
2007 2006
Unaudited Unaudited Audited
£m £m £m
Revenue 3 73.0 74.5 144.0
Cost of sales (40.2) (50.1) (87.0)
---------- ---------- ----------
Gross Profit 32.8 24.4 57.0
Development costs 4 (79.6) (11.8) (32.8)
Advertising (10.9) (8.3) (13.7)
Other Administrative costs - - - (0.6)
exceptional
other (23.7) (22.2) (41.3)
Administrative expenses (114.2) (42.3) (88.4)
---------- ---------- ----------
(Loss) from operations (81.4) (17.9) (31.4)
Finance income 0.4 0.5 1.2
Finance costs (0.4) (0.5) (0.5)
Profit on disposal of associate - 0.7 0.6
Share of profit of associates - - 0.1
---------- ---------- ----------
(Loss) before taxation 3 (81.4) (17.2) (30.0)
Tax (charge) / credit 5 (2.0) 4.2 1.9
---------- ---------- ----------
(Loss) for the period (83.4) (13.0) (28.1)
===== ===== =====
(Loss) per share 6 Pence Pence Pence
Basic (96.2) (17.0) (35.3)
Diluted (96.2) (17.0) (35.3)
===== ===== =====
Consolidated Balance Sheet at 31 December 2007
Notes 31 December 2007 31 December 30 June 2007
2006
Unaudited Unaudited Audited
£m £m £m
Non current assets
Property plant and equipment 7.9 3.7 6.5
Goodwill 2.7 5.1 2.7
Intangible assets 97.3 100.0 102.7
Capitalised development costs 4 37.9 64.4 81.8
Investment in associates 0.2 0.4 0.6
Deferred tax assets 0.3 4.8 0.1
----- ------- -------
146.3 178.4 194.4
Current assets
Inventory 6.6 5.8 7.2
Trade and other receivables 55.6 48.8 41.3
Cash and cash equivalents 12.0 10.4 31.4
------- ------- -------
74.2 65.0 79.9
------- ------- -------
Total assets 220.5 243.4 274.3
==== ==== ====
Non current liabilities
Provision for deferred consideration 1.4 - 6.2
Deferred tax liabilities 14.1 12.6 13.2
------- ------- -------
15.5 12.6 19.4
Current liabilities
Bank overdraft 17.7 - -
Trade and other payables 30.0 23.3 30.0
Tax liabilities 5.6 5.9 4.1
Accruals and deferred income 11.8 10.7 10.1
Provision for deferred consideration 2.6 - -
Provisions 14.5 18.4 8.1
------- ------- -------
82.2 58.3 52.3
------- ------- -------
Total liabilities 97.7 70.9 71.7
Equity attributable to equity
shareholders of the Company
Share capital 4.3 4.0 4.3
Share premium 121.5 76.2 120.3
Merger reserve 81.3 81.3 81.3
Capital reserve 6.3 6.3 6.3
Foreign currency translation reserve 0.8 (0.3) (0.6)
Share based compensation 6.1 4.0 5.1
Employee benefit trust share reserve (0.9) (0.9) (0.9)
Retained (loss) profits (96.6) 1.9 (13.2)
------- ------- -------
Total equity 122.8 172.5 202.6
------- ------- -------
Total liabilities and equity 220.5 243.4 274.3
==== ==== ====
Consolidated Cash Flow Statement for the six months ended 31 December 2007
6 months to 31 6 months to 31 12 months to 30
December 2007 December 2006 June 2007
Unaudited Unaudited Audited
£m £m £m
Operating activities
(Loss) before taxation (81.4) (17.2) (30.0)
Share based compensation (0.5) 1.1 2.2
Depreciation on property, plant and equipment and 2.1 0.9 1.6
software amortisation charged to the income
statement
Amortisation of brands and technology 5.8 5.3 11.0
Goodwill impairment - - 2.7
Financing income (0.4) (0.5) (1.2)
Finance costs 0.4 0.2 0.5
Profit made by associates - - (0.1)
Profit on disposal of associate - (0.7) (0.6)
------- ------- --------
(74.0) (10.9) (13.9)
(Increase) / decrease in trade and other (14.3) 8.7 14.4
receivables
Decrease / (increase) in inventories 0.6 (0.6) (2.6)
Increase / (decrease) in trade and other payables, 10.8 (2.4) (4.9)
accruals, deferred income and provisions
Release of capitalised development costs 79.6 11.9 32.8
------- ------- --------
Cash generated from operations 2.7 6.7 25.8
Income taxes received / (paid) 0.2 (2.0) (2.1)
------- ------- --------
Cash flows from operating activities 2.9 4.7 23.7
Investing activities
Payment for subsidiary undertaking (2.2) (2.0) (3.9)
Cash acquired with subsidiaries - - 0.9
Acquisition expenses - - (0.2)
Purchase of property, plant and intangible software (3.7) (1.5) (5.5)
Interest received 0.4 0.3 1.2
Expenditure on capitalised development costs (35.7) (30.1) (68.5)
Sale of investments in associated undertakings 0.4 - 0.8
------- ------- --------
Net cash used in investing activities (40.8) (33.3) (75.2)
Financing activities
Proceeds from issue of share capital 1.2 1.8 47.1
Share issue expenses - - (0.9)
Interest paid (0.4) - (0.5)
------- ------- --------
Net cash generated by financing activities 0.8 1.8 45.7
Net decrease in net cash and cash equivalents (37.1) (26.8) (5.8)
Cash and cash equivalents at beginning of period 31.4 37.2 37.2
------- ------- --------
Net cash, cash equivalents and overdrafts at end of (5.7) 10.4 31.4
period
==== ==== ====
Consolidated statement of changes in equity for the six months ended 31 December
2007
Share Share Merger Capital Foreign Share based Employee Retained Total
capital premium reserve reserve Currency compensation benefit trust Profit
translation share reserve
reserve
£m £m £m £m £m £m £m £m £m
1 July 2006 3.8 74.6 81.3 6.3 0.5 4.7 (0.9) 14.9 185.2
Loss for the - - - - - - - (13.0) (13.0)
period
New shares 0.2 1.6 - - - - - - 1.8
issued
Share based - - - - - 1.3 - - 1.3
compensation
Share based - - - - - (2.0) - - (2.0)
compensation
transferred to
liabilities *
Foreign - - - - (0.8) - - - (0.8)
exchange
Total charged 0.2 1.6 - - (0.8) (0.7) - - 0.3
to equity
Total income 0.2 1.6 - - (0.8) (0.7) - (13.0) 12.7
and expense
for the period
------ ------ ------ ------ ------ ------ ------ ------ ------
31 December 4.0 76.2 81.3 6.3 (0.3) 4.0 (0.9) 1.9 172.5
2006-
Unaudited
==== ==== ==== ==== ==== === ==== ===== =====
Loss for the - - - - - - - (15.1) (15.1)
period
New shares 0.3 45.0 - - - - - - 45.3
issued
Share issue (0.9) (0.9)
costs
Share based - - - - - 1.1 - - 1.1
compensation
Foreign - - - - (0.3) - - - (0.3)
exchange
Total charged 0.3 44.1 - - (0.3) 1.1 - - 45.2
to equity
Total income 0.3 44.1 - - (0.3) 1.1 - (15.1) 30.1
and expense
for the period
------ ------ ------ ------ ------ ------ ------ ------ ------
30 June 2007 4.3 120.3 81.3 6.3 (0.6) 5.1 (0.9) (13.2) 202.6
==== ==== ==== ==== ==== === ==== ===== =====
Loss for the - - - - - - - (83.4) (83.4)
period
New shares - 1.2 - - - - - - 1.2
issued
Share based - - - - - 1.0 - - 1.0
compensation
Foreign - - - - 1.4 - - - 1.4
exchange
Total charged - 1.2 - - 1.4 1.0 - - 3.6
to equity
Total income - 1.2 - - 1.4 1.0 - (83.4) (79.8)
and expense
for the period
------ ------ ------ ------ ------ ------ ------ ------ ------
31 December 4.3 121.5 81.3 6.3 0.8 6.1 (0.9) (96.6) 122.8
2007-
Unaudited
==== ==== ==== ==== ==== === ==== ===== =====
*Transfer to liabilities of amounts in respect of cash settled overseas staff
equity schemes previously classified within reserves
Notes:
1. Basis of preparation
This Interim Report has been prepared in accordance with the Disclosure and
Transparency Rules of the UK Financial Services Authority and International
Financial Reporting Standards (IFRS), as adopted by the European Union (EU). The
accounting policies applied are consistent with those described in the Annual
Report and Financial Statements 2007. The Interim Report has been prepared in
accordance with IAS 34 'Interim Financial Reporting' and should be read in
conjunction with the Annual Report and Financial Statements 2007.
This Interim Report is not audited and does not constitute statutory financial
statements as defined in section 240 of the Companies Act 1985. Comparative
figures for the year ended 30 June 2007 have been extracted from the Group
Financial Statements, on which the auditors gave an unqualified opinion, did not
include references to any matters to which the auditors drew attention by way of
emphasis without qualifying their report and did not include a statement under
section 237(2) or (3) of the Companies Act 1985. The Group Financial Statements
for the year ended 30 June 2007 have been filed with the Registrar of Companies.
Copies of this Interim Report are being posted to shareholders and are available
from the Company's registered office at Wimbledon Bridge House, 1 Hartfield
Road, Wimbledon, SW19 3RU.
2. Going Concern/Working Capital
On 10 January 2008, the Board announced that, following a review of the Group's
2008 platform and product line up, it had taken the decision to move the release
date of four titles into the 4th calendar quarter of 2008, the most significant
of these being the next in the Tomb Raider series, Tomb Raider: Underworld. As
a result the Board expected that the Group would make an operating loss for
FY2008.
As part of the decision to make these changes to its platform and release
schedule, the Group reviewed the impact this may have on its working capital
needs and identified sources of additional working capital that will be
required. Subsequently, the Group has undertaken a strategic business review
including a full review of trading and cash flow projections.
The Board is reviewing the working capital required for the successful
implementation of the revised strategy, announced today. This amount is not yet
finalised, but it is estimated to be between £45 - 55 million, over and above
the current overdraft facility of £20 million.
The Board believes that value for shareholders is best achieved by raising this
through the issue of new equity. The Board's preferred method of equity fund
raising is through the capital markets, though discussions with potential
commercial partners indicate that equity may also be forthcoming from such
sources. Encouraging discussions continue with the Company's lending bank
regarding the extension of the current banking facilities.
At this time the Board is not encouraging offers for the Company but, in a
consolidating industry, any sensible offer for the Company or proposal for
crystallising value for some of the Group's IP will be considered in the context
of the alternatives and benchmarked against the value the Board believes can be
delivered for shareholders through the revised strategy and business plan.
Discussions continue with the Group's lending bank regarding the extension of
the current banking facility. The Group is currently utilising £17 million of
the £20 million overdraft facility available from its principal UK banker. The
overdraft facility is repayable on demand. However, the Group has £13 million
positive cash balances in various overseas territories.
Whilst the circumstances outlined above present uncertainties that may cast
significant doubt on the Group's ability to continue as a going concern, the
Board is confident that the short and medium term funding issues facing the
Group will be resolved allowing operations to continue as normal without serious
curtailment for the foreseeable future. For this reason, the Board has
concluded that the going concern basis has been appropriately adopted in the
preparation of these interim financial statements.
However, there can be no certainty that the Board will be successful in securing
sufficient additional debt and equity funding. The Group may therefore be
unable to meet its financial obligations as they fall due and thus be unable to
continue as a going concern if the directors are unsuccessful in securing the
necessary funding.
These interim financial statements do not include any adjustments that would
result from the going concern basis of preparation being inappropriate.
3. Segmental Analysis
6 months to 31 6 months to 31 12 months to 30
December 2007 December 2006 June 2007
£m £m £m
Revenue by destination
United Kingdom 13.9 13.7 28.2
Europe 33.2 25.0 56.3
United States of America 21.7 30.4 49.1
Rest of World 4.2 5.4 10.4
------ ------ --------
Total Revenue 73.0 74.5 144.0
=== === ====
(Loss) profit before tax by destination
United Kingdom * (77.0) (16.9) (34.3)
Europe (2.5) (1.6) (0.4)
United States of America (1.8) 1.1 3.7
Rest of World (0.1) 0.2 1.0
------ ------ --------
(Loss) before tax (81.4) (17.2) (30.0)
=== === ====
* Central costs have been included within the United Kingdom results.
4. Capitalised Development Costs
6 months to 31 6 months to 31 12 months to 30
December 2007 December 2006 June 2007
£m £m £m
At start of period 81.8 46.1 46.1
Capitalised in the period 35.7 30.1 68.5
Charged in the period
Released titles (19.3) (11.8) (32.8)
Discontinued games * (7.8) - -
Net Realisable Value adjustment * (52.5) - -
------ ------ --------
At end of period 37.9 64.4 81.8
=== === ====
* We have taken decisions to cease production of more than 10 titles currently
in production and on which we have previously capitalised costs of £7.8m; this
amount has been written off in this period. The Board has also taken a more
conservative view of the future sales potential of many currently released
titles and others that will be released in both the second half of this
financial year and future years. This review has led us to make an additional
charge against capitalised development costs of £52.5m in this period
5. Taxation
6 months to 31 6 months to 31 12 months to 30
December 2007 December 2006 June 2007
£m £m £m
Current tax
UK corporation tax (1.0) (0.2) (0.2)
Overseas taxation (0.2) (0.5) -
----- ----- -----
(1.2) (0.7) (0.2)
Deferred Tax
Origination and reversal of temporary (0.8) 4.9 2.1
differences
------ ------ --------
Taxation (charge) / credit (2.0) 4.2 1.9
=== === ====
At 31 December 2007 the Group had substantial tax losses carried forward subject
to the agreement of the tax authorities in various jurisdictions.
6. Loss per share
6 months to 31 6 months to 31 12 months to 30
December 2007 December 2006 June 2007
Weighted average Weighted average Weighted average
number of shares number of shares number of shares
Loss Loss Loss
£m Million £m Million £m Million
Basic (83.4) 86.7 (13.0) 76.5 (28.1) 79.7
==== ==== ==== ==== ==== ====
Diluted (83.4) 86.7 (13.0) 76.5 (28.1) 79.7
==== ==== ==== ==== ==== ====
The weighted average number of shares has not been diluted for loss making
periods.
The number of potentially dilutive options as at 31 December 2007 was 5,139,974
(31 December 2006: 6,038,574)
7. Dividends
No dividend has been declared for the six months ended 31 December 2007 (2006
£Nil).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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